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July 1, 2008

Business interests vs national interests

Issue 16 - Jul 2008

Indian companies must be more pro-India
Sameer Wagle

Indian companies must go beyond merely maximising shareholder value to look at value maximisation for India as a country—by taking steps which might carry costs in the short term but will help India as well as themselves in the long run.

This is not to imply that Indian companies are unpatriotic or that they have not contributed to the Indian economic growth story. Far from it. The success of the Indian growth story today is largely because of the Indian private sector. However, Indian companies have to take a strategic approach towards their home country. Free markets and shareholder value maximisation are great ideas, but just as socialism is a dogma, “free marketism” and shareholder value should not be allowed to become a dogma while protecting a nation’s interests.  

The reality is that the interests of the free markets do not always converge with the strategic interests of a nation. Take the example of the mass manufacturing industry in India. Free markets dictate that economic activity should move to regions where they are most cost effective and efficient. However in spite of having a large young population base and one of the lowest labour costs—two critical input factors for low-cost manufacturing—mass manufacturing has moved away en masse from India. The reasons for this are poor infrastructure, rigid labour laws and atrocious governance. The result: India today has a number of shops are full of Ganeshas and Indian flags with “Made in China” tags.  

Indian companies have no obligation to care about the national interest.
Gaurav Sabnis

Lofty notions of morality dictating international relations sound perfect for a Utopian world, but taking a realist’s perspective, a nation is well served looking after its own interests. A world that lives by a universal moral code would be the ideal, but the reality is that as long as even one nation abandons morality for its own interests, other nations would be stupid not to do the same. It would be like tying one hand behind your back and boxing an opponent who is using both his hands.This is why it is welcome to see the gradual, though still insufficient shift in Indian foreign policy from the Nehruvian notions of non-alignment, solidarity with Arabs at the cost of diplomatic relations with Israel and so on, towards a more pragmatic approach over the last two decades.

Extending the same logic to business, there is not much value to Indian companies caring too much for national interest, especially when operating abroad. Just like the competition or rivalry among nations makes a realistic self-interest based approach advisable, competition among companies necessitates that they put their own interests before national interest. If there is a conflict between the two, then national interest must take a back seat.

In reality, companies are likely to face a major dilemma while taking these decisions. There could be trade-offs involved in choosing one over the other. Especially in a regulation-heavy country like India, companies would be mindful of retaliation from the government if it is perceived as going against the nation’s interests. If  the Tatas accept a contract from Pakistan for defence-related research and development, then the Indian government could make life difficult for the Tatas in India by denying them licenses, contracts, and may even impose harsher sanctions. So in reality, keeping national interests in mind could end up being the realistic approach, and ultimately in line with overall business interests.


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