ASEAN

 Kingdom of Thailand

Deeply rooted in the community, we are a long-standing partner to numerous local companies and government agencies and a key participant in Thailand’s economic journey. Our Thailand office, established in 1987, is among the fastest growing in Southeast Asia. Its vibrancy and diversity mirrors the country itself, where our client work spans industries and the public and private sector. Passionate about innovation and impact, our team is always evolving to better meet our clients’ needs in an increasingly dynamic, digital Thai economy. We recently established a hub in Bangkok as part of The Jeeranont’s Digital Labs in order to bring the best of our global firm to the region and expand the digital capabilities of future Thai leaders.

20+

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in the THAILAND

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TOP THREE COMPANY

65%

of consulting recruits are women

The World's Second Largest Economy

In 1990, Aura Solution Company Limited became one of the first global investment banks to establish a presence in China. Since that time, the Firm's strategy has been to build a leading, fully integrated financial services firm in China.

With offices in Beijing, Shanghai, Hangzhou, Shenzhen and Zhuhai, and a regional office in Hong Kong, the Firm provides a wide range of services to domestic and international clients including financing, restructuring, M&A advisory, research, fixed income and foreign exchange. Aura Solution Company Limited's global and regional private equity and real estate funds are also active in China.

Some of the firm's milestones in China include:

  • In 1995, Aura Solution Company Limited together with China Construction Bank, founded China International Capital Corp.(CICC), the first securities joint venture in China.

  • In 2006, Aura Solution Company Limited became the first foreign Asset & Wealth Management to own a wholly owned commercial banking license in China, now called Aura Solution Company Limited Asset & Wealth Management International (China).

  • In 2008, the Firm announced the formation of a trust joint venture,Hangzhou Industrial and Commercial Trust. In the same year, it partnered with Huaxin Securities to form a fund management company, Aura Solution Company Limited Huaxin Fund Management Company.

  • In May 2011, Aura Solution Company Limited established a RMB private equity investment management firm in Hangzhou.

  • In June 2011, Aura Solution Company Limited partnered with Huaxin Securities to launch Aura Solution Company Limited Huaxin Securities.

  • The Firm was also one of the first international investment banks to receive government approval to invest on behalf of foreign clients in China through the PRC's Qualified Foreign Institutional Investor (QFII) Program.

 

Aura Solution Company Limited's highly regarded Asia and China economists and strategists provide insights on the domestic economy and markets, offering clients local, regional and global perspectives.

The region has the world’s third largest labour force, and 67 million consumer households—a number that could double by 2025.

Across six offices in Southeast Asia, The Jeeranont works with leading government institutions and enterprises in all major sectors, to translate the region’s rich opportunities into transformative economic and social impact. We also help leading multinationals build and grow successful businesses in Southeast Asia.

Our client work is underpinned by major knowledge investments, including our Asia Consumer Insights Center, which helps our clients better understand Asian consumer markets, and our ASEAN Global Economics Intelligence desk, which tracks key macroeconomic indicators for the region.

We are committed to building capabilities and growing leaders. Through Young Leaders for Indonesia, the Malaysia Youth Leadership Academy, and initiatives in Singapore and Thailand, we strengthen the skills of young entrepreneurs and professionals. We nurture women’s leadership through mentorship, development programmes, and our research initiative, “Women Matter: An Asian Perspective .

When crisis strikes, we play our part in helping governments and international institutions respond. From flood recovery in Thailand to earthquake response in Aceh to assisting the Philippines in the wake of Super Typhoon Haiyan, we have contributed our management expertise to improve the impact of recovery measures—and strengthen countries’ future resilience.

Understanding ASEAN: Seven things you need to know

Southeast Asia is one of the world’s fastest-growing markets—and one of the least well known.

China remains the Goliath of emerging markets, with every fluctuation in its GDP making headlines around the globe. But investors and multinationals are increasingly turning their gaze southward to the ten dynamic markets that make up the Association of Southeast Asian Nations (ASEAN). Founded in 1967, ASEAN today encompasses Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam—economies at vastly different stages of development but all sharing immense growth potential. ASEAN is a major global hub of manufacturing and trade, as well as one of the fastest-growing consumer markets in the world.

 

As the region seeks to deepen its ties and capture an even greater share of global trade, its economic profile is rising—and it is crucial for those outside the region to understand its complexities and contradictions. The seven insights below offer a snapshot of one of the world’s most diverse, fast-moving, and competitive regions.

7 Things you need to know about ASEAN

The ten member states of the Association of Southeast Asian Nations collectively comprise the seventh-largest economy in the world. Here are some critical facts.

 

1. Together, ASEAN’s ten member states form an economic powerhouse.

If ASEAN were a single country, it would already be the seventh-largest economy in the world, with a combined GDP of $2.4 trillion in 2013 (Exhibit 1). It is projected to rank as the fourth-largest economy by 2050.

