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The search for the characteristics or traits of leaders has been ongoing for centuries. History's greatest philosophical writings from Plato's Republic to Plutarch's Lives have explored the question "What qualities distinguish an individual as a leader?" Underlying this search was the early recognition of the importance
CORPORATE LEADERS OF INDIA
A STUDY OF THEIR PERFORMANCE AND CONTRIBUTION IN THE POST-LIBERALISATION ERA
Prof. Krishna Kumar Indian Institute of Management, Lucknow (India) ABSTRACT The industrial economy of any country depends upon the role and performance of corporate leaders, be it sustained growth of national income, balancing of international trade or payments, meeting the foreign exchange requirements or mitigating national resource disadvantage, the country banks upon them to attend to such national tasks and challenges. They are the ultimate deliverers, as neither the government nor the administrators (bureaucracy) can do it. India is facing unprecedented challenges of slow down of economy, sustained adverse balance of trade and current account, intense global competition in domestic market, falling corporate performance, mounting by non performing assets and looming threat of international oil price hike. An evaluation of the performance of and the role played by corporate leaders in the pre and post liberalization era is called for to identify the tasks ahead, the areas that need immediate attention and also the strategic and policy shift necessary to meet the emerging challenges. This paper analyses the economic performance of corporate leaders, their contribution to the balance of trade and globalization of Indian industry. It is noticed that as of now, preponderance of corporate leaders, both of the pre and the post liberalization have by and large not been able to maintain the economic tempo, have not been able to contribute much to contain/ mitigate the sustained adverse balance of trade, and have done little to bring about globalization of Indian industry to the extent necessary. They have also been observed to continue looking inwards and thriving by following the strategy of the past: creating and meeting domestic demands through import of
technology rather than emerging as global players. There is a need for major shifts in their stand to make India become a global player and reduce country’s strategic dependence on international players and allow it engage in international trade by choice and on its own terms in line with the requirements of economy and society here.
6.0 CORPORATE LEADERS OF INDIA
6.1 Introduction
Corporate Leaders have been defined variously, in terms of individuals like JRD Tata or Dhirubhai Ambani, as well as in terms of business entities like Tata Iron & Steel Company or Reliance Industries Ltd. In this study corporate leaders have been defined in terms of legal entities. The measure used to describe have also been varied. These are objectives measures like the assets employed, turnover, profitability etc. At the same time the subjective criteria like the product innovation they have introduced, the level of social concerns they have displayed, the ethical standards they have used and their contribution to meeting economic challenges their countries placed etc. There is neither any generally accepted definition of corporate leaders, nor any composite index available so far. The corporate leadership awards are given on the basis of specific criteria developed by different award committees from time to time. In view of the above, this study selected sales turnover to analyse the performance of corporate leaders of India. The national for it was the objectivity of the measure and the fact that this reflects more directly the level of service they have provided to the customers and thus to the society. The study has analysed the contribution of corporate leaders to meeting the challenges being faced by the economy since India started economic reforms. These challenges include the growth and stability of industry sector, adverse balance of trade, foreign exchange crisis, technological capability building and glabalisation of Indian business to meet the global competition in the domestic and international markets. The contribution has been measured in quantitative terms and no attempt has been made to assign weights to different components. It is only a descriptive study not evaluative study with any presumed standard. Further, much as there is a need and merit in measuring them on subjective criteria mentioned above, it has been kept outside the scope of this study for exploration in future. There is also a question of selecting corporate leaders for the study of this type having significant longitudinal analysis. Since PROWESS 2001 data base of Centre for Monitoring Indian Economy has been used for major part
of the study, all the business entities listed in the industry set as on October 2002 have been defined as corporate leaders. The list is claimed to represent about 75% of Indian industry and business and covers all the listed companies and non-listed large companies. The sales data selected was as on March 2001 as the data for subsequent period was found incomplete, inadequate and could result in misleading conclusions. The salient attributes of the set selected are shown in table 1. For the purpose of the analysis, the companies have been classified into five categories Top 100, Top 500, Top 1000, Top 2000 and the rest. The categorization of the companies is on the basis of sales in the year ending March 31, 2001. Table 1 Share of Leaders in the Different Parameters in the year 2001
Top Sales Profits Gross Fixed Assets 53% 77% 86% 92% 100% 9,24,336 Exports Imports Net Export
100 500 1000 2000 5141 Total 5141
(Rs. in Crores)
59% 83% 91% 97% 100% 12,28,927
91% 119% 122% 113% 100% 41,216
42% 71% 84% 96% 100% 1,05,077
67% 88% 94% 95% 100% 1,91,150
-98% -107% -106% -101% 100% -86,073
* as a % of total (5141 companies) 6.2 Contribution of Corporate Leaders to the Indian Exports
There has been a significant rise in the number of exporters in the post liberalization period. The number has more than doubled, from 1117 in 1991
to 2426 in 2001. There are two more patterns observed. One, the number of importers too has increased proportionately, from 1616 to 3180. There has, thus, been no favourable shift in India’s sustained dependence on imports, overcoming which had been one of the aims of economic reforms. Table 2 Rise in Exporters and Importers Over the Years
1991 Exporters 70 374 691 1100 1117 Importers 81 453 880 1562 1611 2001 Exporters 68 374 745 1387 2426 Importers 75 433 898 1751 3180
Top 100 Top 500 Top 1000 Top 2000 All (2151 in 1991) (5141 in 2001)
The second important point observed is that there is no change in the number of exporters among the Top 500 corporate leaders. The number of exporters has increased among the smaller companies, Top 501 and up category. The data shows that the number of companies having international transaction/ activities has increased, which is welcome move. But whether and to what extent it has actually mitigated the adverse balance of trade and the pressure on foreign exchange needs an analysis of actual volume of transactions in monetary terms. The study therefore, also examined the corporate leaders engaged exclusively in exports, in imports, both in exports and imports, and in neither of them. Analysis has also been done for total imports, total exports and the net of exports and imports by the companies. It was observed that out of a total of 5141 companies studied, 1782 (35%) were neither engaged in exports nor imports. Only 181 (4%) companies were engaged in exports alone (table 3). On the other hand, as many as 935 (18%) companies were engaged in imports alone. A total of 2243 (44%) companies were involved in both. Thus the corporate leaders’ leaning continues to be more on imports. They are either facing some difficulties or still not prepared to assume the role of mitigating the country’s adverse trade balance, or simply not ready or keen to stick their neck out for international operations.
Table 3 Involvement of Corporate Leaders in Imports and Exports.
Nature Engagement # # # # of Companies engaged in Exports only of ” ‘’ Imports only of ” ” in both Exports & Imports Neither engaged in exports nor imports Total (5141) 181 935 2243 1782
The analysis of net of exports and imports is even more revealing. In terms of net exports, a major shift is seen in the post liberalization period (see table 4 & 5). There has been a phenomenal increase in the number of companies having positive net exports, the number almost tripling from 529 in 1991 to 1540 in 2001, while the number of companies with negative net exports has increased only 1.5 times, from 1137 to 1815, which is also a welcome development. Further, while in 1991, companies in all the categories (as a group)had net imports only, in the post liberalization period the position is different. The number of net exporters has increased. However, this increase has been more in the case of small size companies, Top 501 onward categories (see table 4). Also, the total net imports by the companies in these categories are off-set by the total net exports by the companies in the same category, resulting in a net export of Rs. 6393 crores. The position is not so heartening in the case of Top 500 corporate leaders. Among the Top 100 companies as many as 53 were net importers and only 22 were net exporters (see table 5). Together they were contributing net exports of Rs. 13825 crores and net imports of Rs. 98433 crores respectively, resulting in an overall net import of Rs. 84608 crores. The position is no better if one considers the next top 400 leaders, 41 among them were not engaged in either exports or imports. 143 of them contributed to net exports to the tune of Rs. 12397 crores, while 216 of them had a net import of Rs. 20255 crores. Overall, they were responsible for net imports to the tune of Rs. 7858 crores.
Table 4 Contribution to Export/ Import by Size of the Companies 1991
Top 100
Top
Top
Top
Top
Total
101- 500 Positive Net Export # of Firms Amount (Rs. In Crs.) Negative Net Export # of Firms Amount (Rs. In Crs.) No Rxport/Import # of Firms Total 26 2490 57 -15636 17 -13146 119 2110 259 -4257 22 -2147
501-1000 143 801 297 -1565 60 -764
1001-2000 230 587 479 -753 291 -166
2001-2151 11 4 45 -184 95 -180 529
1137
485 2151
Table 5 Contribution to Export/ Import by Size of the Companies in 2001
Top 100 Top Top Top Top Total
101- 500 Positive Net Export # of Firms Amount (Rs. In Crs.) Negative Net Export # of Firms Amount (Rs. In Crs.) No Export/Import # of Firms Total 22 13825 143 12397
501-1000 188 7304
1001-2000 412 8054
2001-5141 775 3085 1540
53 -98433 25 -84608
216 -20255 41 -7858
279 -6170 33 1134
455 -3355 133 4698
812 -2524 1554 561
1815
1786 5141
The Top 500 corporate leaders in India, thus, contributed to net imports to the tune of Rs. 92466 crores (approx. US $ 20 billion) in the year 20002001. Among the top 500 giants, 269 (53+216) corporate leaders are, thus, responsible causing net imports to the tune of Rs. 118688 crores, that almost equal to India’s total trade deficit, causing foreign exchange drain to the country, which is not off set by the positive contribution of Rs. 26222 crores by 165 corporate leaders. It may argued that a good part of net imports is caused by oil companies. But it should also be remembered that there are only 8 oil companies out of 269 corporate leaders creating net imports of Rs. 77761 crores. The 261 leaders contributing a net import of Rs. 40927 (three times of total net import in 1991) have no excuse for not accelerating efforts to generate net exports They must understand that they have a role role in correct the country’s balance of trade and can not offset the good work done by theother 188. Further, even oil companies can not get away from their responsibility to releasing the pressure caused
by them on foreign exchange through alternative strategies. It wiil be an irony, if those whom one expects to solve the problem indulge in for aggravating the same. One expects that the top 500 corporate giants would earn substantial foreign exchange for the country, but they are found to be mainly responsible for causing a drain to it. The data thus shows that the economic reforms undertaken, incentives extended to boost exports and India’s willingness to open economic borders as a commitment to WTO, have yet not fetched the desired results as expected so far. The data further reveals that the above measures have not been effective to induce most of the corporate leaders to play the role expected of them in addressing to the national challenge of managing foreign exchange balance at an adequate level, unlike their counterparts in the developed countries. Perhaps more radical measures are required, as the current prescriptions are not fetching desired results. 6.3 Corporate Leaders’ Contribution to Globalisation of Indian Business The exports, especially net exports from a country, give an indication of globalization of a country’s business. The Indian Business Ventures Abroad (IBVA) give another, complementary picture of contribution of corporate leaders to the globalization of Indian business. The total number of Indian business ventures abroad (see table 6) increased from 319 in 1991 to 2103 in 1999. The number has gone up further to 2368 in 2001. The rise is impressive indeed. Table 6 Indian Business Ventures Abroad
Upto 1991 Indian JV Abroad Indian Wholly Owned Subsidiaries Abroad Total Indian Business Ventures Abroad 244 75 319 ‘92 72 28 100 ‘93 104 79 183 ‘94 92 122 214 ‘95 82 119 201 ‘96 116 143 259 ‘97 101 122 223 ‘98 101 154 255 ‘99 111 238 349 Total Up to 1999 1023 1080 2103
The role played by the corporate leaders, however, does not seem to be up to the mark. The analysis shows (see table 7) that among the Top 100 leaders in
the year 2000 with sales mores than Rs. 1677 crores, only 16 had 3 or more ventures abroad. Among the Top 500 industry leaders, having sales over Rs. 300 crores, only 74 had 3 or more ventures. There is no company in the top 501-1000 category that has 3 or more ventures abroad. Similarly, the number of corporate leaders having 2 or more ventures was only 6 among the Top 100, 32 among the Top 500, and 55 among the Top 1000 companies. Table 7 Industry Leaders with Business Ventures Abroad
No. of Business Ventures Abroad >3 2 1 Total Top 100 (# of Cos.) 16 6 2 24 58 26 20 104 Top 101-500 (# of Cos.) Top 5011000 (# of Cos.) 23 34 57 Top 10011740 (# of Cos.) 22 11 33 Total (# of Cos.) 74 77 67 218 Smaller Cos. (# of Cos.) 77 104 181
Even if one considers one venture only, the number of companies having some ventures abroad was only 24 among Top 100 (having 59% share in total sales). Among Top 500 companies (having 83% share in total sales), only 128 (26%) had BVA. And among the Top1000 (having 91% of total sales) only 185 (19%) companies had BVA. These 218 corporate leaders have 651 ventures abroad. Thus, 258 out of 909 ventures are from 181 small companies with less than Rs. 50 crores sales in the year 2000. Further, a large number of ventures 1459 (2368-909) are from small private enterprises (see table 8), not found in PROWESS databa), which could not be expected to have very strong muscle to sustain business abroad. Many of these are small trading or software enterprises firms, who need enormous nurturing, rather than manufacturing giants, a pattern that is opposite to that in the case of developed countries Table 8 Corporate Leader's Venturing Abroad
Total No. of Cos. Total No.of No. of Companies having Business Business Ventures among Top 1000 Ventures Abroad Abroad 171 1 74 154 2 77 25 3 25 17 4 17 6 5 6 6 6 6 Other Smaller Companies 104 77 Cumulative Frequency Distribution of Ventures 1+ 2+ 3+ 4+ 5+ 6+ 909 738 430 355 287 257
2 4 2 2 3 3 2 1 1 399
7 8 9 10 11 12 15 18 20 909
2 4 2 2 3 3 2 1 1 218
181
7+ 8+ 9+ 10+ 11+ 12+ 15+ 18+ 20+
221 207 175 157 137 104 68 38 20
It will thus be noticed that a large number of corporate leaders in India are still not contributing to globalization of Indian industry even in a token manner. Contented with exploiting emerging opportunities arising out of opening of Indian economy, they are not imbibing globalisation philosophy (by venturing abroad) and making global operations as an integral part of their corporate strategy. Considering that it is only the number of ventures approved (and not those which are actually implemented), one tends to conclude that not much effort have been made by the industry leaders to make India a global player, at least not as much as the effort made by the international giants for entering the Indian market.
