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The case for a Dorabji legacy whose time has come: Leveraging Sino-Indian synergies! (Part 1).

August 18, 2020

Background

Much is being written around the globe about the increasing anger and mistrust towards China across nations, due to its role in the start of the pandemic particularly, in terms of transparency and communication about the severity and risk that the virus posed. In India there is keenness to capitalise on this perceived opportunity by positioning ourselves as a good alternative to China. Global players are seeking to diversify their supply chains and thereby attract investment and jobs to India, boosting foreign trade at the same time. While this appears an opportunity, it lacks imagination and is a rather unidimensional approach. A long-term sustainable win-win one would be in the form of engaging with China and leveraging its unique strengths. To top it all we are neighbours. Is there a way we could use it as a blessing? It is what this exploration is about!

Dorabji Tata (1859-1932).

The Dorabji way

In traditional wisdom it was either a business that followed a flag or a flag that followed business. Whereas the East India Company paved the path for the Union Jack to India, it was American companies that followed the Sino-US rapprochement. Once in a while you see an outlier achieve success, by following its own calling irrespective of the political imperatives. The New India Assurance Co. Ltd. was one such rare case when its founder Dorabji Tata implemented his audacious vision for an international imprint despite the constraints of a colonial economy. That it did not fully succeed could be ascribed to the fact that it was way ahead of its time and the nationalisation of the insurance industry stalled it in the tracks.

The New India Assurance Co. Ltd. was one such rare case when its founder Dorabji Tata implemented his audacious vision for an international imprint despite the constraints of a colonial economy.

Before I narrow this down to a limited firsthand exploration and insight, I wish to put out the canvas that Dorabji1 set out to address. At its zenith, when the geography extended from the Caribbean to Fiji – the sun never set on the New India ‘empire’. It extended to over 70 countries when the number of countries were far fewer than today. A cadre of foreign service officers was specially created to nurture it. Yes, it was a time of low touch or virtually no regulations which suited an entrepreneurial spirit.  The Snowy Mountains project, in Australia, for instance, led to setting up a full-fledged company with 100 employees – when the country practiced a ‘White Australia’ policy. Starting an agency, within two years of existence, in London was not just a leap of faith but an endeavour to build capabilities and skills to justify the self-belief. It acquired licenses to trade in many parts of North America including every province in Canada. A post war entry into Japan and Germany defied conventional wisdom. All this and much more stirred by a vision and conviction.

As a beneficiary of this farsightedness, I owe it the opportunities to run business in Thailand as well as Hong Kong and deal first-hand with markets such as Taiwan, Mainland China, Indonesia, and Vietnam. Given my focus I have chosen this as a rationale for a possible Sino-Indian inter-corporate exploration and even beyond – notwithstanding the polity in which the companies operate. Interestingly, what I am putting forth did not end up with a wonderful six and a half years personal experience. The journey continues.

In a post war world taking sides with the winner was the general rule. However, the choices ‘New India’ made defied this prevailing wisdom. Its timing of entry, for instance, into Japan and Germany was non-conformist. The key focus of this piece is the Company’s ability to maintain cordial engagement with Mainland China in its space (post the Cultural Revolution it had to shut shop in China – with insurance becoming non-existent. The Company continued a relationship with the regulator People’s Bank of China).

Despite all the prevailing stress in the then English Colony, ‘New India’ maintained a branch operation in Hong Kong. It also had in place a business arrangement with Tai Ping Insurance Co. of Taiwan, serviced out of HK. No Indian business house or for that matter any other global business brand had such a three-dimensional play in place. Maverick vision yes, but surely a lost opportunity that could not keep it going! It is this aspect of corporate consciousness that deserves more attention in management literature. Despite being the master of an inherited conglomerate in making, Dorabji Tata bestowed a unique and exclusive exploration upon his insurance enterprise.

Maverick vision yes, but surely a lost opportunity that could not keep it going! It is this aspect of corporate consciousness that deserves more attention in management literature.

The Dragon and the Elephant: A case for synergy continues!