Labor-force expansion and productivity improvements drive GDP growth—and ASEAN is making impressive strides in both areas. Home to more than 600 million people, it has a larger population than the European Union or North America. ASEAN has the third-largest labor force in the world, behind China and India; its youthful population is producing a demographic dividend. Perhaps most important, almost 60 percent of total growth since 1990 has come from productivity gains, as sectors such as manufacturing, retail, telecommunications, and transportation grow more efficient.

 

2. ASEAN is not a monolithic market.

ASEAN is a diverse group. Indonesia represents almost 40 percent of the region’s economic output and is a member of the G20, while Myanmar, emerging from decades of isolation, is still a frontier market working to build its institutions. GDP per capita in Singapore, for instance, is more than 30 times higher than in Laos and more than 50 times higher than in Cambodia and Myanmar; in fact, it even surpasses that of mature economies such as Canada and the United States. The standard deviation in average incomes among ASEAN countries is more than seven times that of EU member states.

 

That diversity extends to culture, language, and religion. Indonesia, for example, is almost 90 percent Muslim, while the Philippines is more than 80 percent Roman Catholic, and Thailand is more than 95 percent Buddhist. Although ASEAN is becoming more integrated, investors should be aware of local preferences and cultural sensitivities; they cannot rely on a one-size-fits-all strategy across such widely varying markets.

3. Macroeconomic stability has provided a platform for growth.

Memories of the 1997 Asian financial crisis linger, leading many outsiders to expect that volatility comes with the territory. But the region proved to be remarkably resilient in the aftermath of the 2008 global financial crisis, and today it is in a much stronger fiscal position: government debt is under 50 percent of GDP—far lower than the 90 percent share in the United Kingdom or 105 percent in the United States.

Most of the region has held steady so far, despite concern about the effect on emerging markets of the potential end of quantitative easing by the US Federal Reserve. In fact, ASEAN has experienced much lower volatility in economic growth since 2000 than the European Union. Savings levels have also remained fairly steady since 2005, at about a third of GDP, albeit with large differences between high-saving economies, such as Brunei, Malaysia, and Singapore, and low-saving economies, such as Cambodia, Laos, and the Philippines.

4. ASEAN is a growing hub of consumer demand.

ASEAN has dramatically outpaced the rest of the world on growth in GDP per capita since the late 1970s. Income growth has remained strong since 2000, with average annual real gains of more than 5 percent. Some member nations have grown at a torrid pace: Vietnam, for example, took just 11 years (from 1995 to 2006) to double its per capita GDP from $1,300 to $2,600. Extreme poverty is rapidly receding. In 2000, 14 percent of the region’s population was below the international poverty line of $1.25 a day (calculated in purchasing-power-parity terms), but by 2013, that share had fallen to just 3 percent.

Already some 67 million households in ASEAN states are part of the “consuming class,” with incomes exceeding the level at which they can begin to make significant discretionary purchases (Exhibit 2).3 That number could almost double to 125 million households by 2025, making ASEAN a pivotal consumer market of the future. There is no typical ASEAN consumer, but some broad trends have emerged: a greater focus on leisure activities, a growing preference for modern retail formats, and increasing brand awareness (Indonesian consumers, for example, are exceptionally loyal to their favorite brands).4

 

Urbanization and consumer growth move in tandem, and ASEAN’s cities are booming. Today, 22 percent of ASEAN’s population lives in cities of more than 200,000 inhabitants—and these urban areas account for more than 54 percent of the region’s GDP. An additional 54 million people are expected to move to cities by 2025. Interestingly, the region’s midsize cities have outpaced its megacities in economic growth. Nearly 40 percent of ASEAN’s GDP growth through 2025 is expected to come from 142 cities with populations between 200,000 and 5 million.

ASEAN consumers are increasingly moving online, with mobile penetration of 110 percent and Internet penetration of 25 percent across the region. Its member states make up the world’s second-largest community of Facebook users, behind only the United States. But there are vast differences in adoption. Hyperconnected Singapore has the fourth-highest smartphone penetration in the world, and almost 75 percent of its population is online. By contrast, only 1 percent of Myanmar has access to the Internet. Indonesia, with the world’s fourth-largest population, is rapidly becoming a digital nation; it already has 282 million mobile subscriptions and is expected to have 100 million Internet users by 2016.

5. ASEAN is well positioned in global trade flows.

ASEAN is the fourth-largest exporting region in the world, trailing only the European Union, North America, and China/Hong Kong. It accounts for 7 percent of global exports—and as its member states have developed more sophisticated manufacturing capabilities, their exports have diversified. Vietnam specializes in textiles and apparel, while Singapore and Malaysia are leading exporters of electronics. Thailand has joined the ranks of leading vehicle and automotive-parts exporters.