6.4
The True Picture of Corporate Leaders Contribution to Globalisation: Indian Business Ventures Abroad and Foreign Collaborations in India
Table 9 gives a comparative picture of Indian Business Venture Abroad and Foreign Collaborations in India in the pre and post- liberalisation era (10). From the table it will be observed that the number of Foreign Collaboration (i.e. foreign business ventures in India) in the post liberalisation era have increased at much faster rate than in the pre-liberalisation era. The total number of Foreign Collaborations approved during the 8-year period from 1992-99 (15836) is almost as many as the total number of foreign collaborations in the 40-year period between1951-91. Table 9 Indian Business Ventures Abroad and Foreign Collaborations in India
Upto 1991 Indian JV Abroad Indian Wholly Owned Subsidiaries Abroad Total Indian Business Ventures Abroad Foreign Collaboration in India 244 75 319 16836
‘92 72 28 100 1531
‘93 104 79 183 1476
‘94 92 122 214 1854
‘95 82 119 201 2337
‘96 116 143 259 2303
‘97 101 122 223 2325
‘98 101 154 255 1786
‘99 111 238 349 2224
Total Upto 1999 1023 1080 2103 32672
The number of foreign collaborations in the pre-liberalisation era, on the whole were approximately 53 times (16836/319) the number of Indian business ventures abroad. This ratio has reduced to 15 times (32672/2103) in the post liberalised era. However, it is still a long way to go. The gap is still very large in terms of actual number of business ventures, and is still widening, although at somewhat reduced rate. Table 10 Foreign Collaborations in India and Indian Business Ventures Abroad
Foreign Collaborations Sales Category Number of Companies 51 (51%) 250 (60%) 244 (50%) 314 (31%) 472 (16%) No. of Collaborations 475 1011 774 721 782 Collaborations Per Company 9.3 4.0 3.2 2.3 1.7 Business Ventures Abroad Venture Number of No. of Business Per Ventures Company Companies 12 (12%) 40 3.3 45 ((12%) 117 2.6 32 (6%) 62 1.9 41 (4%) 95 2.3 56 (2%) 71 1.3
Top100 101-500 501-1000 1001-2000 2001-5000
A look at table 10 would reveal the overall pattern of behaviour of corporate leaders of India. Among the Top 100 corporate leaders as many as 51% have gone for foreign collaboration (average 9.3 collaboration per company), while there are only 12% (i.e.,1/4) who have gone for business ventures abroad (averaging 3.3 ventures per company. The respective figures for the next Top 400 corporate leaders are 63% (4.0 collaborations per company) and 12% (2.6 business ventures per company). The number of collaborations and business ventures for the next corporate leaders (Top 501-1000) are 50% (3.2 collaborations per company) and 6% (1.9 ventures per company). The percentage of companies going for foreign collaborations decline for lower rung corporate leaders but the collaborations per company and number of business ventures per company almost match.
Table 11 Corporate Leader's Venturing Abroad and Foreign Collaboration
No.of Ventures 1 2 3 4 5 6 7 8 9 10 11 12 Total No. of Business Ventures Abroad Foreign Collaborations between 1992-2000 No. of Cos. Cumulative Distribution of No. of No. of Companies Frequency Ventures Collaborations 171 1+ 909 1 73 154 2+ 738 2 42 25 3+ 430 3 29 17 4+ 355 4 21 6 5+ 287 5 20 6 6+ 257 6 13 2 7+ 221 7 12 4 8+ 207 8 6 2 9+ 175 9 10 2 10+ 157 10 6 3 11+ 137 11 5 3 12+ 104 12 1 13 3 14 3 2 15+ 68 15 3 16 1 17 2 1 18+ 38 18 3 19 1 1 20+ 20 20 23 1 24 1 27 3 28 1 29 1 36 1 38 1 60 1 71 1 74 1
15
18 20
In a nutshell it can be said that though liberalisation and globalisation policies have given an impetus to the Indian business for moving out to become a global player, the corporate leaders have still not been able to become truly global players, not helped the country emerge as a global player of reckoning. Indeed the opening of India economy has helped foreign players getting into India (directly or through joint ventures) more than Indian business getting global in true sense
6.5
Contribution to Capability Building: Foreign Collaborations by Corporate Leaders
The study also analyzed the foreign collaboration in the post liberalization era, by the type of Indian partners. Unfortunately data was not easily available for the pre-liberalization period. Efforts are on to extract the same to be able to give a more comprehensive understanding on the issue. But even the analysis of post-liberalization era data is important enough, as it points towards a significant pattern. For the purpose of this analysis, the information available from Indian Investment Centre, New Delhi about the foreign collaborations for the years 1992-2000 as been used. From the data available it will be observed observed that as many as 496 out of the top 1000 (i.e., 43%) corporate leaders have entered into foreign collaboration in the post liberalization period, a large number indeed. The data indicates that the industry leaders, even in the post- liberalization period are banking heavily on import of technologic to meet, and perhaps, enhance the demands of products and services. This is not a welcome development and has direct, adverse bearing on sharpening global competitiveness of Indian companies, both in the domestic and international markets. Table 12 Foreign collaboration by (Top 1000) corporate Leaders
Total Number of collaborations During 1992-2000 17810 Number of companies having collaborations 496 Number of collaboration 2358
Table 13 Frequency Distribution of Foreign Collaboration by Top 1000 companies
# of collaborations # companies* # companies (cumulative)* 6 13 25 72 267
>30 21-30 11-20 06-10 01-05
6 7 22 47 185
A look at table 13 also shows the patterns of spread of the foreign collaboration. It will be noted from table that there are as many 6 companies which had more than 30 collaborations over a period of 9 years (1992-2000) of post-liberalization era. Perhaps no where else in the world this kind of phenomenon would be observed. Further, there were 29 others, who had 11 to 29 collaborations over the period, on the average one on more collaboration per year. Additionally, there were 47 companies that had 6-10 collaboration; at least one or more foreign collaboration every alternate year, on the average It will also be seen from table 14 that 4 companies had astonishingly high number of collaborations (60 or more) and one company had on the average even 14 collaborations per year (127 in 9 years). These high numbers do not auger well for technological capability building internally, through domestic efforts. Table 14 Detailed frequency Distribution of Foreign Collaboration by Corporate Leaders
#collaborations 1 2 3 4 5 6 7 8 9 10 # companies 73 42 29 21 20 13 12 6 10 6 #collaborations 11 12 13 14 15 16 17 18 19 23 # companies 5 1 3 3 3 1 2 3 1 1 #collaborations 24 27 28 29 36 38 60 71 74 127 # companies 1 3 1 1 1 1 1 1 1 1
An even more significant relevation is the fact that a large number of collaborate are taking place with Indian companies, which are small, which do not find place in the PROWESS database. The FIRST SOURCE (2001) database of CMIE, giving details of 1,50,000 firms (both listed and unlisted) along with CAPEX database (giving the details of foreign collaborations from 1993 to 2002), however, provides a more comprehensive picture. From table 12 it will be seen that the total number of listed and unlisted large companies in the bracket of Top 2000 corporate leaders, numbering 1176 were having 3768 foreign collaborations. Thus
over 14000 collaborations were by the firms having sales of less than Rs. 44.6 cr. in 2001. Further, as per the data available, the number of firms reporting sales of Rs. 1 cr. and above in the year 2001(numbering 2499), had a total of about 6000 collaborations out of 18695 collaboration. In other words, over 12000 (estimated) foreign collaborations were by firms having less than Rs 1 cr. sales. It reinforces the proposition that the collaborations are tending more towards trading than strengthening manufacturing capability as contended during the discussion on changing nature of collaboration in the previous section, although it requires validation with further studies. . Table 15 Corporate Leaders and Foreign Collaborations
Sales in year 2000 Rank (Rs. in Cr) > 1731.1 315.4 137.4 44.6 1.0 Listed Companies No. of No. of Firms Collaborat. 51 475 301 1486 545 2260 859 2981 1331 3763 Unlisted Comapnies No. of Collaborat. No. of Firms 9 32 54 214 113 361 317 767 1168 2225 Total No. of Firms 60 354 658 1176 2499 No. of Collaborat. 507 1700 2621 3768 5998
Top 100 Top 500 Top 1000 Top 2000 Top 5000
6.6
Financial Performance of the Pre Reform Corporate Leaders
A significant, unwelcome development in the post-liberalisation period relates to the fall in the performance of corporate leaders. Out of a total of 2151 companies, 1686 (i.e. 79% were making profit in the year 1991. Ten years later, in the year in 2001 only 1000 (46%) among them were making profit (see table 16). Table 16 Condition of Pre Reform Corporate Leaders in 2001
Year 1991 2001 No Profit No Loss Companies 67 7 Profit Making Companies 1686 (79%) 1000 (46%) Loss Making Companies 388 679 Not Reporting 465 Total Companies 2151 2151
This steep fall is a worrisome development, especially if one finds that the decline has been a steady one since 1997 (see table 17). The data thus, indicates that after the initial euphoria, the corporate leaders have not been able to withstand the wind of change caused by liberalization, especially after the external liberalization under WTO regime (1997 onwards). Out of the balance 1151, 679 were loss making and 465 were not reporting performance. Some of the latter might have undergone acquisition/ merger phase, but the steady fall in their performance suggests that these were the companies which were loss making before they stopped reporting performance. The actual number of Pre- reform corporate leaders that were not in good shape in 2001 (see table 17), was thus 1151 (54%). Table 17 Performance of Pre- Reform (1991) Corporate Leaders in the Post liberalisation Era
Total Cos. In Profit Co. in No Profit No Loss Condition Co.in Loss Cos. Not Reporting Total 1991 2151 1696 1992 2151 1669 1993 2151 1573 1994 2151 1645 1995 2151 1691 1996 2151 1619 1997 2151 1461 1998 2151 1327 1999 2151 1203 2000 2151 1160 2001 2151 1000
67 388 0 2151
40 355 87 2151
16 403 159 2151
14 351 141 2151
10 312 138 2151
11 369 152 2151
10 520 160 2151
14 632 178 2151
8 713 227 2151
10 714 267 2151
7 679 465 2151
This is not all. The fall of the corporate leaders has also been substantial in terms of their sales rank. Table 18 shows their performance in terms of gain/ loss of sales rank from 1991 to 2001. It will be noticed that while there are only 29 companies that registered a gain in sales rank of 1000 rank or more, there were 493 which had a fall of 1000 rank or so (caused by the advancement by pre as well as post reform leaders). Similarly while there were only 52 companies that gained 501-1000 ranks, there were as many as 248 that registered a fall of that order. If one considers gain/ loss above 100 ranks, there were only 254 companies that gained while 1114 lost as many ranks. It may be noted that we have not considered here the 465 companies that had stopped reporting. There plight would have been even worse. It a
nutshell one can conclude the fall of pre-reform corporate leaders in terms of sales rank, is indeed phenomenal. Table 18 Pre-reform Corporate Leaders Gain/Loss in Sales Rank From 1991 to 2001
Sales Rank Range >1000 501-1000 101-500 1-100 Total No Gain/ Loss Category A B C D E Gained No. of Cos. 29 52 173 129 383 4 Lost Category I H G F Grand Total No. of Cos 493 248 373 185 1299 1686
If one considers the combined gain/ fall in sales rank and their profit position, the situation is equally bad, if not worse. Table 19 gives the picture of the state of affairs. It will be seen that the number of companies that have been loser both in sales rank and are still in profit position, is twice that of those which gained on both. Of course, many companies seem to have consciously or otherwise accepted loss of sales rank to preserve profit position. Table 19 Gain/ Loss in Sales Rank and Profit Position
No Gain/ Loss in Sales Rank Profit Position In Profit In Loss No Profit/ Loss Total Gain of Sales Rank 314 69 383 Loss of Sales Rank 682 609 8 1299 4 Total 1000 678 8 1686
A look at table 20 would, however, also indicate that the substantial number of companies that had substantial gains in sales rank (1000 or more) and profitable position is only 22, while those which had substantial loss in both were 328, i.e. almost 15 times. Those which gained 100 or more rank and also retained profit position numbered 209, but those who lost on both numbered 640, almost three times. The pre-reform corporate leaders are thus found to be really struggling to retain the pre-reform position.
