Q&A With Elizabeth Finch, FedEx

The global credit crisis has gravitated to Europe and more recently to India. What are their prospects for economic recovery and growth?

The global credit crisis has gravitated to Europe and more recently to India. What are their prospects for economic recovery and growth? To find out, we connected with the FedEx Express vice president, sales, for Europe, Middle East, Indian Subcontinent and Africa (EMEA).

Access: What’s the relationship between increased global connections and innovation?

ELIZABETH FINCH: Connectivity lays the groundwork for empowerment and the framework for innovation. Access to information is transforming economies of the world as new markets and new suppliers are coming into play. Ideas that were already in people’s heads suddenly become economically viable through access to larger markets.

An entrepreneur sitting in Tirupur, a small town in India, is now able to connect in real time to the recent trends in Paris or New York. He also has the ability to reach out to a potential customer in those cities and offer a product that is hugely competitive. He then innovates with the resources available to create a product that can be adopted by global brands as their own.

Today, the largest economy in the world is no longer the economy of any one country — it’s the economy of the global trade of goods and services, a single global marketplace valued at $71.6 trillion, according to a 2012 World Bank report. The more we have global connectivity, the more the forces of innovation will be unleashed to deliver goods and services of similar standards across the globe.

Access: What are the biggest impediments to innovation, particularly in India?

EF: Most innovation-rich regions are endowed with the ideas, policies, and infrastructure that advocate for innovation. In such environments, innovators gravitate toward other innovators and “innovation clusters” are more easily established.

Being one among the 18 emerging economies, India is rapidly improving its innovation capabilities and learning from other nations. With more than 1.2 billion inhabitants and a robust economy with a purchasing power parity (PPP) of $3,876 in 2012, this low-income country is still among innovation learners.

India ranks 66th in the 2013 Global Innovation Index ranking — but it ranks first in the central and southern Asia region. Despite being grouped among lower-middle-income countries, India’s efficiency ratio is 1.02 compared to 0.74 in the U.S. This clearly shows that the innovation output of India is high given the inputs, which include investments in human capital, research, infrastructure and so on. India will improve its global innovation ranking if it can improve those inputs, beginning with public policy.

As is rightly included in the Indian government’s most recent Five-Year Plan, India needs to encourage innovations that are affordable and implementable at mass level. For example, the world’s cheapest car, priced at $2,000, comes from India.

Despite all of these challenges, India has grown rapidly with the help of its people, who are inherently innovative and entrepreneurial, even if their innovations in some cases have been temporary and makeshift.

Access: You’re relatively new to Mumbai. What are your observations on the ground in India as its hard-charging economy grapples with a credit crunch?

EF: Mumbai in a way captures the essence of India. It’s cosmopolitan at one level, and yet every traditional element of the country is present. There’s huge wealth and equally dismal poverty. The world’s second-most-expensive home and the world’s third-largest slum are both in Mumbai.

The Indian economy has its drivers sitting in Mumbai — from finance to fashion, industry to commerce. Yet Mumbai has also failed to address the larger challenges that India as a country faces: decent housing, good roads, health infrastructure and efficient civic amenities.

India’s urban centers observe high media penetration, rapid adoption of technology, extensive reach of internet and mobile platforms. Increasing access to technology, infrastructure development, improved air and ground transportation is now allowing Tier 2 and Tier 3 cities to participate in India’s economic growth.

Increasingly the trend in India is the shift to Tier 2 and Tier 3 markets. These have come into reckoning as the growth engines of the future. We see an increase in the disposable income of the people — which we believe is a huge opportunity, given the fact that India is a country of a billion people — and more than 70 percent of its population resides outside the urban/metropolitan cities.

A recent report showed monthly rural consumption going up by 5.5 percent and rural poverty going down by a third. An urban parallel to the strengthening rural economy lies in Mumbai’s biggest slum — Dharavi — which is by itself a hub of economic activity.

India is uniquely poised to reap the advantages provided by a nation of a billion (65 percent of India’s population is below the age of 35), with more than 800 million mobile phones and global leadership in information technology.

To leverage these advantages — India’s infrastructure must keep pace with India’s economic growth; policies need to be business friendly; and the country has to overcome its basic development challenges in health, education, skills, energy, agriculture, and urban and rural development.

Access: Are the long-term prospects for India still good?

EF: The Indian economy continues to grow at more than 5 percent. While that’s a dropoff from the 8 percent to 9 percent growth that the country had witnessed in the past decade, it’s still an impressive figure, given the size of the economy and the country’s challenges.

The infrastructure sector is opening up through public-private partnerships. The India story continues to ride other positives: a demographic dividend of young people entering the job pool; growing rural purchasing power; growing urbanization; and a larger entrepreneurial pool.

The long-term prospects of India are still very good.

Access: How critical is infrastructure to India’s future?

