MUMBAI | 3APRIL2021 Ajabatco-opetition Powerplay

ALOKANANDACHAKRABORTYNewDelhi, 2 April

Ashortquiz:n What is the average time it takes todevelopanewvaccine fromscratch?

Anythingbetween10and15years.

n What was the development timeforCovid-19vaccines?

A littleunderayear

Any guesses how thatwas possible?The speed at which the vaccinesfor Covid-19 were developed owes

muchtoinformation-sharingandcollabo-ration among scientists, universities, bio-tech firms and pharmaceutical corpora-tions. “It’s the positive side of rivalry thatcan sometimes deliver a compellingadvantage,” saysMoneshDange, consult-ingmarkets leader, EY India.

More than 30 years after HarvardBusiness Review (“Collaborate with yourCompetitors—andWin”) argued that so-called “coopetition” throws open newresearchanddevelopmentopportunities,the recent pandemic showed once againthat suchcollaborationamongseeminglyrival corporations can be a low-cost andefficient way to reach consumers. It canalso set themuptosolveunforeseenchal-lenges.Orplain survive tough times.

Look at the alacrity withwhich FMCGgiant ITC joined hands withfood delivery chains Domi-no’s,SwiggyandZomatoalongwithcommunity-centricappssuch as Apna Complex, My-Gate, NoBroker and Azgo tobridge the last-mile deliverygapasthepandemicragedlastyear. The company had alsojoinedhandswithlogisticspla-yerDunzowhileservicingcus-tomers through its direct-to-consumer portal ITCstore.in.

Inotherwords, ifyou’restuck,acarefulalliance with a competitor/competitorscould very well be in your best interest.So when its own distribution networkcame up against a wall (read lockdown)ITC roped in delivery experts to getaround the problem. Of course, this wastactical but the purpose was served. Andwho knows? “The ecosystem of collabo-rationswith emerging distribution chan-nelscouldbecomemainstreamgoing for-ward,” an ITC spokesperson had toldmedia channels last year.

“Thephilosophybehindanecosystemapproachistoenablesynergiesratherthandrain them,” says Dange. And in a hyper-competitiveworld,combining“thebestofwhateachelementofunpairedconflictingorganisations can deliver together versusdoing it alone” is plain smart, he adds.

Sowhydon’tweseemoresuchcollabo-ration?Whichindustriesorcircumstancesare amenable to co-opetition?

Asit turnsout,co-opetitioniscommonin the IT industry. If earlier such coopera-tion was about building and protectingone’s IP, successful co-opetition today is

more about opening new market oppor-tunities. This shift has been engenderedby the global democratisation of technol-ogy that has, to a large extent, removedthepreviously expensivebarriers to inno-vation, say experts.

Take Amazon and Apple. Their storybegan in 2007, whenAmazon introduceditsKindlee-readingdevice. Soonafter thelaunch of Apple’s iPad in 2010, the tworivals decided to join hands to distributeAmazon’s e-books through iPad’s Kindleapp. It was a win-win: While Apple’s iPadbecameamore exhaustive content provi-der,Amazongotaccess toabiggermarket

for its e-reader. Such effortsare better aligned to clientgoals than a straitjacket wayof doing things, addsDange.

Although it might takehome-grown brands sometime to get there, we did seeearly signs of collaborationduring the recentpandemic,thoughmost relate to adver-tising and communication.

A video posted on actorKajol’sTwitteraccountsome

timeagosaid,“Intimeslikethese, theonlything thatmatters is yours and your fam-ily’s health. A soap, ANY soap, is the bestway to prevent the spread of COVID-19…”

TherewasalsoaprintadfromLifebuoythat first appeared in theMumbai editionof Hindustan Times, which said, “Pleaseuse any soap nearest to you. Not justLifebuoy, but any soap like Lux, Dettol,Santoor orGodrejNo 1.”

“Youmay call it opportunistic, but thefact that a Lifebuoy ambassadorwas telli-ng people to use “any” soap because “saf-ety” and not “brand”mattered, gave thatbrandahalothatnoamountofnoisecouldhave created”, says a brand communica-tionexpert.Thatsaid,“theconceptofcoo-peration is a lot bigger than the Lifebuoyad,”saysAmbiParameswaran,brandcoa-ch and founder, Brand-Building.com. “Itwould have been real co-opetition if Life-buoyhadroped in theothers intoapublicservice campaignonhand-washing.”

ThentherewasDunzo.Mid-2020wheneverything came to a standstill, Dunzopostedamessageonsocialmedia,doffingits hat to thosewhowere doing the “ride”

thing — it thanked competitors Swiggy,Grofers and BigBasket for their services.

Following its post, rival delivery servi-cesproviderSwiggylaunchedavideocam-paign, Sukhriya Karein, featuring socialmedia influencers to thank the “heroeswho wore helmets and rode scooters” todeliver essential products while riskinglives.ThatadvertmentionedrivaldeliverybrandsDunzo,Medlife andGrofers.