Table 20 Gain/ Loss in Sales Rank and Profit Position of the Pre- reform Corporate Leaders
Position in 2001 In Profit In Loss No Profit/Loss Total A 22 7 29 Gain B C 42 145 10 28 52 173 D 105 24 129 No gain/loss E 4 Loss F 147 38 185 G 236 137 373 H 142 106 248 I 157 328 8 493 Total 1000 678 8 1686
4
6.7
Performance of the Post Reforms Corporate Leaders
The initial analysis on the performance of pre-reform corporate leaders suggested that their fall from grace might have been caused by the post reform corporate leaders. Subsequent detailed analysis undertaken recently, gives a different picture altogether (see table 21). The analysis shows that the post reform corporate leaders’ performance is no better. Indeed it is worse than the pre reform corporate leaders. There were 403 companies entering in 1992, out of which only 165 (41%) were in profit by 2001. Similarly, out of 658 companies entering in 1993, only 241 (37%) were in profit by 2001. Same is the fate of companies entering in subsequent years. The data shows that the pre reform corporate leaders, though running into rough whether in post liberalization era, were performing comparatively better and steadier than the new post- liberalization corporate leaders. The new era companies do not show the sign of providing stability in economic growth. They are proving to be more fragile than the pre reform corporate leaders. Table 21 Comparative Profit Performance of Pre and Post Reform Corporate Leaders
Cos. In Profit
Total N0. of Cos New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2151 403 658 962 1128 584 431 328 488 316 38 5336
1991 1696
1992 1669 293
1993 1573 298 448
1994 1645 289 501 685
1995 1691 304 518 760 764
1996 1619 285 457 675 786 351
1997 1461 261 374 561 593 339 235
1998 1327 225 340 477 516 270 236 193
1999 1203 194 287 438 476 269 188 205 303
2000 1160 191 289 441 503 274 201 150 304 217
Total N0. of Cos New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2151 403 658 962 1128 584 431 328 488 316 38
1991 79%
1992 78% 73%
1993 73% 74% 68%
92-2001 Cos. Cos. In Profit (%) 1994 1995 1996 1997 76% 79% 75% 68% 72% 75% 71% 65% 76% 79% 69% 57% 71% 79% 70% 58% 68% 70% 53% 60% 58% 55%
2001 1000 165 241 342 366 216 146 106 230 208 19 2039 2001 46% 41% 37% 36% 32% 37% 34% 32% 47% 66% 50% 38%
1998 62% 56% 52% 50% 46% 46% 55% 59%
1999 56% 48% 44% 46% 42% 46% 44% 63% 62%
2000 54% 47% 44% 46% 45% 47% 47% 46% 62% 69%
92-2001 Cos.
Another more important observation that emerges from the data analysed is that there is steady fall in the performance of corporate leaders. It will also be noted from table 22 that in terms of number of companies the overall profit performance of the corporate leaders (see exhibit 1 for details) has come down from 79% in 1991 to 38% in 2001. Of the balance, overall 25% were loss making, 2% in no profit no loss condition and 35% were in ‘not reporting’ category. The gravity of the situation can be gauged from the fact that the number of companies not reporting has reached a staggering 35%. The data suggests that the post liberalization era has provided great opportunities and has made creation of new enterprises easy, but not made the corporate leaders learn and behave to run them successfully. The data also suggests that the economic slow down is not caused by events like demolition of WTC towers on ept 11, but caused by the behaviour of corporate leaders, especially the post reform corporate leaders‘ failure to rise to meet the
challenge of globalization. The seeds were sown in 1997 itself, not in 2001. These are significant but undesirable trends and need immediate attention to safeguard the growth and stability of Indian economy. Table 22 Overall Condition of Corporate Leaders in the Pre and Post liberalisation Era
Companies in Good Condition (Profit making) Companies in Bad Condition * Loss Making * Not reporting Companies in no profit no loss condition 1991 79% 18% 18% 2% 2001 38% 60% 25% 35% 2%
From the data available (see table 23) it is also observed that the size of the company is somewhat directly related to their profit position. The percentage of companies, which are in profit, steadily goes down from Top100 category to Top 500 category and so on. Indeed, the total profit of corporate sector starts reducing as one considers smaller size companies below Top 1000 by sales. This is also an important and significant development as creation of small size companies is getting lot more easy now, especially on account of freer import of technology along with equity participation. Table 23 Profit/ Loss Position of Indian Corporate Leaders in 2001*
Top In Profit Number of Companies In Profit In Loss (Incremental) Value of Profit/ Loss (Rs. In Crs.) Net Profit 37399 49128 50097 46620 41216
No Profit In Profit In Loss No Loss 100 82 (82%) 82/100 (82%) 18 0 42520 -5121 500 388 (77%) 306/400 (77%) 111 1 60795 -11667 1000 768 (77%) 380/ 500 (76%) 231 1 66064 -15967 2000 1494 (75%) 628/1000 (63%) 507 2 69630 -23010 5141 3039 (59%) 1545/3141 (49%) 1997 105 71570 -30354 * Does not include companies which are not/ have stopped reporting their performance
6.8
Asset Creation and Locking in Different Categories of Company
The study also analysed the total/ additional investments in the profit making, loss making and not reporting companies, using gross fixed assets as a measure. For the purpose again PROWESS 2001 of CMIE was used. There was one major problem encountered in this analysis. The data of GFA was not available for the companies, which did not report performance in 2001. To overcome the problem the figures of immediate past year in which the company had reported performance was taken. The assumption was that the company had invested money for creating asset. This money was thus locked as assets in that company unless the company was sold out to another or wound up. Since the merger/ acquisition and liquidation of companies had not assumed significant levels, this approximation was considered to be good enough for having an estimate of country’s investible funds locked in the loss making and ‘not reporting’ companies. Since the real value fixed assets does not become too low in terms of useful service they provide in a 5-7 years period, it was considered a better measure of locking of funds in useful asset created but not utilized. Table 24 show that out of a total of 2151 pre reform corporate leaders, while the gross fixed assets (GFA) of 1000 companies (making profit in 2001) was Rs. 5,33,505 crs, the GFA locked in the 688 loss making and 465 ‘not reporting’ were Rs. 1,72,923 crs. and Rs. 73,290 crs. respectively. Thus, approximately 32% (246213/770718) of total GFA of 1991 corporate leaders were locked in loss making and ‘not reporting’ companies. The GFA of profit making, loss making and ‘not reporting’ the post liberalization corporate leaders (those entering 1992 onwards) were Rs. 141857 crs., Rs. 76051 and Rs. 62399 respectively. The percentage of assets locked in loss making and ‘not reporting’ post liberalization corporate leaders was thus, 49% (138450/280307). Overall, the GFA locked in the loss making and ‘not reporting’ companies in the post liberalization era is thus Rs. 3, 44,662 crs. representing 34% (344662/1020024) of total GFA, a colossal amount indeed.
Table 24 Gross Assets Created by Cos. Created Before 1992 and During 1992-2000 ( In Different Performance Categories)
Cos. Making Profit
GFA
Cos. Making Loss
GFA No. of Cos. (Rs. in Crores) GFA Cumulative (Rs. in Crores) .