EF: Infrastructure is one of the biggest hindrances in India’s growth. The pace of economic development hasn’t been matched by growth in infrastructure. Almost all major roads, rail and port routes are operating well beyond optimal capacity. Even smaller cities are growing at a rapid rate, but don’t have the resources to build infrastructure quickly. A good example of the impact is the city of Bangalore, which is struggling to cope with the large population pressure triggered by its rise as a global IT destination.

Having said that, there are steps in the right direction. India has pegged infrastructure spending at $1 trillion in its new Five-Year Plan (2012–13 to 2016–17) from a little less than $500 billion in the previous five years.

The HSBC Trade Confidence Index report states that India is set to overtake America as the biggest importer of infrastructure inputs by 2020, as it builds new transport networks and power plants, among other amenities.

Access: What are the economic prospects in the rest of the territory you cover?

EF: Here are a few observations:

UAE: The socioeconomic momentum created in the United Arab Emirates (UAE) in the last few decades makes the country very well positioned to continue to attract a flow of intellectual capital, establishing itself as a hub for innovation in this part of the world. Dubai has emerged as a dynamic financial hub for the region, hosting many banks and insurance, financial, and legal service firms. The government established the Dubai International Financial Centre (DIFC), a free zone regulated by its own independent commercial and civil laws and under the United Arab Emirate constitution.

Having said that, the 2009 global financial crisis has called Dubai’s growth model into question. Real estate speculation, accompanied by huge debts, led to a rescue operation by the UAE authorities in 2009. Since then, Dubai has recovered and is on a modest growth path. To continue on a higher sustainable growth trajectory, it will need to maintain its engagement with the knowledge economy. This can be done by intensively exploring new areas, notably in high-tech and R&D activities, and by developing top-notch higher-education programs to educate a cadre of highly skilled people.

Africa: Robust domestic demand factors have underpinned Sub-Saharan Africa’s growth performance in recent years. However, a World Bank report indicates a projected strengthening of global demand, which is expected to support the region’s medium-term growth trajectory. Regional GDP is projected to pick up to 4.9 percent in 2013, 5.2 percent in 2014 and 5.4 percent in 2015, respectively. Net private capital inflows are projected to reach $77.5 billion in 2015 from $48.3 billion in 2012. Household spending will be supported by rising incomes, increased remittance flows and a stable macroeconomic environment.

With growing access and changing business dynamics, I’m bullish about the economic growth within the region.

Access: Four billion people in the world lack internet access. What are the implications of democratizing web access for the global economy?

EF: Getting everyone connected to the net is the fastest way to drive economic growth — it creates more opportunities by creating markets where buyers find sellers faster and more efficiently. While India’s internet penetration is low at only 8.4 percent of the population, it has a billion connected people on more than 800 million mobile phones. This offers immense opportunity to get everyone connected onto the net through mobile phones.

The internet’s impact on global growth is rising rapidly. The internet accounted for 21 percent of GDP growth over the last five years among the developed countries, according to the McKinsey Global Institute. Most of the economic value created by the web falls outside of the technology sector, with 75 percent of the benefits captured by companies in more traditional industries. Among 4,800 small and medium-size enterprises surveyed, the internet created 2.6 jobs for each lost to technology-related efficiencies, thereby even acting as a catalyst for job creation.

Access: Global e-commerce activity grew 21 percent in 2012. Have we reached a new e-commerce tipping point where it’s now a fundamental economic driver?

EF: E-commerce is undoubtedly reshaping global retail, but it seems too early to label it the world’s fundamental economic driver. In countries like India, e-commerce accounts for about 1 percent of the retail industry while Brazil clocks in with 4 percent.

That said, it’s equally true that it’s becoming a dominant driver. Some reports project the Indian e-commerce market to touch $2 billion by 2015 from under half that number in 2012. Some of the key trends in India are:

  • E-commerce in India is now at mass with consumers from across 4,306 Indian cities in all 28 states and seven union territories shopping online.
  • Indian entrepreneurs are exporting a variety of handcrafted and manufactured products to consumers from over 200 countries.
  • Cheaper mobile and tablet devices have enabled shopping on the go, and consumers are increasing the time spent online.
  • With an increase in women shoppers, lifestyle categories are surging ahead, and now contribute a major portion of the pie.
  • Online shoppers are buying a wider selection of international products — including Western imports.

Equally, e-commerce must be seen in the broader context of hybrid models where companies are creating two-way flows between their online and offline traffic to offer their customer an integrated experience.

Rather than look for one sweeping e-commerce revolution, it’s more likely that e-commerce will become a fundamental economic driver as its role evolves differently in different market sectors.

Comments

  1. A comprehensive perspective on the Emerging Sub-continent of India.Future Biz prospects and challenges….

    Sunil Menon A February 10, 2014

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