Willweseemoresucheffortsgoingfor-ward? Dunzo is non-committal. “We’vealways advocated for an inclusive anddiverseecosystemandwestronglybelieveeach of us has a role to play in shaping abetter experience for users. At this stage,weareunable tocommentonhowwecol-laboratewithpartners inourspaceexceptthat it’s our small contribution to what’shappeningat largeandwewanttouseourbrandengagementto improveonourcus-tomer offering,” says an executive speak-ingonbehalf of the company.

“All of this sounds good on paper butbusinessisaboutcompetitionandnotcoll-aboration,”saysHarminderSahni, found-er andMD,Wazir Advisors. “Real value iscreated when you challenge the statusquo.” In fact, he points out, the strategy isrisky, and might backfire. Corporationsthat choose to share resources such as in-formation,data,expertiseandothercapa-bilities should be aware of the extent towhichtheyareallowedtoengage incoop-erativepartnershipswith rivals.Thereareregulations inforce thatpenalise firmsforcollusivepractices,suchasformingmono-polies and price-fixing. “What purpose isserved when those who are supposed tochallengemonopolies are actually indul-ging inmonopolistic practices?”

“The obvious risk when rivals worktogether isgivingawayconfidential infor-mation, trade secrets and insights on keypersonnel,”saysPrasannaSingh,whorunscommunication firms in the renewablesand sustainability space in India.

“Thekeyissueisabsolutetransparencyin the terms of trade as was the case injoint vaccine development efforts. As theeconomy becomes more formalised withmore costs becoming commonacross co-mpanies, I believewewill seemanymoresuch examples as, for example, we see intelecom(sharingof tower infrastructure).”

NIDHIVERMA2April

When India’s government last monthasked refiners to speedupdiversificationand reduce dependence on the MiddleEast — days after OPEC+ said it wouldmaintainproductioncuts—itsentames-sage about its clout and foreshadowedchanges to theworld’s energymaps.

It was a move that had been in theworks for years, fuelledby repeatedcom-ments from Indian Oil Minister Dhar-mendra Pradhan, who in 2015 called oilpurchases a “weapon” for his country.

When the Organisation of OilExportingCountriesandMajorProducers(OPEC+) extended the production cutsintoApril, Indiaunsheathedthatweapon.Indian refiners plan to cut imports fromthe Kingdom by about a quarter in May,sources told Reuters, dropping them to10.8millionbarrels frommonthlyaverageof 14.7-14.8millionbarrels.

Oil secretary Tarun Kapoor, the topbureaucrat in the ministry, told Reutersthat India isaskingstaterefiners to jointlynegotiate with oil producers to get betterdeals, but declined to comment on plansto cut Saudi imports.

“India is a big market so sellers havetobemindfulofourcountry’sdemandaswell to keep the long-term relationshipintact,” he said.

Pradhan, who sees high oil prices asa threat to India’s recovering economy,said he was saddened by the OPEC+decision. India’s fuel import bill has

rocketed, and fuel prices — inflated bygovernment taxes imposed last year —have hit records.

TheInternationalEnergyAgencyfore-casts India’s consumption to double anditsoil importbill tonearlytriple from2019levels tomore than $250 billion by 2040.

An oil ministry official, who declinedto be named because of the sensitivity ofthe matter, said the OPEC+ cuts havecreated uncertainty andmade it difficultfor refiners to plan for procurement andprice risk.

It also creates opportunities for com-panies intheAmericas,Africa,Russiaand

elsewhere to fill the gap.If India is successful, it will set an

example for other countries. As buyersseemore affordable choices and renew-able energy becomes increasingly com-mon, the influence of big producers likeSaudi Arabia could wane, altering geo-politics and trade routes.

DiversificationdriveIndia’soildemandhasrisenby25percentin the last seven years —more than anyothermajorbuyer—and thecountryhassurpassed Japan as the world’s third-largest oil importer and consumer.

Thecountryhasalreadycurbeditsreli-ance on theMiddle East frommore than64 per cent of imports in 2016 to below60per cent in 2019.

That trend reversed in 2020,however,when the pandemic pummelled fueldemand and forced Indian refiners tomake committed oil purchases from theMiddle East under term contracts, shun-ning spot purchases.

As India shifts gears again afterPradhan’s call for faster diversification,refineries are looking for new suppliers.

Costlyrefineryupgrades thatallowforthe processing of cheaper, heavier oilgradeshaveencouragedimporters toseekout far-flung sources. HPCL-MittalEnergy Ltd bought the country’s firstcargo from Guyana this month, andMangalore Refinery and PetrochemicalsLtd just imported Brazilian Tupi crudefor the first time.

REUTERS

A jabat co-opetitionRivalsacross industriessawvirtues incooperatingduringthepandemicbut it’satrendthat isyettocatchon

The widespread excitement around re-privatisation of public sector banks(PSBs) appears to betray ignorance ofboth the basics of economic theory aswell as large facts of Indian credit mar-kets. I had occasion to revisit theserecently when I delivered the inauguralKN Raj Memorial lecture at my almamater, the Centre for DevelopmentStudies, Thiruvananthapuram.