Cos. Not Reporting
GFA (Rs. in Crores) GFA Cumulative (Rs. in Crores)
Year
No. of Cos. (Rs. in Crores)
GFA Cumulative (Rs. in Crores)
No. of Cos.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Total Grand Total
1000 168 250 350 382 229 155 112 247 219 25 2112 3112
533505 21344 50289 15943 14594 8762 6405 3597 10964 4163 5794 141857 675362
71633 87576 102170 110933 117338 120936 131900 136063 141857
688 120 181 270 275 124 92 62 95 86 13 1305 1993
172923 12391 10282 18692 11434 2934 2970 8455 6053 2418 420 76051 248973
22673 41366 52800 55734 58704 67160 73213 75631 76051
465 115 227 342 471 231 184 154 146 11 1881 2346
73290 16814 8851 8850 8929 8664 4194 2468 2812 816 62399 135689
25665 34516 43445 52109 56303 58771 61583 62399
From the break up of investments in fixed assets created by pre-reform leaders (1991) and neo-leaders (1992-2001) in a decade (see table 25 & 26), it will also be noticed that total investment by the pre-reform leaders in the loss making and ‘not reporting’ category (Rs. 246213 crs.) 246213 was 1.77 times higher than that made by the post libaralisation. (Rs. 138450 crs.). Thus although in terms of number of companies the neo-leaders have shown higher fragility than the pre reform corporate leaders, in terms of money locked the pre reform corporate leaders have been responsible more than the neo leaders and thus creating instability in the financial system, especially to the destabilization of financial institutions/ development banks of India. Collectively both the pre and the post liberalization corporate leaders have resulted in locking up of about Rs. 3,84,462 cr. in underutilized assets (see table 28) Table 25 1991 Corporate Leaders GFA Status in 2001 (Rs. in Crs)
GFA Profit Making 131019 GFA Loss Making GFA in 1991 GFA Not Reporting GFA Total 216972
57083 28871 Increase During 1992-2001
GFA Profit Making 402486 GFA Profit Making 307%
GFA GFA Loss Making Not reporting 115839 44419 % Increase During 1992-2001 GFA GFA Loss Making Not reporting 203% 154%
GFA Total 562745
GFA Total 259%
Table 26 GFA Status of Neoleaders of Post Liberalisation Era (Reporting Performance first time during 1992-2000) (Rs. in crores)
GFA Profit Making 141857 GFA Loss Making 76051 GFA Not reporting 62399 GFA Total 280307
Table 27 Assets Created during Post Liberalisation Era by Companies Existing in 1991 & Established During 1992-2000 (Locked in the Companies Making Loss/ Not Reporting Performance) (Rs. in Crores)
GFA Profit Making GFA Loss Making 191890 GFA Not reporting 106818 GFA Total 298708
Table 28 Total Assets Locked in the Companies Making Loss/ Not Reporting Performance (Rs. In Crores)
GFA Profit Making GFA Loss Making 248973 GFA Not reporting 135689 GFA Total 384662
6.9
Long Term Debt Locked in Various Categories of Companies
The study also analysed the long term loans and debts locked in the companies of various categories. It will be seen from table 29 that out of an estimated total of long term debt of Rs. 8,39,727 crores locked in the pre
reform corporate leaders and Neo (post reform) leaders, a hopping sum of Rs. 3,06,317 crores i.e. about 36.5 % was locke in the loss making and ‘not reporting categories of companies. The pre reform and neo leaders share in the proportion of 2:1. As noticed earlier the major contributors to destabilization of financial institution/ development banks have been the pre-reform corporate leaders, but the neo leaders have also added their bit to the gravity of the situation. Table 29 Long Term Debt Locked in Various Categories of Companies (Rs. In Crores)
Pre reform Corporate Leaders (Cos. Existing in 1991) 394753 136606 68296 204902 599655 Neo-Leaders (Cos. Entering 1992-2000) 138657 61640 39775 101415 240072 Total 533410 198246 108071 306317 839727
Profit Making Loss Making Not Reporting Total Loss Making & Not Reporting Grand Total
This is serious development and recovery of Indian economy is unimaginable without remedial measures to arrest the fall of existing corporate leaders and rehabilitating them rather than pleading for exit. A may be added that routine rehabilitation approaches and strategies of the preliberalisation era are unlikely to work. Radical changes in the approaches are called for and serious discussions to develop new approaches are needed. Banking on models drawn from the developed countries and on further liberalization measures are proving inadequate to the challenge emerging. Serious discussion is also needed on the behaviour of corporate leaders and their role for strengthening Indian economy is also urgently needed. 6.10 Summary of Findings i) A large number of corporate leaders have not been able to contribute effectively to correct India’s balance of trade. Indeed, a large proportion (over 50%) is involved in aggravating it. The performance of lower rung leaders is comparatively more satisfactory. The corporate leaders’ contribution to globalization of Indian business is even more unsatisfactory if not dismal. With a few
ii)
honorable exceptions, they are globalizing more actively inwards than outwards. iii) Most of the corporate leaders are not contributing to increasing global competitiveness of India, through technological capability building. They seem to, at best, gearing to play the second fiddle, as outsourcing agents than the main players, which does not give confidence to say that India is likely to emerge as a global player, in this age of technology development as key to global competitiveness. iv) There is increasing technological dependence of leaders, perhaps strategic dependence, as manifested by accelerated pace of foreign collaboration by corporate leaders in every field. v) Corporate leaders are not able to withstand global competition. A large percentage, over 50% of pre- reform corporate leaders have fallen from grace both in terms of their sales rank and profit position. vi) The condition of the neo-leaders (entering the filed after 1992) is even worse. vii) There is a steady trend after 1997 and there is no factor that instills belief that situation may change for the better easily. viii) This in turn has started affecting the national economy and society. The falling performance of corporate leaders has blocked a huge amount of country’s savings in unutilized/ underutilized fixed assets and created sizable non- performing assets in the financial institute, causing their fall also. A hooping amount of about Rs. 3 lakh crores (approx. 35% of Total) is locked in the loss making and ‘not reporting’ companies as long term debt. 6.11 Implications of Findings The barrage of new products developed elsewhere and now ease in their being made available here through foreign collaborations has led to temptation of making a fast buck by setting up unsustainable assets, which has resulted in great fall of many of the Indian corporate leaders. If this is not appreciated and the short term, opportunistic behaviour of corporate leaders continues to prevail upon long term sustained, sound performance, the situation would turn only to worse and there will be perpetuating increasing dependence on foreign funds and technology. Corporate leaders have to realise the role they have to play in ensuring sound health of their industry and economy, without which their own survival is not assured.
The steep fall in performance of the corporate leaders indicates that the global competitiveness of Indian competitiveness is not increasing the way it was expected. The corporate leaders seem to be struggling to face competition even in the domestic market. The magnitude of fall suggests that it is time that methods for dramatic improvements in productivity are developed. It can not be left to be done following traditional methods, which focus on incrementalism. It has to be taken up as a strategic Challenge. Time has also come to identify the firms and individuals whose shortsighted/ irresponsible behaviour brings demise to companies and economy. It is necessary to weed out unscrupulous elements in the corporate sector for ensuring the health of the latter as also the economy in general. One of the tragedies of opening up Indian economy has been the imitation and borrowed innovations, with of course few honorable exceptions. The opening has led to a barrage of new products and services entering the country all of a sudden, challenging/ threatening and perhaps pushing back/ slowing down domestic innovations efforts. The number of collaboration indicate that the corporate leaders with few honorable exceptions, are not able/ paying attention to develop and/ or scale up native products that are embedded in the natural endowment and socio-cultural context of the country, which could be leveraged as a strategic tool for meeting global competition on local strengths. The government also has to start critical evaluation of the behaviour and performance of corporate leaders to decide how much and when it should go far privatization. If the corporate leaders are not showing sign of being responsible corporate citizen protecting the Indian economy as the concern of government, going ahead with privatization blindfold and against the policies of post independence policy makers of 1950s and 1960s based upon the behaviour of then corporate leaders, may prove to be costly proposition and difficult to reverse. 6.12 Issues for Future Research The findings of the study indicate that in the post liberalization period, the contribution of the corporate leaders of India has been below the expectations, in terms of correcting the imbalance in foreign trade, (outward)
globalization, technological capability building and providing strength to the Indian economy through sound economic performance. It is time that intensive and extensive studies are undertaken to understand the problems the corporate leaders are facing, to remedy the situation. Without such a support they may not be able to grasp the realities and develop necessary coping strategies. Special attention is needed to identify the factors responsible for the steep fall in the performance of Indian corporate leaders. Fortunately, there are still 50% corporate leaders who have been able to withstand the wind of change caused by the external liberalization. It is important to do because India has to for successive levels of liberalization under the WTO mandate. If it is not able to make a headway in identifying the factors responsible and develop appropriate strategies to mend the situation, it may land up locking higher levels of depleting financial resources of the country in underutilized and non- productive assets on the one hand, and face increasing dependence on foreign funds for economic development with attendant consequences including erosion of sovereignty of national decision making. Studies need to be undertaken for various sub-sectors of industry. Their focus to be on value chain analysis: how much value is created by the firms/ industry in India and how much of it is captured and retained in India. It is also necessary to critically evaluate the value controlled by India firms and the strategic dependence of Indian firms and the country on the foreign players, technology and natural resource endowments. It is also time to have a closure look at the behaviour of Indian corporate leaders in terms of capability rather than capacity building, which is critical for facing international competition in domestic markets and for making India emerge as a global player. The fall out of failure of the corporate leaders to contribute significantly in various arenas has also to be examined in terms of their impact on and relationship with the social, cultural and political dimensions of Indian society. Few works are available to shed light on these issues which seem to be material for the corporate leaders’ performance. Ás mentioned earlier, the time has also come to undertake studies to identify the firms and individuals whose shortsighted/ irresponsible behaviour brings demise to companies and economy. It is necessary to weed out
unscrupulous elements in the corporate sector for the health of the latter as also the economy in general. The study has given the findings in terms of number of firms, but their details are available for further in-depth microlevel studies of firms, industries and other identified groups. There is a need for such longitudinal studies undertaken on an ongoing basis to keep track of the post reform developments. The dynamics of the change is so fast paced, fluid, unprecedented and radical that even keeping track of developments is proving to be a difficult task, leave alone interpretation of their wider ramifications and secondary/ tertiary consequences. The reporting system in business papers/ columns/ journals and magazines is reducing the time frames to a quarter and month, which does not give common men and analysts to understand the broader trends. This study, developed by aggregating firm level data to understand the developments at country, suggests a powerful approach for bridging the wide macro- micro gap between the national policy making and actual action in the field by the companies. One can have a bird’s eye view on macro developments that is necessary for fine tuning a company’s strategies with the national requirements and challenges while maximizing their companies’ performance. At the same time it can also facilitate macro level policy makers to have a microscopic examination of behaviour of firms as well as collectives, so as to incorporate necessary checks and balances while introducing further reforms for opening of Indian economy. The enormity of the research tasks associated with the above issues suggests that individual, sporadic and piecemeal research efforts are inadequate to meet the challenge. Time has come to attend to it through large scale, coordinated research by mobilizing and unifying the national efforts with active industry involvement at various stages of research. Such coordinated studies with close industry association are important from two other angles. Firstly, these would pave way for relevant, meaningful, rich and sound research outputs in a cost effective manner. Secondly, the association in the process of research will facilitate necessary perspective building in both the academicians and managers which would eventually be reflected in the way they will fine tune their approaches and strategies to meet the emerging challenges
6.13 Conclusions This paper analyses the economic performance of corporate leaders, their contribution to the balance of trade and globalization of Indian industry. It is noticed that as of now the corporate leaders, both of pre and post liberalization have by and large failed to maintain the economic tempo, have contributed more to sustaining/ aggravating the adverse balance of trade rather than mitigating it, and have not been able to bring about globalization of Indian industry to the extent necessary. They have also been inward looking and thriving by following the strategy of the past: creating and meeting domestic demands through import of technology rather than emerging as global players. There is a need for major shifts in their stand to make India become a global player and reduce country’s strategic dependence on international players and allow it engage in international trade by choice and on its own terms in line with the requirements of economy and society here. The study also suggests that there is a need of large scale integrated national research effort to support corporate leaders in meeting the challenge of a borderless economy.
Exhibit 1 Performance of Indian Corporate Sector in the Pre and Post Liberalisation Era at a Glance 1991 Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 2151 1696 67 388 0 2151 1992 2151 1669 40 355 87 2151 1993 1994 1995 1991 LEADERS 2151 2151 2151 1573 1645 1691 16 14 10 403 351 312 159 141 138 2151 2151 2151 1996 2151 1619 11 369 152 2151 1997 2151 1461 10 520 160 2151 1998 2151 1327 14 632 178 2151 1999 2151 1203 8 713 227 2151 2000 2151 1160 10 714 267 2151 2001 2151 1000 7 679 465 2151
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
1992 NEOLEADERS 403 403 403 403 293 298 289 304 56 23 9 3 54 66 54 57 0 16 51 39 403 403 403 403 1993 NEOLEADERS 658 658 658 448 501 518 127 46 13 83 79 73 0 32 54 658 658 658 1994 NEOLEADERS 962 962 685 760 177 59 100 101 0 42 962 962 1995 NEOLEADERS 1128 764 222 142 0 1128 1996 NEOLEADERS
403 285 2 75 41 403 658 457 12 121 68 658
403 261 3 89 50 403 658 374 14 192 78 658
403 225 1 116 61 403 658 340 11 209 98 658
403 194 2 150 57 403 658 287 6 252 113 658
403 191 2 147 63 403 658 289 7 227 135 658
403 165 3 120 115 403 658 241 9 181 227 658
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
962 675 24 163 100 962
962 561 25 258 118 962
962 477 11 325 149 962
962 438 15 335 174 962
962 441 21 308 192 962
962 342 8 270 342 962
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
1128 786 92 216 34 1128
1128 593 67 301 167 1128
1128 516 55 436 221 1228
1128 476 43 367 242 1128
1128 503 26 322 277 1128
1128 366 16 275 471 1128
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
584 351 131 102 0 584
584 339 62 160 23 584
584 270 33 169 112 584
584 269 33 156 126 584
584 274 21 152 137 584
584 216 13 124 231 584
1997 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 431 235 73 123 0 431 431 236 48 135 12 431 431 188 27 115 101 431 431 201 17 114 99 431 431 146 9 92 184 431
1998 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 1999 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 2000 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 2001 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 38 19 6 13 0 38 316 217 35 64 0 316 316 208 11 86 11 316 488 303 54 131 0 488 488 304 37 133 14 488 488 230 17 95 146 488 328 193 45 90 0 328 328 205 22 92 9 328 328 150 12 74 92 328 328 106 6 62 154 328
doc_543540505.pdf
The search for the characteristics or traits of leaders has been ongoing for centuries. History's greatest philosophical writings from Plato's Republic to Plutarch's Lives have explored the question "What qualities distinguish an individual as a leader?" Underlying this search was the early recognition of the importance
CORPORATE LEADERS OF INDIA
A STUDY OF THEIR PERFORMANCE AND CONTRIBUTION IN THE POST-LIBERALISATION ERA
Prof. Krishna Kumar Indian Institute of Management, Lucknow (India) ABSTRACT The industrial economy of any country depends upon the role and performance of corporate leaders, be it sustained growth of national income, balancing of international trade or payments, meeting the foreign exchange requirements or mitigating national resource disadvantage, the country banks upon them to attend to such national tasks and challenges. They are the ultimate deliverers, as neither the government nor the administrators (bureaucracy) can do it. India is facing unprecedented challenges of slow down of economy, sustained adverse balance of trade and current account, intense global competition in domestic market, falling corporate performance, mounting by non performing assets and looming threat of international oil price hike. An evaluation of the performance of and the role played by corporate leaders in the pre and post liberalization era is called for to identify the tasks ahead, the areas that need immediate attention and also the strategic and policy shift necessary to meet the emerging challenges. This paper analyses the economic performance of corporate leaders, their contribution to the balance of trade and globalization of Indian industry. It is noticed that as of now, preponderance of corporate leaders, both of the pre and the post liberalization have by and large not been able to maintain the economic tempo, have not been able to contribute much to contain/ mitigate the sustained adverse balance of trade, and have done little to bring about globalization of Indian industry to the extent necessary. They have also been observed to continue looking inwards and thriving by following the strategy of the past: creating and meeting domestic demands through import of
technology rather than emerging as global players. There is a need for major shifts in their stand to make India become a global player and reduce country’s strategic dependence on international players and allow it engage in international trade by choice and on its own terms in line with the requirements of economy and society here.