Late Chairman Deng Xiao Ping’s launch of China’s market-oriented reforms was a master stroke resulting into an outcome unparalleled in human civilisation. To blame China for all the woes – particularly of the western world – is not only naïve but lacks in context. Rather than a rise of China it is its resurgence that needs to be understood. Like many of us, my knowledge of Chinese history was coloured by the western interpretation. Further conditioned by the traumatic Indo-China war resulting from the border dispute inherited from our colonial master. If one were to set that aside – an incredible reality emerges which is about co-existence and synergies between the dragon and the elephant. Can that ‘New India’ vision from the past be juxtaposed into the present? Can a corporation side-step the narrative between two states howsoever adversarial and yet facilitate a benign chemistry between them? It may sound utopian, but the New India case study lends strong evidence. And there is a compelling reason for us to seize the momentum unleashed by Deng Xiao Ping. More on that soon.

I am old enough to recall media stories as to how imports from China helped the American economy maintain its inflation rate at almost 1% per annum. In the not so distant a past was the OPEC crisis which forced the Americans to scale down their car sizes from the gas guzzlers to the Japanese made efficient but smaller versions. The Americans, particularly the United Auto Workers (UAW) detested the impact caused by the Japanese. During my first ever visit to the US, in 1984, I saw posters saying ‘Unemployment made in Japan’ stuck on the walls of an auto assembly plant in the Mid-West.

It may sound utopian, but the New India case study lends strong evidence. And there is a compelling reason for us to seize the momentum unleashed by Deng Xiao Ping. More on that soon.

In its persistent wooing of China in the early days, this is what George W Bush, then VP, said in 1985 while addressing the Sichuan University: ‘American firms were eager to invest in China’. ‘American consumers would soon hanker after Chinese goods’, he predicted. ‘We are interested in helping China,’ Bush told his audience. ‘Very, very interested.’ The low-cost of virtually everything else that followed courtesy China, was a welcome relief after a rude inflationary shock fired from the barrel of the oil.

Insights from the New India experience

I can vividly recall numerous incidents about how the Chinese built their position – from the sidelines of my erstwhile industry. During 1991-93, I was stationed in Bangkok. One of our local clients, of Chinese descent, exported earth moving equipment worth millions of US Dollars to Guangdong province, China. To cover the transit, he would buy the most basic form of transit insurance from my company. I tried hard to reach out and convince him for a wider coverage. He was not easy to find. When I did manage to see him, I realised how busy he was sourcing second-hand equipment from wherever in the world it was available. He imported them into Thailand, reconditioned and shipped them to locations in China. ‘There would never be an insurance claim because the Chinese are in a big hurry’, he would assure me! One began to decipher what that meant when media reports said coastal Chinese GDP was growing by 30 to 40% per annum.

In 1993 when I landed in Hong Kong for my next stint – I could feel the tectonic shifts. Car thefts (from HK to China), for instance, started with small versions of Toyota and Honda. Mercedes and Lexus were in vogue by the time I arrived. As they peaked, there were not many insurers willing to insure them for the standard coverage or at the normal price. It did not matter if HK was left hand drive and the Mainland right hand! Manufacturing started migrating to the neighbouring Shenzhen and beyond, in Guangdong. The labour cost was a mere 10% of HK. Incentives were plentiful and for the asking. Suddenly the placid duck-farms visible from the border lookout of Luk Ma Chow became home to construction cranes. Thanks to Shenzhen’s meteoric rise, HK pales before it.

Industry migration from HK and Taiwan to the Mainland

Just then Ranbaxy was establishing a small manufacturing facility in Guangzhou and sought my help to arrange a local insurance contract. I was obviously curious as to what made them enter China. The answer was simple, ‘we can charge Rs. 10 here for a capsule that gets us Rs.1 in India’! Mind you, this was a little over 25 years ago when the target audience was the Chinese domestic market.

My attention was also drawn to a portfolio in Taiwan which had begun to shrink. This was about prosperous Indian origin traders who would majorly export container loads of cheap goods, such as footwear, to Africa. The manufacturing moved from Taiwan to across the straits in the Fujian province. Despite all other political differences and sabre rattling – the business reality was a binder. The one thing that continued to be made in a high cost economy like Taiwan was the sticker ‘Made in Taiwan’. So, what were the erstwhile shoe manufacturers up to? Believe it or not, virtually overnight most of them started assembling laptops! A quantum leap and pace of change seen nowhere else other than the Greater China.