The legendary economist and insti-tution-builder K N Raj was the one whoexplicated the intellectual case for banknationalisation in the 1960s. Economictheory explainswhybanking enterprisesseeking tomaximise their profits wouldnot venture into areas and sectors ofactivity,whichmayotherwisehave greatstrategic social and economic signifi-cance.As JohnMaynardKeynes argued,there are two types of risk that affect thevolume of investment. The borrower’srisk arises because she is unsurewhetherher business venture will provide theexpected yield. As a borrower, shewantsa low rate of interest, especially if herventure is a risky one. But the same situ-ation creates the lender’s risk of defaultby theborrower,which caneither be vol-untary (moral hazard) or involuntary(due topoor returnson investment). Thismeans that the lendermust charge a rateof interest high enough to inducehim to

lend. Keynes expresses the resultingsocial dilemma somewhat poetically:“Thehopeof a very favourable outcome,whichmay balance the risk in themindof theborrower, is not available to solacethe lender.” There are alsohigh informa-tion and transaction costs of dealingwithmany small borrowers that act as amajor disincentive for lenders.

These insights of economic theoryare corroborated by the historicalcontext of 1969, the year 14private bankswere nationalised. At the time, not even1 per cent of India’s villageswere servedby commercial banks. While industryaccounted for a mere 15 per cent ofnational income, its share in commer-cial bank credit was 67 per cent.Agriculture that contributed 50per centofGDPvirtually got nothing frombanks.After nationalisation, the number ofrural bank branches increased dramati-cally. By 2019, 99per cent of villageswitha population of less than 2,000 hadaccess to banking services. It is the eas-ier availability of credit that fuelledIndia’sGreenRevolution andeven todayit is these banks that are the biggest for-mal source of credit at tolerable interestrates for the poor in rural India, who areotherwise forced to pay anywherebetween 5 and 10 per cent permonth asinterest to usuriousmoneylenders.

Of course, there is a definite need forreforms in PSBs, since the policy of“social coercion” adopted after nationa-lisation achieved only limited successanddependence onusurious ruralmon-eylenders actually grew after strict prof-itability norms were applied to PSBs in1991. But over the past 10-15 years, verypromising progress has been achievedin resolving the trade-off betweenaccessto affordable credit and banking profit-ability. This has been made possible bylinkingwomen’s self-help groups (SHGs)with PSBs, which hasmade inexpensive

credit available to the poor, even asbanks have reduced transaction costsand improved profitability, thanks tothe impeccable financial disciplineand extraordinary repayment recordof SHGs.

I havebeenpersonally involved in theformationof thousandsof SHGsover thepast decade in the most deprived partsof central tribal India.Now it is not socialcoercion or even social responsibilitythat drives the lending to SHGs butrobust business considerations of PSBs.We shudder to thinkofwhatwill happenonce PSBs are privatised, as proposed inthe Union Budget of 2021. India’s mostpowerful instrument in thebattle againstpoverty could be deeply compromised,since in our long experience we havenever found any private bank willing tocontemplate lending to SHGs in theseremote areas.Wemust also worry abouthow the impetus to universal financialinclusion could falter as a result of bankprivatisation. Rather than privatisation,what is urgently required are reforms toimprove thequality of thePSBs’ relation-ship with SHGs and much greater statesupport to the SHG-bank linkage pro-gramme.Thiswill enable it to reach crit-icalmass and tackle the root of theprob-lem, which lies in unregulated creditmarkets,where thebalance of social andeconomicpower ensures that thesemar-kets work against the interests of mil-lions of small andmarginal farmers andthe landless poor in rural India.

Those arguing for their privatisationoverlook the fact thatmany of the prob-lems facing PSBs have arisen because ofa fundamental shift in the thrust of eco-nomic policy in India. As fiscal stimulihave taken a backseat within the ortho-doxyof austerity andwithprimacybeinggiven to monetary policy, PSBs havebeen repeatedly forced into populistmeasures suchas loanwaivers or financ-ing infrastructure projects, without req-uisite due diligence, which have dam-aged the integrity of thebanking system.Suchbig-ticket loanshave led to thebur-geoning of non-performing assets(NPAs),whichare then seenas ablemishin the performance of PSBs. Real PSBreform will lie in giving them greaterautonomyandprofessional capabilities,rather than their privatisation, whichcould well be a disaster in the making.

Thewriter is Distinguished Professor,ShivNadarUniversity, and formerMember,Planning Commission, Government of India

Theforgottencase forbanknationalisation

MIHIR SHAH

Last year, Dunzoposted a messageon social media,doffing its hat tothose who weredoing the ‘ride’thing — it thankedcompetitorsSwiggy, Grofersand BigBasketfor their services

Intherecentclamourfortheir re-privatisation,weseemtohaveforgottentherationaleforbanknationalisationandthecrucial rolepublicsectorbankscontinuetoplayinIndia’swaragainstpoverty

MUMBAI | 3 APRIL 2021 TAKETWO 7. <

Powerplay: Indiawieldsoil ‘weapon’to cutdependenceonSaudiArabia