6.0 CORPORATE LEADERS OF INDIA
6.1 Introduction
Corporate Leaders have been defined variously, in terms of individuals like JRD Tata or Dhirubhai Ambani, as well as in terms of business entities like Tata Iron & Steel Company or Reliance Industries Ltd. In this study corporate leaders have been defined in terms of legal entities. The measure used to describe have also been varied. These are objectives measures like the assets employed, turnover, profitability etc. At the same time the subjective criteria like the product innovation they have introduced, the level of social concerns they have displayed, the ethical standards they have used and their contribution to meeting economic challenges their countries placed etc. There is neither any generally accepted definition of corporate leaders, nor any composite index available so far. The corporate leadership awards are given on the basis of specific criteria developed by different award committees from time to time. In view of the above, this study selected sales turnover to analyse the performance of corporate leaders of India. The national for it was the objectivity of the measure and the fact that this reflects more directly the level of service they have provided to the customers and thus to the society. The study has analysed the contribution of corporate leaders to meeting the challenges being faced by the economy since India started economic reforms. These challenges include the growth and stability of industry sector, adverse balance of trade, foreign exchange crisis, technological capability building and glabalisation of Indian business to meet the global competition in the domestic and international markets. The contribution has been measured in quantitative terms and no attempt has been made to assign weights to different components. It is only a descriptive study not evaluative study with any presumed standard. Further, much as there is a need and merit in measuring them on subjective criteria mentioned above, it has been kept outside the scope of this study for exploration in future. There is also a question of selecting corporate leaders for the study of this type having significant longitudinal analysis. Since PROWESS 2001 data base of Centre for Monitoring Indian Economy has been used for major part
of the study, all the business entities listed in the industry set as on October 2002 have been defined as corporate leaders. The list is claimed to represent about 75% of Indian industry and business and covers all the listed companies and non-listed large companies. The sales data selected was as on March 2001 as the data for subsequent period was found incomplete, inadequate and could result in misleading conclusions. The salient attributes of the set selected are shown in table 1. For the purpose of the analysis, the companies have been classified into five categories Top 100, Top 500, Top 1000, Top 2000 and the rest. The categorization of the companies is on the basis of sales in the year ending March 31, 2001. Table 1 Share of Leaders in the Different Parameters in the year 2001
Top Sales Profits Gross Fixed Assets 53% 77% 86% 92% 100% 9,24,336 Exports Imports Net Export
100 500 1000 2000 5141 Total 5141
(Rs. in Crores)
59% 83% 91% 97% 100% 12,28,927
91% 119% 122% 113% 100% 41,216
42% 71% 84% 96% 100% 1,05,077
67% 88% 94% 95% 100% 1,91,150
-98% -107% -106% -101% 100% -86,073
* as a % of total (5141 companies) 6.2 Contribution of Corporate Leaders to the Indian Exports
There has been a significant rise in the number of exporters in the post liberalization period. The number has more than doubled, from 1117 in 1991
to 2426 in 2001. There are two more patterns observed. One, the number of importers too has increased proportionately, from 1616 to 3180. There has, thus, been no favourable shift in India’s sustained dependence on imports, overcoming which had been one of the aims of economic reforms. Table 2 Rise in Exporters and Importers Over the Years
1991 Exporters 70 374 691 1100 1117 Importers 81 453 880 1562 1611 2001 Exporters 68 374 745 1387 2426 Importers 75 433 898 1751 3180
Top 100 Top 500 Top 1000 Top 2000 All (2151 in 1991) (5141 in 2001)
The second important point observed is that there is no change in the number of exporters among the Top 500 corporate leaders. The number of exporters has increased among the smaller companies, Top 501 and up category. The data shows that the number of companies having international transaction/ activities has increased, which is welcome move. But whether and to what extent it has actually mitigated the adverse balance of trade and the pressure on foreign exchange needs an analysis of actual volume of transactions in monetary terms. The study therefore, also examined the corporate leaders engaged exclusively in exports, in imports, both in exports and imports, and in neither of them. Analysis has also been done for total imports, total exports and the net of exports and imports by the companies. It was observed that out of a total of 5141 companies studied, 1782 (35%) were neither engaged in exports nor imports. Only 181 (4%) companies were engaged in exports alone (table 3). On the other hand, as many as 935 (18%) companies were engaged in imports alone. A total of 2243 (44%) companies were involved in both. Thus the corporate leaders’ leaning continues to be more on imports. They are either facing some difficulties or still not prepared to assume the role of mitigating the country’s adverse trade balance, or simply not ready or keen to stick their neck out for international operations.
Table 3 Involvement of Corporate Leaders in Imports and Exports.
Nature Engagement # # # # of Companies engaged in Exports only of ” ‘’ Imports only of ” ” in both Exports & Imports Neither engaged in exports nor imports Total (5141) 181 935 2243 1782
The analysis of net of exports and imports is even more revealing. In terms of net exports, a major shift is seen in the post liberalization period (see table 4 & 5). There has been a phenomenal increase in the number of companies having positive net exports, the number almost tripling from 529 in 1991 to 1540 in 2001, while the number of companies with negative net exports has increased only 1.5 times, from 1137 to 1815, which is also a welcome development. Further, while in 1991, companies in all the categories (as a group)had net imports only, in the post liberalization period the position is different. The number of net exporters has increased. However, this increase has been more in the case of small size companies, Top 501 onward categories (see table 4). Also, the total net imports by the companies in these categories are off-set by the total net exports by the companies in the same category, resulting in a net export of Rs. 6393 crores. The position is not so heartening in the case of Top 500 corporate leaders. Among the Top 100 companies as many as 53 were net importers and only 22 were net exporters (see table 5). Together they were contributing net exports of Rs. 13825 crores and net imports of Rs. 98433 crores respectively, resulting in an overall net import of Rs. 84608 crores. The position is no better if one considers the next top 400 leaders, 41 among them were not engaged in either exports or imports. 143 of them contributed to net exports to the tune of Rs. 12397 crores, while 216 of them had a net import of Rs. 20255 crores. Overall, they were responsible for net imports to the tune of Rs. 7858 crores.
Table 4 Contribution to Export/ Import by Size of the Companies 1991
Top 100
Top
Top
Top
Top
Total
101- 500 Positive Net Export # of Firms Amount (Rs. In Crs.) Negative Net Export # of Firms Amount (Rs. In Crs.) No Rxport/Import # of Firms Total 26 2490 57 -15636 17 -13146 119 2110 259 -4257 22 -2147
501-1000 143 801 297 -1565 60 -764
1001-2000 230 587 479 -753 291 -166
2001-2151 11 4 45 -184 95 -180 529
1137
485 2151
Table 5 Contribution to Export/ Import by Size of the Companies in 2001
Top 100 Top Top Top Top Total
101- 500 Positive Net Export # of Firms Amount (Rs. In Crs.) Negative Net Export # of Firms Amount (Rs. In Crs.) No Export/Import # of Firms Total 22 13825 143 12397
501-1000 188 7304
1001-2000 412 8054
2001-5141 775 3085 1540
53 -98433 25 -84608
216 -20255 41 -7858
279 -6170 33 1134
455 -3355 133 4698
812 -2524 1554 561
1815
1786 5141
The Top 500 corporate leaders in India, thus, contributed to net imports to the tune of Rs. 92466 crores (approx. US $ 20 billion) in the year 20002001. Among the top 500 giants, 269 (53+216) corporate leaders are, thus, responsible causing net imports to the tune of Rs. 118688 crores, that almost equal to India’s total trade deficit, causing foreign exchange drain to the country, which is not off set by the positive contribution of Rs. 26222 crores by 165 corporate leaders. It may argued that a good part of net imports is caused by oil companies. But it should also be remembered that there are only 8 oil companies out of 269 corporate leaders creating net imports of Rs. 77761 crores. The 261 leaders contributing a net import of Rs. 40927 (three times of total net import in 1991) have no excuse for not accelerating efforts to generate net exports They must understand that they have a role role in correct the country’s balance of trade and can not offset the good work done by theother 188. Further, even oil companies can not get away from their responsibility to releasing the pressure caused
by them on foreign exchange through alternative strategies. It wiil be an irony, if those whom one expects to solve the problem indulge in for aggravating the same. One expects that the top 500 corporate giants would earn substantial foreign exchange for the country, but they are found to be mainly responsible for causing a drain to it. The data thus shows that the economic reforms undertaken, incentives extended to boost exports and India’s willingness to open economic borders as a commitment to WTO, have yet not fetched the desired results as expected so far. The data further reveals that the above measures have not been effective to induce most of the corporate leaders to play the role expected of them in addressing to the national challenge of managing foreign exchange balance at an adequate level, unlike their counterparts in the developed countries. Perhaps more radical measures are required, as the current prescriptions are not fetching desired results. 6.3 Corporate Leaders’ Contribution to Globalisation of Indian Business The exports, especially net exports from a country, give an indication of globalization of a country’s business. The Indian Business Ventures Abroad (IBVA) give another, complementary picture of contribution of corporate leaders to the globalization of Indian business. The total number of Indian business ventures abroad (see table 6) increased from 319 in 1991 to 2103 in 1999. The number has gone up further to 2368 in 2001. The rise is impressive indeed. Table 6 Indian Business Ventures Abroad
Upto 1991 Indian JV Abroad Indian Wholly Owned Subsidiaries Abroad Total Indian Business Ventures Abroad 244 75 319 ‘92 72 28 100 ‘93 104 79 183 ‘94 92 122 214 ‘95 82 119 201 ‘96 116 143 259 ‘97 101 122 223 ‘98 101 154 255 ‘99 111 238 349 Total Up to 1999 1023 1080 2103
The role played by the corporate leaders, however, does not seem to be up to the mark. The analysis shows (see table 7) that among the Top 100 leaders in
the year 2000 with sales mores than Rs. 1677 crores, only 16 had 3 or more ventures abroad. Among the Top 500 industry leaders, having sales over Rs. 300 crores, only 74 had 3 or more ventures. There is no company in the top 501-1000 category that has 3 or more ventures abroad. Similarly, the number of corporate leaders having 2 or more ventures was only 6 among the Top 100, 32 among the Top 500, and 55 among the Top 1000 companies. Table 7 Industry Leaders with Business Ventures Abroad
No. of Business Ventures Abroad >3 2 1 Total Top 100 (# of Cos.) 16 6 2 24 58 26 20 104 Top 101-500 (# of Cos.) Top 5011000 (# of Cos.) 23 34 57 Top 10011740 (# of Cos.) 22 11 33 Total (# of Cos.) 74 77 67 218 Smaller Cos. (# of Cos.) 77 104 181
Even if one considers one venture only, the number of companies having some ventures abroad was only 24 among Top 100 (having 59% share in total sales). Among Top 500 companies (having 83% share in total sales), only 128 (26%) had BVA. And among the Top1000 (having 91% of total sales) only 185 (19%) companies had BVA. These 218 corporate leaders have 651 ventures abroad. Thus, 258 out of 909 ventures are from 181 small companies with less than Rs. 50 crores sales in the year 2000. Further, a large number of ventures 1459 (2368-909) are from small private enterprises (see table 8), not found in PROWESS databa), which could not be expected to have very strong muscle to sustain business abroad. Many of these are small trading or software enterprises firms, who need enormous nurturing, rather than manufacturing giants, a pattern that is opposite to that in the case of developed countries Table 8 Corporate Leader's Venturing Abroad
Total No. of Cos. Total No.of No. of Companies having Business Business Ventures among Top 1000 Ventures Abroad Abroad 171 1 74 154 2 77 25 3 25 17 4 17 6 5 6 6 6 6 Other Smaller Companies 104 77 Cumulative Frequency Distribution of Ventures 1+ 2+ 3+ 4+ 5+ 6+ 909 738 430 355 287 257
2 4 2 2 3 3 2 1 1 399
7 8 9 10 11 12 15 18 20 909
2 4 2 2 3 3 2 1 1 218
181
7+ 8+ 9+ 10+ 11+ 12+ 15+ 18+ 20+
221 207 175 157 137 104 68 38 20
It will thus be noticed that a large number of corporate leaders in India are still not contributing to globalization of Indian industry even in a token manner. Contented with exploiting emerging opportunities arising out of opening of Indian economy, they are not imbibing globalisation philosophy (by venturing abroad) and making global operations as an integral part of their corporate strategy. Considering that it is only the number of ventures approved (and not those which are actually implemented), one tends to conclude that not much effort have been made by the industry leaders to make India a global player, at least not as much as the effort made by the international giants for entering the Indian market.