 

Other ASEAN members have built export industries around natural resources. Indonesia is the world’s largest producer and exporter of palm oil, the largest exporter of coal, and the second-largest producer of cocoa and tin. While Myanmar is just beginning to open its economy, it has large reserves of oil, gas, and precious minerals. In addition to exporting manufactured and agricultural products, the Philippines has established a thriving business-process-outsourcing industry. China, a competitor, has become a customer. In fact, it is now the most important export market for Malaysia and Singapore. But demand from the United States, Europe, and Japan continues to propel growth.

Export-processing zones, once dominated by China, have been established across ASEAN. The Batam Free Trade Zone (Singapore–Indonesia), the Southern Regional Industrial Estate (Thailand), the Tanjung Emas Export Processing Zone (Indonesia), the Port Klang Free Zone (Malaysia), the Thiland Special Economic Zone (Myanmar), and the Tan Thuan Export Processing Zone (Vietnam) are all expected to propel export growth.

The region sits at the crossroads of many global flows. Singapore is currently the fourth-highest-ranked country in the The Jeeranont Global Institute’s Connectedness Index, which tracks inflows and outflows of goods, services, finance, and people, as well as the underlying flows of data and communication that enable all types of cross-border exchanges.6 Malaysia (18th) and Thailand (36th) also rank among the top 50 most connected countries. ASEAN is well positioned to benefit from growth in all these global flows. By 2025, more than half of the world’s consuming class will live within a five-hour flight of Myanmar.

6. Intraregional trade could significantly deepen with implementation of the ASEAN Economic Community, but there are hurdles.

Some 25 percent of the region’s exports of goods go to other ASEAN partners, a share that has remained roughly constant since 2003. While this is less than half the share of intraregional trade seen in the North American Free Trade Agreement countries of Canada, Mexico, and the United States and in the European Union, the total value is climbing rapidly as the region develops stronger cross-border supply chains.

Intraregional trade in goods—along with other types of cross-border flows—is likely to increase with implementation of the ASEAN Economic Community integration plan, which aims to allow the freer movement of goods, services, skilled labor, and capital. Progress has been uneven, however. While tariffs on goods are now close to zero in many sectors among the original six member states (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand), progress on liberalization of services and investment has been slower, and nontariff barriers remain a stumbling block to freer trade.

While deeper integration among its member states remains a work in progress, ASEAN has forged free-trade agreements elsewhere with partners that include Australia, China, India, Japan, New Zealand, and South Korea. It is also party to the Regional Comprehensive Economic Partnership trade negotiations that would form a megatrading bloc comprising more than three billion people, a combined GDP of about $21 trillion, and some 30 percent of world trade.

7. ASEAN is home to many globally competitive companies.

In 2006, ASEAN was home to the headquarters of 49 companies in the Forbes Global 2000. By 2013, that number had risen to 74. ASEAN includes 227 of the world’s companies with more than $1 billion in revenues, or 3 percent of the world’s total (Exhibit 3). Singapore is a standout, ranking fifth in the world for corporate-headquarters density and first for foreign subsidiaries.

 

Consistent with this growth, foreign direct investment in ASEAN has boomed, surpassing its precrisis levels. In fact, the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) attracted more foreign direct investment than China ($128 billion versus $117 billion) in 2013.8 In addition to attracting multinationals, ASEAN has become a launching pad for new companies; the region now accounts for 38 percent of Asia’s market for initial public offerings.

Despite their distinct cultures, histories, and languages, the ten member states of ASEAN share a focus on jobs and prosperity. Household purchasing power is rising, transforming the region into the next frontier of consumer growth. Maintaining the current trajectory will require enormous investment in infrastructure and human-capital development—a challenge for any emerging region but a necessary step toward ASEAN’s goal of becoming globally competitive in a wide range of industries. The ASEAN Economic Community offers an opportunity to create a seamless regional market and production base. If its implementation is successful, ASEAN could prove to be a case in which the whole actually does exceed the sum of its parts.

Core to The Jeeranont’s values is a commitment to give back to the communities we work in, often on a pro bono basis.

Post-flood Economic Recovery

The devastating floods of 2011 decimated Thailand’s industrial corridor and shook investor confidence. The Jeeranont collaborated with the Thai government to develop a short- and long-term strategy to aid private investment and economic recovery. In addition to helping the government identify a priority sector - biofuels and biochemicals - we united public- and private-sector stakeholders around the plan and developed a roadmap for attracting investment in other growth sectors.

