mycollection8

A very interesting article. Please read fully. Worth it.

There's a small question-and-answer game I play with business audiences when I'm called to address them. I ask them to estimate what they'd pay for two pieces of leather, about 12" by 6" in size. The answer's typically about Rs 50 or so.

I then ask what they'd pay for two pieces of flat rubber, about 10" by 4". Again, the consensus is about Rs 20. Now I ask their quote for two pieces of sturdy string, measuring about three feet long each. A rupee or two, I'm told.

What would they pay for an hour of manual labour? Oh, about Rs 20, they say. I then ask them to add up the cost of the goods and labour; some attentive soul says it's Rs 92. Now I ask them, suppose you took that leather and instructed the labourer to spend an hour shaping it over the rubber, pass the strings through the top - and make a decent pair of shoes that you could sell at a roadside vendor, what would you get for it? About Rs 150 or so, I'm told. When asked for the profit margin, some wag quipps that it's about 35%.

I then ask for the cost of four tiny pieces of leather, cut into shapes of letters of the alphabet. Oh, another two rupees at the most, I'm reassured. The revised total cost? Rs 94. And what if I arranged those little pieces in the order 'N', 'I', 'K' and then 'E' on the shoes and THEN sold them? What would I get? There's typically silence in the house, and then pandemonium. What would the profit margin be, I ask? Nobody bothers to calculate in the hubbub.

I do this to illustrate a simple point: that brands earn more. Not being accustomed to jargon, I did pick up the concept that this line of activities involved in creating a product - from the slightly reluctant cow, to the tanner, the dyer, the rubber moulder, the lace-maker, the cobblers and cobbling machines, to the stockists, the retailers and finally the eager Michael Jordan fans - is called a value chain.

And the greatest value in this chain is at the end of it. That's where the money is.

I also note that virtually, without fail, all of Indian industry has been concentrated at the wrong end of the value chain. In every business, be it leather goods or garments or even computer software, we have largely been the leather and cobbler suppliers to the world. A simple calculation brought this home. An Indian IT service firm was making loud whooping noises about crossing a billion dollars in revenues. I read they had some 25,000 people who took them to that number. I looked then at a former client of mine, Microsoft, who - with twice the number of people - pulled off $32 billion in revenues. A productivity-per-employee figure that is not twice or 4 times, but 16 times that of one of our more admired companies.

When will we begin to learn that building end-user brands - and not low-cost processes - is what brings the moolah home? That's what will increase our GDP, bring in the wealth, and actually make us a developed nation.

Why is it that we teach thousands of B-school students the art of brand creation - from understanding customer needs, competitive strengths, gap identification and obscure market research techniques - and then deploy them at multinationals selling soap with "new, increased carbolic acid" rather than with someone creating global brands from right here in India? Beats me.

I see today's entrepreneurs from Tirupur proudly claim to sell top-quality t-shirts to Tommy Hilfiger for Rs 150 - and then use the money they earn to go abroad and buy the same thing back at Rs 1,000 a piece.

Somebody told me that to create a brand, you must be near consumers, and we can't do that if consumers are in the US. Nonsense. Today, TV and the internet are global. My six-year-old in Bombay tells me what's cool among six-year olds in Boston. If the Japanese can sell cars and perfumes globally, and the Koreans handsets, we can certainly give the world our brands.

We can be more than just cobblers to the world.