6.4
The True Picture of Corporate Leaders Contribution to Globalisation: Indian Business Ventures Abroad and Foreign Collaborations in India
Table 9 gives a comparative picture of Indian Business Venture Abroad and Foreign Collaborations in India in the pre and post- liberalisation era (10). From the table it will be observed that the number of Foreign Collaboration (i.e. foreign business ventures in India) in the post liberalisation era have increased at much faster rate than in the pre-liberalisation era. The total number of Foreign Collaborations approved during the 8-year period from 1992-99 (15836) is almost as many as the total number of foreign collaborations in the 40-year period between1951-91. Table 9 Indian Business Ventures Abroad and Foreign Collaborations in India
Upto 1991 Indian JV Abroad Indian Wholly Owned Subsidiaries Abroad Total Indian Business Ventures Abroad Foreign Collaboration in India 244 75 319 16836
‘92 72 28 100 1531
‘93 104 79 183 1476
‘94 92 122 214 1854
‘95 82 119 201 2337
‘96 116 143 259 2303
‘97 101 122 223 2325
‘98 101 154 255 1786
‘99 111 238 349 2224
Total Upto 1999 1023 1080 2103 32672
The number of foreign collaborations in the pre-liberalisation era, on the whole were approximately 53 times (16836/319) the number of Indian business ventures abroad. This ratio has reduced to 15 times (32672/2103) in the post liberalised era. However, it is still a long way to go. The gap is still very large in terms of actual number of business ventures, and is still widening, although at somewhat reduced rate. Table 10 Foreign Collaborations in India and Indian Business Ventures Abroad
Foreign Collaborations Sales Category Number of Companies 51 (51%) 250 (60%) 244 (50%) 314 (31%) 472 (16%) No. of Collaborations 475 1011 774 721 782 Collaborations Per Company 9.3 4.0 3.2 2.3 1.7 Business Ventures Abroad Venture Number of No. of Business Per Ventures Company Companies 12 (12%) 40 3.3 45 ((12%) 117 2.6 32 (6%) 62 1.9 41 (4%) 95 2.3 56 (2%) 71 1.3
Top100 101-500 501-1000 1001-2000 2001-5000
A look at table 10 would reveal the overall pattern of behaviour of corporate leaders of India. Among the Top 100 corporate leaders as many as 51% have gone for foreign collaboration (average 9.3 collaboration per company), while there are only 12% (i.e.,1/4) who have gone for business ventures abroad (averaging 3.3 ventures per company. The respective figures for the next Top 400 corporate leaders are 63% (4.0 collaborations per company) and 12% (2.6 business ventures per company). The number of collaborations and business ventures for the next corporate leaders (Top 501-1000) are 50% (3.2 collaborations per company) and 6% (1.9 ventures per company). The percentage of companies going for foreign collaborations decline for lower rung corporate leaders but the collaborations per company and number of business ventures per company almost match.
Table 11 Corporate Leader's Venturing Abroad and Foreign Collaboration
No.of Ventures 1 2 3 4 5 6 7 8 9 10 11 12 Total No. of Business Ventures Abroad Foreign Collaborations between 1992-2000 No. of Cos. Cumulative Distribution of No. of No. of Companies Frequency Ventures Collaborations 171 1+ 909 1 73 154 2+ 738 2 42 25 3+ 430 3 29 17 4+ 355 4 21 6 5+ 287 5 20 6 6+ 257 6 13 2 7+ 221 7 12 4 8+ 207 8 6 2 9+ 175 9 10 2 10+ 157 10 6 3 11+ 137 11 5 3 12+ 104 12 1 13 3 14 3 2 15+ 68 15 3 16 1 17 2 1 18+ 38 18 3 19 1 1 20+ 20 20 23 1 24 1 27 3 28 1 29 1 36 1 38 1 60 1 71 1 74 1
15
18 20
In a nutshell it can be said that though liberalisation and globalisation policies have given an impetus to the Indian business for moving out to become a global player, the corporate leaders have still not been able to become truly global players, not helped the country emerge as a global player of reckoning. Indeed the opening of India economy has helped foreign players getting into India (directly or through joint ventures) more than Indian business getting global in true sense
6.5
Contribution to Capability Building: Foreign Collaborations by Corporate Leaders
The study also analyzed the foreign collaboration in the post liberalization era, by the type of Indian partners. Unfortunately data was not easily available for the pre-liberalization period. Efforts are on to extract the same to be able to give a more comprehensive understanding on the issue. But even the analysis of post-liberalization era data is important enough, as it points towards a significant pattern. For the purpose of this analysis, the information available from Indian Investment Centre, New Delhi about the foreign collaborations for the years 1992-2000 as been used. From the data available it will be observed observed that as many as 496 out of the top 1000 (i.e., 43%) corporate leaders have entered into foreign collaboration in the post liberalization period, a large number indeed. The data indicates that the industry leaders, even in the post- liberalization period are banking heavily on import of technologic to meet, and perhaps, enhance the demands of products and services. This is not a welcome development and has direct, adverse bearing on sharpening global competitiveness of Indian companies, both in the domestic and international markets. Table 12 Foreign collaboration by (Top 1000) corporate Leaders
Total Number of collaborations During 1992-2000 17810 Number of companies having collaborations 496 Number of collaboration 2358
Table 13 Frequency Distribution of Foreign Collaboration by Top 1000 companies
# of collaborations # companies* # companies (cumulative)* 6 13 25 72 267
>30 21-30 11-20 06-10 01-05
6 7 22 47 185
A look at table 13 also shows the patterns of spread of the foreign collaboration. It will be noted from table that there are as many 6 companies which had more than 30 collaborations over a period of 9 years (1992-2000) of post-liberalization era. Perhaps no where else in the world this kind of phenomenon would be observed. Further, there were 29 others, who had 11 to 29 collaborations over the period, on the average one on more collaboration per year. Additionally, there were 47 companies that had 6-10 collaboration; at least one or more foreign collaboration every alternate year, on the average It will also be seen from table 14 that 4 companies had astonishingly high number of collaborations (60 or more) and one company had on the average even 14 collaborations per year (127 in 9 years). These high numbers do not auger well for technological capability building internally, through domestic efforts. Table 14 Detailed frequency Distribution of Foreign Collaboration by Corporate Leaders
#collaborations 1 2 3 4 5 6 7 8 9 10 # companies 73 42 29 21 20 13 12 6 10 6 #collaborations 11 12 13 14 15 16 17 18 19 23 # companies 5 1 3 3 3 1 2 3 1 1 #collaborations 24 27 28 29 36 38 60 71 74 127 # companies 1 3 1 1 1 1 1 1 1 1
An even more significant relevation is the fact that a large number of collaborate are taking place with Indian companies, which are small, which do not find place in the PROWESS database. The FIRST SOURCE (2001) database of CMIE, giving details of 1,50,000 firms (both listed and unlisted) along with CAPEX database (giving the details of foreign collaborations from 1993 to 2002), however, provides a more comprehensive picture. From table 12 it will be seen that the total number of listed and unlisted large companies in the bracket of Top 2000 corporate leaders, numbering 1176 were having 3768 foreign collaborations. Thus
over 14000 collaborations were by the firms having sales of less than Rs. 44.6 cr. in 2001. Further, as per the data available, the number of firms reporting sales of Rs. 1 cr. and above in the year 2001(numbering 2499), had a total of about 6000 collaborations out of 18695 collaboration. In other words, over 12000 (estimated) foreign collaborations were by firms having less than Rs 1 cr. sales. It reinforces the proposition that the collaborations are tending more towards trading than strengthening manufacturing capability as contended during the discussion on changing nature of collaboration in the previous section, although it requires validation with further studies. . Table 15 Corporate Leaders and Foreign Collaborations
Sales in year 2000 Rank (Rs. in Cr) > 1731.1 315.4 137.4 44.6 1.0 Listed Companies No. of No. of Firms Collaborat. 51 475 301 1486 545 2260 859 2981 1331 3763 Unlisted Comapnies No. of Collaborat. No. of Firms 9 32 54 214 113 361 317 767 1168 2225 Total No. of Firms 60 354 658 1176 2499 No. of Collaborat. 507 1700 2621 3768 5998
Top 100 Top 500 Top 1000 Top 2000 Top 5000
6.6
Financial Performance of the Pre Reform Corporate Leaders
A significant, unwelcome development in the post-liberalisation period relates to the fall in the performance of corporate leaders. Out of a total of 2151 companies, 1686 (i.e. 79% were making profit in the year 1991. Ten years later, in the year in 2001 only 1000 (46%) among them were making profit (see table 16). Table 16 Condition of Pre Reform Corporate Leaders in 2001
Year 1991 2001 No Profit No Loss Companies 67 7 Profit Making Companies 1686 (79%) 1000 (46%) Loss Making Companies 388 679 Not Reporting 465 Total Companies 2151 2151
This steep fall is a worrisome development, especially if one finds that the decline has been a steady one since 1997 (see table 17). The data thus, indicates that after the initial euphoria, the corporate leaders have not been able to withstand the wind of change caused by liberalization, especially after the external liberalization under WTO regime (1997 onwards). Out of the balance 1151, 679 were loss making and 465 were not reporting performance. Some of the latter might have undergone acquisition/ merger phase, but the steady fall in their performance suggests that these were the companies which were loss making before they stopped reporting performance. The actual number of Pre- reform corporate leaders that were not in good shape in 2001 (see table 17), was thus 1151 (54%). Table 17 Performance of Pre- Reform (1991) Corporate Leaders in the Post liberalisation Era
Total Cos. In Profit Co. in No Profit No Loss Condition Co.in Loss Cos. Not Reporting Total 1991 2151 1696 1992 2151 1669 1993 2151 1573 1994 2151 1645 1995 2151 1691 1996 2151 1619 1997 2151 1461 1998 2151 1327 1999 2151 1203 2000 2151 1160 2001 2151 1000
67 388 0 2151
40 355 87 2151
16 403 159 2151
14 351 141 2151
10 312 138 2151
11 369 152 2151
10 520 160 2151
14 632 178 2151
8 713 227 2151
10 714 267 2151
7 679 465 2151
This is not all. The fall of the corporate leaders has also been substantial in terms of their sales rank. Table 18 shows their performance in terms of gain/ loss of sales rank from 1991 to 2001. It will be noticed that while there are only 29 companies that registered a gain in sales rank of 1000 rank or more, there were 493 which had a fall of 1000 rank or so (caused by the advancement by pre as well as post reform leaders). Similarly while there were only 52 companies that gained 501-1000 ranks, there were as many as 248 that registered a fall of that order. If one considers gain/ loss above 100 ranks, there were only 254 companies that gained while 1114 lost as many ranks. It may be noted that we have not considered here the 465 companies that had stopped reporting. There plight would have been even worse. It a
nutshell one can conclude the fall of pre-reform corporate leaders in terms of sales rank, is indeed phenomenal. Table 18 Pre-reform Corporate Leaders Gain/Loss in Sales Rank From 1991 to 2001
Sales Rank Range >1000 501-1000 101-500 1-100 Total No Gain/ Loss Category A B C D E Gained No. of Cos. 29 52 173 129 383 4 Lost Category I H G F Grand Total No. of Cos 493 248 373 185 1299 1686
If one considers the combined gain/ fall in sales rank and their profit position, the situation is equally bad, if not worse. Table 19 gives the picture of the state of affairs. It will be seen that the number of companies that have been loser both in sales rank and are still in profit position, is twice that of those which gained on both. Of course, many companies seem to have consciously or otherwise accepted loss of sales rank to preserve profit position. Table 19 Gain/ Loss in Sales Rank and Profit Position
No Gain/ Loss in Sales Rank Profit Position In Profit In Loss No Profit/ Loss Total Gain of Sales Rank 314 69 383 Loss of Sales Rank 682 609 8 1299 4 Total 1000 678 8 1686
A look at table 20 would, however, also indicate that the substantial number of companies that had substantial gains in sales rank (1000 or more) and profitable position is only 22, while those which had substantial loss in both were 328, i.e. almost 15 times. Those which gained 100 or more rank and also retained profit position numbered 209, but those who lost on both numbered 640, almost three times. The pre-reform corporate leaders are thus found to be really struggling to retain the pre-reform position.