Despite all other political differences and sabre rattling – the business reality was a binder.

China’s amazing growth story: Emotions v rational!

The overwhelming cry now in the wake of the pandemic is to de-risk by moving manufacturing out of China. However, is that the solution? China has gone up the value chain and will continue to do so. Yes, not everything ought to be in and around Wuhan or for that matter any single hub. The Far East (FE) and South East (SE) Asia are so interdependent that their respective unique politics does not any longer come in the way of trading with each other. Such is the intensity of interdependence that the FE and SE Asia now account for a major chunk of the global trade.

Can Vietnam, Thailand, Myanmar, Indonesia by themselves or collectively rival what China does? In some ways it is like asking can India be replaced as the back office of the world. There will be competing hubs be these in Philippines, Costa Rica, Sri Lanka or elsewhere. Could they ever assume the scale and depth we have here? India has evolved so rapidly from the early days of body shopping to the cutting-edge high value offerings of today. Big Tech finds India too compelling to ignore. They have here their state-of-the-art application development centres. The pandemic and the US visa restrictions have now made foreign companies more dependent on development centres. These centres are not outposts anymore but integral extensions of headquarters and being billed as Offshoring 4.0.

In some ways it is like asking can India be replaced as the back office of the world... These centres are not outposts anymore but integral extensions of headquarters and being billed as Offshoring 4.0.

‘No one comes close in the developing world to China. And that is why U.S. companies are so headstrong about staying there’: Why American Companies Choose China Over Everyone Else – Forbes. A more recent issue of Time highlights how and why the costs of decoupling would be steep, and unwanted during a time of deep global recession. And the U.S. bullishness fails to account for the reality of how interconnected the two economies still are. China produces 97% of America’s antibiotics. Apple, the most valuable U.S. company, and the world’s first trillion-dollar one, still produces most of its wares in China. And Chinese enterprise is still finding success in the U.S. Lockdown favorite videoconferencing service Zoom, for example, was created in Silicon Valley by an entrepreneur born in China’s Shandong province.

Some manufacturers who shifted businesses to Vietnam because of rising costs have now returned to China, chastened by labor disputes and other headwinds. With labour cost 10 times more than equivalent skilled workers in China in much of Europe, moving work there will not be viable either.

Footnotes:

1. One name that I came across, again and again, in many parts of the Far East was late Mr. BK Shah. The most longstanding MD of New India Assurance. He carried the Dorabji baton forward. Ensured New India’s position at most high tables. The Asian Hull Syndicate, for instance, was one such and as the head of HK operation I also had the opportunity to be an alternate director to the CMD and ‘hob nob’ with the CEOs of participating blue chip insurers of the region. An actuary by qualification, BK Shah was inducted to the Insurance Hall of Fame. The only Indian till date.

Mr. AC Mukherji (ACM) another illustrious New Indian started as an apprentice officer in 1948. When New India was both a life and non-life insurer. ACM retired as the CMD of the company in 1985. Continued to play an active role, in several capacities, post that. He worked very closely with late BK Shah and is encyclopedic – full of amazing insights. Having nationalised the non-life insurance industry – the government invited Mr. Shah to advise on the structure of the future industry. One of the several recommendations made was to create a separate holding company for the governance of the four newly created entities. This led to the creation of General Insurance Corporation of India. Mr. Mukherji’s first assignment, as an apprentice officer, was as a Cargo Manager to Ceylon. Thereafter he was assigned to Germany and posted at Allianz which represented New India in the country. ACM is fluent in spoken German.

‘’Your bosses like AC Mukherji and KC Ponappa can run the country’’: Such was the calibre of the leadership. Recalling a glowing tribute by Professors Jai and Ghosh at a Management Development Programme in 1984. Late KC Ponappa was then the CMD of United India.

Dr. R.D. Samarth was originally recruited to be part of the exclusive ‘New India foreign service’ cadre. Amongst the several postings across the globe he was the head of HK, too. Following him after a decade plus, I had the pleasure of going through the available company archives. One of the most stimulating discovery was a lucid articulation of the multi-pronged approach to the three Chinese entities Mainland China, Taiwan, and HK). The inherent lateral thinking and the conviction in it was remarkable. Samarth retired as the General Manager at the Company’s Head Office.

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