Table 20 Gain/ Loss in Sales Rank and Profit Position of the Pre- reform Corporate Leaders
Position in 2001 In Profit In Loss No Profit/Loss Total A 22 7 29 Gain B C 42 145 10 28 52 173 D 105 24 129 No gain/loss E 4 Loss F 147 38 185 G 236 137 373 H 142 106 248 I 157 328 8 493 Total 1000 678 8 1686
4
6.7
Performance of the Post Reforms Corporate Leaders
The initial analysis on the performance of pre-reform corporate leaders suggested that their fall from grace might have been caused by the post reform corporate leaders. Subsequent detailed analysis undertaken recently, gives a different picture altogether (see table 21). The analysis shows that the post reform corporate leaders’ performance is no better. Indeed it is worse than the pre reform corporate leaders. There were 403 companies entering in 1992, out of which only 165 (41%) were in profit by 2001. Similarly, out of 658 companies entering in 1993, only 241 (37%) were in profit by 2001. Same is the fate of companies entering in subsequent years. The data shows that the pre reform corporate leaders, though running into rough whether in post liberalization era, were performing comparatively better and steadier than the new post- liberalization corporate leaders. The new era companies do not show the sign of providing stability in economic growth. They are proving to be more fragile than the pre reform corporate leaders. Table 21 Comparative Profit Performance of Pre and Post Reform Corporate Leaders
Cos. In Profit
Total N0. of Cos New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2151 403 658 962 1128 584 431 328 488 316 38 5336
1991 1696
1992 1669 293
1993 1573 298 448
1994 1645 289 501 685
1995 1691 304 518 760 764
1996 1619 285 457 675 786 351
1997 1461 261 374 561 593 339 235
1998 1327 225 340 477 516 270 236 193
1999 1203 194 287 438 476 269 188 205 303
2000 1160 191 289 441 503 274 201 150 304 217
Total N0. of Cos New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering New Cos. Entering
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2151 403 658 962 1128 584 431 328 488 316 38
1991 79%
1992 78% 73%
1993 73% 74% 68%
92-2001 Cos. Cos. In Profit (%) 1994 1995 1996 1997 76% 79% 75% 68% 72% 75% 71% 65% 76% 79% 69% 57% 71% 79% 70% 58% 68% 70% 53% 60% 58% 55%
2001 1000 165 241 342 366 216 146 106 230 208 19 2039 2001 46% 41% 37% 36% 32% 37% 34% 32% 47% 66% 50% 38%
1998 62% 56% 52% 50% 46% 46% 55% 59%
1999 56% 48% 44% 46% 42% 46% 44% 63% 62%
2000 54% 47% 44% 46% 45% 47% 47% 46% 62% 69%
92-2001 Cos.
Another more important observation that emerges from the data analysed is that there is steady fall in the performance of corporate leaders. It will also be noted from table 22 that in terms of number of companies the overall profit performance of the corporate leaders (see exhibit 1 for details) has come down from 79% in 1991 to 38% in 2001. Of the balance, overall 25% were loss making, 2% in no profit no loss condition and 35% were in ‘not reporting’ category. The gravity of the situation can be gauged from the fact that the number of companies not reporting has reached a staggering 35%. The data suggests that the post liberalization era has provided great opportunities and has made creation of new enterprises easy, but not made the corporate leaders learn and behave to run them successfully. The data also suggests that the economic slow down is not caused by events like demolition of WTC towers on ept 11, but caused by the behaviour of corporate leaders, especially the post reform corporate leaders‘ failure to rise to meet the
challenge of globalization. The seeds were sown in 1997 itself, not in 2001. These are significant but undesirable trends and need immediate attention to safeguard the growth and stability of Indian economy. Table 22 Overall Condition of Corporate Leaders in the Pre and Post liberalisation Era
Companies in Good Condition (Profit making) Companies in Bad Condition * Loss Making * Not reporting Companies in no profit no loss condition 1991 79% 18% 18% 2% 2001 38% 60% 25% 35% 2%
From the data available (see table 23) it is also observed that the size of the company is somewhat directly related to their profit position. The percentage of companies, which are in profit, steadily goes down from Top100 category to Top 500 category and so on. Indeed, the total profit of corporate sector starts reducing as one considers smaller size companies below Top 1000 by sales. This is also an important and significant development as creation of small size companies is getting lot more easy now, especially on account of freer import of technology along with equity participation. Table 23 Profit/ Loss Position of Indian Corporate Leaders in 2001*
Top In Profit Number of Companies In Profit In Loss (Incremental) Value of Profit/ Loss (Rs. In Crs.) Net Profit 37399 49128 50097 46620 41216
No Profit In Profit In Loss No Loss 100 82 (82%) 82/100 (82%) 18 0 42520 -5121 500 388 (77%) 306/400 (77%) 111 1 60795 -11667 1000 768 (77%) 380/ 500 (76%) 231 1 66064 -15967 2000 1494 (75%) 628/1000 (63%) 507 2 69630 -23010 5141 3039 (59%) 1545/3141 (49%) 1997 105 71570 -30354 * Does not include companies which are not/ have stopped reporting their performance
6.8
Asset Creation and Locking in Different Categories of Company
The study also analysed the total/ additional investments in the profit making, loss making and not reporting companies, using gross fixed assets as a measure. For the purpose again PROWESS 2001 of CMIE was used. There was one major problem encountered in this analysis. The data of GFA was not available for the companies, which did not report performance in 2001. To overcome the problem the figures of immediate past year in which the company had reported performance was taken. The assumption was that the company had invested money for creating asset. This money was thus locked as assets in that company unless the company was sold out to another or wound up. Since the merger/ acquisition and liquidation of companies had not assumed significant levels, this approximation was considered to be good enough for having an estimate of country’s investible funds locked in the loss making and ‘not reporting’ companies. Since the real value fixed assets does not become too low in terms of useful service they provide in a 5-7 years period, it was considered a better measure of locking of funds in useful asset created but not utilized. Table 24 show that out of a total of 2151 pre reform corporate leaders, while the gross fixed assets (GFA) of 1000 companies (making profit in 2001) was Rs. 5,33,505 crs, the GFA locked in the 688 loss making and 465 ‘not reporting’ were Rs. 1,72,923 crs. and Rs. 73,290 crs. respectively. Thus, approximately 32% (246213/770718) of total GFA of 1991 corporate leaders were locked in loss making and ‘not reporting’ companies. The GFA of profit making, loss making and ‘not reporting’ the post liberalization corporate leaders (those entering 1992 onwards) were Rs. 141857 crs., Rs. 76051 and Rs. 62399 respectively. The percentage of assets locked in loss making and ‘not reporting’ post liberalization corporate leaders was thus, 49% (138450/280307). Overall, the GFA locked in the loss making and ‘not reporting’ companies in the post liberalization era is thus Rs. 3, 44,662 crs. representing 34% (344662/1020024) of total GFA, a colossal amount indeed.
Table 24 Gross Assets Created by Cos. Created Before 1992 and During 1992-2000 ( In Different Performance Categories)
Cos. Making Profit
GFA
Cos. Making Loss
GFA No. of Cos. (Rs. in Crores) GFA Cumulative (Rs. in Crores) .
Cos. Not Reporting
GFA (Rs. in Crores) GFA Cumulative (Rs. in Crores)
Year
No. of Cos. (Rs. in Crores)
GFA Cumulative (Rs. in Crores)
No. of Cos.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Total Grand Total
1000 168 250 350 382 229 155 112 247 219 25 2112 3112
533505 21344 50289 15943 14594 8762 6405 3597 10964 4163 5794 141857 675362
71633 87576 102170 110933 117338 120936 131900 136063 141857
688 120 181 270 275 124 92 62 95 86 13 1305 1993
172923 12391 10282 18692 11434 2934 2970 8455 6053 2418 420 76051 248973
22673 41366 52800 55734 58704 67160 73213 75631 76051
465 115 227 342 471 231 184 154 146 11 1881 2346
73290 16814 8851 8850 8929 8664 4194 2468 2812 816 62399 135689
25665 34516 43445 52109 56303 58771 61583 62399
From the break up of investments in fixed assets created by pre-reform leaders (1991) and neo-leaders (1992-2001) in a decade (see table 25 & 26), it will also be noticed that total investment by the pre-reform leaders in the loss making and ‘not reporting’ category (Rs. 246213 crs.) 246213 was 1.77 times higher than that made by the post libaralisation. (Rs. 138450 crs.). Thus although in terms of number of companies the neo-leaders have shown higher fragility than the pre reform corporate leaders, in terms of money locked the pre reform corporate leaders have been responsible more than the neo leaders and thus creating instability in the financial system, especially to the destabilization of financial institutions/ development banks of India. Collectively both the pre and the post liberalization corporate leaders have resulted in locking up of about Rs. 3,84,462 cr. in underutilized assets (see table 28) Table 25 1991 Corporate Leaders GFA Status in 2001 (Rs. in Crs)
GFA Profit Making 131019 GFA Loss Making GFA in 1991 GFA Not Reporting GFA Total 216972
57083 28871 Increase During 1992-2001
GFA Profit Making 402486 GFA Profit Making 307%
GFA GFA Loss Making Not reporting 115839 44419 % Increase During 1992-2001 GFA GFA Loss Making Not reporting 203% 154%
GFA Total 562745
GFA Total 259%
Table 26 GFA Status of Neoleaders of Post Liberalisation Era (Reporting Performance first time during 1992-2000) (Rs. in crores)
GFA Profit Making 141857 GFA Loss Making 76051 GFA Not reporting 62399 GFA Total 280307
Table 27 Assets Created during Post Liberalisation Era by Companies Existing in 1991 & Established During 1992-2000 (Locked in the Companies Making Loss/ Not Reporting Performance) (Rs. in Crores)
GFA Profit Making GFA Loss Making 191890 GFA Not reporting 106818 GFA Total 298708
Table 28 Total Assets Locked in the Companies Making Loss/ Not Reporting Performance (Rs. In Crores)
GFA Profit Making GFA Loss Making 248973 GFA Not reporting 135689 GFA Total 384662
6.9
Long Term Debt Locked in Various Categories of Companies
The study also analysed the long term loans and debts locked in the companies of various categories. It will be seen from table 29 that out of an estimated total of long term debt of Rs. 8,39,727 crores locked in the pre
reform corporate leaders and Neo (post reform) leaders, a hopping sum of Rs. 3,06,317 crores i.e. about 36.5 % was locke in the loss making and ‘not reporting categories of companies. The pre reform and neo leaders share in the proportion of 2:1. As noticed earlier the major contributors to destabilization of financial institution/ development banks have been the pre-reform corporate leaders, but the neo leaders have also added their bit to the gravity of the situation. Table 29 Long Term Debt Locked in Various Categories of Companies (Rs. In Crores)
Pre reform Corporate Leaders (Cos. Existing in 1991) 394753 136606 68296 204902 599655 Neo-Leaders (Cos. Entering 1992-2000) 138657 61640 39775 101415 240072 Total 533410 198246 108071 306317 839727
Profit Making Loss Making Not Reporting Total Loss Making & Not Reporting Grand Total
This is serious development and recovery of Indian economy is unimaginable without remedial measures to arrest the fall of existing corporate leaders and rehabilitating them rather than pleading for exit. A may be added that routine rehabilitation approaches and strategies of the preliberalisation era are unlikely to work. Radical changes in the approaches are called for and serious discussions to develop new approaches are needed. Banking on models drawn from the developed countries and on further liberalization measures are proving inadequate to the challenge emerging. Serious discussion is also needed on the behaviour of corporate leaders and their role for strengthening Indian economy is also urgently needed. 6.10 Summary of Findings i) A large number of corporate leaders have not been able to contribute effectively to correct India’s balance of trade. Indeed, a large proportion (over 50%) is involved in aggravating it. The performance of lower rung leaders is comparatively more satisfactory. The corporate leaders’ contribution to globalization of Indian business is even more unsatisfactory if not dismal. With a few
ii)
honorable exceptions, they are globalizing more actively inwards than outwards. iii) Most of the corporate leaders are not contributing to increasing global competitiveness of India, through technological capability building. They seem to, at best, gearing to play the second fiddle, as outsourcing agents than the main players, which does not give confidence to say that India is likely to emerge as a global player, in this age of technology development as key to global competitiveness. iv) There is increasing technological dependence of leaders, perhaps strategic dependence, as manifested by accelerated pace of foreign collaboration by corporate leaders in every field. v) Corporate leaders are not able to withstand global competition. A large percentage, over 50% of pre- reform corporate leaders have fallen from grace both in terms of their sales rank and profit position. vi) The condition of the neo-leaders (entering the filed after 1992) is even worse. vii) There is a steady trend after 1997 and there is no factor that instills belief that situation may change for the better easily. viii) This in turn has started affecting the national economy and society. The falling performance of corporate leaders has blocked a huge amount of country’s savings in unutilized/ underutilized fixed assets and created sizable non- performing assets in the financial institute, causing their fall also. A hooping amount of about Rs. 3 lakh crores (approx. 35% of Total) is locked in the loss making and ‘not reporting’ companies as long term debt. 6.11 Implications of Findings The barrage of new products developed elsewhere and now ease in their being made available here through foreign collaborations has led to temptation of making a fast buck by setting up unsustainable assets, which has resulted in great fall of many of the Indian corporate leaders. If this is not appreciated and the short term, opportunistic behaviour of corporate leaders continues to prevail upon long term sustained, sound performance, the situation would turn only to worse and there will be perpetuating increasing dependence on foreign funds and technology. Corporate leaders have to realise the role they have to play in ensuring sound health of their industry and economy, without which their own survival is not assured.
The steep fall in performance of the corporate leaders indicates that the global competitiveness of Indian competitiveness is not increasing the way it was expected. The corporate leaders seem to be struggling to face competition even in the domestic market. The magnitude of fall suggests that it is time that methods for dramatic improvements in productivity are developed. It can not be left to be done following traditional methods, which focus on incrementalism. It has to be taken up as a strategic Challenge. Time has also come to identify the firms and individuals whose shortsighted/ irresponsible behaviour brings demise to companies and economy. It is necessary to weed out unscrupulous elements in the corporate sector for ensuring the health of the latter as also the economy in general. One of the tragedies of opening up Indian economy has been the imitation and borrowed innovations, with of course few honorable exceptions. The opening has led to a barrage of new products and services entering the country all of a sudden, challenging/ threatening and perhaps pushing back/ slowing down domestic innovations efforts. The number of collaboration indicate that the corporate leaders with few honorable exceptions, are not able/ paying attention to develop and/ or scale up native products that are embedded in the natural endowment and socio-cultural context of the country, which could be leveraged as a strategic tool for meeting global competition on local strengths. The government also has to start critical evaluation of the behaviour and performance of corporate leaders to decide how much and when it should go far privatization. If the corporate leaders are not showing sign of being responsible corporate citizen protecting the Indian economy as the concern of government, going ahead with privatization blindfold and against the policies of post independence policy makers of 1950s and 1960s based upon the behaviour of then corporate leaders, may prove to be costly proposition and difficult to reverse. 6.12 Issues for Future Research The findings of the study indicate that in the post liberalization period, the contribution of the corporate leaders of India has been below the expectations, in terms of correcting the imbalance in foreign trade, (outward)
globalization, technological capability building and providing strength to the Indian economy through sound economic performance. It is time that intensive and extensive studies are undertaken to understand the problems the corporate leaders are facing, to remedy the situation. Without such a support they may not be able to grasp the realities and develop necessary coping strategies. Special attention is needed to identify the factors responsible for the steep fall in the performance of Indian corporate leaders. Fortunately, there are still 50% corporate leaders who have been able to withstand the wind of change caused by the external liberalization. It is important to do because India has to for successive levels of liberalization under the WTO mandate. If it is not able to make a headway in identifying the factors responsible and develop appropriate strategies to mend the situation, it may land up locking higher levels of depleting financial resources of the country in underutilized and non- productive assets on the one hand, and face increasing dependence on foreign funds for economic development with attendant consequences including erosion of sovereignty of national decision making. Studies need to be undertaken for various sub-sectors of industry. Their focus to be on value chain analysis: how much value is created by the firms/ industry in India and how much of it is captured and retained in India. It is also necessary to critically evaluate the value controlled by India firms and the strategic dependence of Indian firms and the country on the foreign players, technology and natural resource endowments. It is also time to have a closure look at the behaviour of Indian corporate leaders in terms of capability rather than capacity building, which is critical for facing international competition in domestic markets and for making India emerge as a global player. The fall out of failure of the corporate leaders to contribute significantly in various arenas has also to be examined in terms of their impact on and relationship with the social, cultural and political dimensions of Indian society. Few works are available to shed light on these issues which seem to be material for the corporate leaders’ performance. Ás mentioned earlier, the time has also come to undertake studies to identify the firms and individuals whose shortsighted/ irresponsible behaviour brings demise to companies and economy. It is necessary to weed out
unscrupulous elements in the corporate sector for the health of the latter as also the economy in general. The study has given the findings in terms of number of firms, but their details are available for further in-depth microlevel studies of firms, industries and other identified groups. There is a need for such longitudinal studies undertaken on an ongoing basis to keep track of the post reform developments. The dynamics of the change is so fast paced, fluid, unprecedented and radical that even keeping track of developments is proving to be a difficult task, leave alone interpretation of their wider ramifications and secondary/ tertiary consequences. The reporting system in business papers/ columns/ journals and magazines is reducing the time frames to a quarter and month, which does not give common men and analysts to understand the broader trends. This study, developed by aggregating firm level data to understand the developments at country, suggests a powerful approach for bridging the wide macro- micro gap between the national policy making and actual action in the field by the companies. One can have a bird’s eye view on macro developments that is necessary for fine tuning a company’s strategies with the national requirements and challenges while maximizing their companies’ performance. At the same time it can also facilitate macro level policy makers to have a microscopic examination of behaviour of firms as well as collectives, so as to incorporate necessary checks and balances while introducing further reforms for opening of Indian economy. The enormity of the research tasks associated with the above issues suggests that individual, sporadic and piecemeal research efforts are inadequate to meet the challenge. Time has come to attend to it through large scale, coordinated research by mobilizing and unifying the national efforts with active industry involvement at various stages of research. Such coordinated studies with close industry association are important from two other angles. Firstly, these would pave way for relevant, meaningful, rich and sound research outputs in a cost effective manner. Secondly, the association in the process of research will facilitate necessary perspective building in both the academicians and managers which would eventually be reflected in the way they will fine tune their approaches and strategies to meet the emerging challenges
6.13 Conclusions This paper analyses the economic performance of corporate leaders, their contribution to the balance of trade and globalization of Indian industry. It is noticed that as of now the corporate leaders, both of pre and post liberalization have by and large failed to maintain the economic tempo, have contributed more to sustaining/ aggravating the adverse balance of trade rather than mitigating it, and have not been able to bring about globalization of Indian industry to the extent necessary. They have also been inward looking and thriving by following the strategy of the past: creating and meeting domestic demands through import of technology rather than emerging as global players. There is a need for major shifts in their stand to make India become a global player and reduce country’s strategic dependence on international players and allow it engage in international trade by choice and on its own terms in line with the requirements of economy and society here. The study also suggests that there is a need of large scale integrated national research effort to support corporate leaders in meeting the challenge of a borderless economy.
Exhibit 1 Performance of Indian Corporate Sector in the Pre and Post Liberalisation Era at a Glance 1991 Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 2151 1696 67 388 0 2151 1992 2151 1669 40 355 87 2151 1993 1994 1995 1991 LEADERS 2151 2151 2151 1573 1645 1691 16 14 10 403 351 312 159 141 138 2151 2151 2151 1996 2151 1619 11 369 152 2151 1997 2151 1461 10 520 160 2151 1998 2151 1327 14 632 178 2151 1999 2151 1203 8 713 227 2151 2000 2151 1160 10 714 267 2151 2001 2151 1000 7 679 465 2151
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
1992 NEOLEADERS 403 403 403 403 293 298 289 304 56 23 9 3 54 66 54 57 0 16 51 39 403 403 403 403 1993 NEOLEADERS 658 658 658 448 501 518 127 46 13 83 79 73 0 32 54 658 658 658 1994 NEOLEADERS 962 962 685 760 177 59 100 101 0 42 962 962 1995 NEOLEADERS 1128 764 222 142 0 1128 1996 NEOLEADERS
403 285 2 75 41 403 658 457 12 121 68 658
403 261 3 89 50 403 658 374 14 192 78 658
403 225 1 116 61 403 658 340 11 209 98 658
403 194 2 150 57 403 658 287 6 252 113 658
403 191 2 147 63 403 658 289 7 227 135 658
403 165 3 120 115 403 658 241 9 181 227 658
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
962 675 24 163 100 962
962 561 25 258 118 962
962 477 11 325 149 962
962 438 15 335 174 962
962 441 21 308 192 962
962 342 8 270 342 962
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
1128 786 92 216 34 1128
1128 593 67 301 167 1128
1128 516 55 436 221 1228
1128 476 43 367 242 1128
1128 503 26 322 277 1128
1128 366 16 275 471 1128
Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total
584 351 131 102 0 584
584 339 62 160 23 584
584 270 33 169 112 584
584 269 33 156 126 584
584 274 21 152 137 584
584 216 13 124 231 584
1997 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 431 235 73 123 0 431 431 236 48 135 12 431 431 188 27 115 101 431 431 201 17 114 99 431 431 146 9 92 184 431
1998 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 1999 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 2000 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 2001 NEOLEADERS Total Cos. In Profit Co. in No Profit No Loss Co.in Loss Cos. Not Reporting Total 38 19 6 13 0 38 316 217 35 64 0 316 316 208 11 86 11 316 488 303 54 131 0 488 488 304 37 133 14 488 488 230 17 95 146 488 328 193 45 90 0 328 328 205 22 92 9 328 328 150 12 74 92 328 328 106 6 62 154 328
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