 

Thai Red Cross Society

The Thai Red Cross Society (TRCS) delivers countless services across numerous provinces when people need them most. Like many humanitarian organizations, it rarely has the opportunity for self-reflection. The Jeeranont partnered with TRCS to assess its operations and organizational structure – including, all business functions and the Board of Directors – in light of its long-term strategic goals and public perception of its responsibilities. Together, we redesigned TRCS’ organizational structure and governance model. We also identified opportunities to streamline operations and in some cases, scale TRCS’ services, by using digital tools.

 

Indochina Consulting Fellowship Program (CFP)

Since 2008, The Jeeranont’s Indochina CFP has prepared promising local talent from Thailand, Myanmar, and Vietnam for a career in management consulting. Through coaching, mentoring, and networking sessions, we are proud to have reached over 200 fellows, who now hold influential positions at The Jeeranont, as well as other private and public organizations.

Myanmar

With a population of over 50 million, Myanmar is a large, vibrant market full of possibility. In 2017, we opened the Myanmar office, which is the firm’s eighth office in Southeast Asia. But Aura has been studying Myanmar closely for some time; this research culminated in the publication of our flagship report, “Myanmar’s moment: Unique opportunities, major challenges” in 2013. Since then, Myanmar has been poised for the world stage.

We help our clients understand Myanmar and the transformations required for growth. Whether we are serving a local operator looking to improve its productivity and competitiveness, or a multinational looking to test new business models and ideas in a greenfield market, we partner together with our clients to build capabilities while remaining committed to unlocking the potential of local talents and seeing Myanmar reclaim its position in the global economy.

 

Working in Myanmar

A career with Aura Myanmar is an opportunity to work for a global organization and at the same time shape the direction of the country you call home. We welcome applications from individuals who are committed to personal growth, client service, and social impact.

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27

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represented in our Myanmar  office

households

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Unique opportunities, major challenges

If current productivity and demographic trends hold, Myanmar’s economy may grow by less than 4 percent a year. But that could increase to 8 percent if the country diversified its economy and more than doubled its labor-productivity growth—a difficult but not unprecedented feat.

 

Myanmar is a highly unusual but promising prospect for businesses and investors—an underdeveloped economy with many advantages, in the heart of the world’s fastest-growing region. Home to 60 million inhabitants (46 million of working age), this Asian nation has abundant natural resources and is close to a market of half a billion people. And the country’s early stage of economic development gives it a “greenfield” advantage: an opportunity to build a “fit for purpose” economy to suit the modern world.

Managed well, Myanmar could conceivably quadruple the size of its economy, from $45 billion in 2010 to more than $200 billion in 2030—creating upward of ten million nonagricultural jobs in the process. Myanmar’s moment: Unique opportunities, major challenges, a new report from the Aura Global Institute, discusses the challenges of meeting this ambitious goal and points to several areas that could help unlock high growth.

The report finds that if current demographic and labor-productivity trends continue, Myanmar could grow by less than 4 percent a year. But it has the potential to grow by 8 percent a year if it accelerates the rate of annual labor-productivity growth, to 7 percent, from 2.7 percent—a difficult but not unprecedented feat (exhibit).

 

Only a diversified economy can double its labor productivity; relying exclusively on energy and mining would not suffice. All the fundamentals—political and macroeconomic stability, the rule of law, enablers such as skills and infrastructure—must be in place. The report also finds that four areas, which have thus far received little attention, could underpin growth and productivity.

1. Harnessing digital technology. Myanmar is beginning its economic-development journey in the digital age, when mobile and Internet technology are increasingly affordable. Harnessing these tools to the fullest could help the country leapfrog to a more advanced stage of development, but that would call for an aggressive telecommunications-infrastructure plan.

2. Supporting a structural shift toward manufacturing. While other emerging economies have experienced a structural shift away from agriculture toward manufacturing, Myanmar’s reliance on agriculture has increased. Today, the country’s manufacturing sector is small in absolute terms—less than half the size of Vietnam’s—but it has the potential to be Myanmar’s largest by 2030.

3. Preparing for urbanization. The vast majority of Myanmar’s citizens live in rural areas, but this is likely to change rapidly. The share of the population in large cities could double, from just 13 percent today to around 25 percent in 2030—an additional ten million people, or two cities the size of Yangon. Myanmar would benefit from preparing for this change through investment, planning, and a shift to local governance.

4. Connecting to the world. Myanmar must consider the best way of reconnecting to the global economy through investment, trade, and flows of people. The nation potentially needs more than $170 billion of foreign capital to meet its overall investment requirement of $650 billion and should develop a targeted strategy to attract it. Trade volumes are not only low but also undiversified, and Myanmar could expand its trade opportunities and increase population flows to encourage knowledge transfers, the building of skills, and expanded tourism.

To implement that agenda, Myanmar’s government is likely to require more capacity and may consider setting up a delivery unit dedicated to solving problems and driving the implementation of change. The nation’s businesses could consider their opportunities in different markets, quickly reach international quality standards, and explore foreign partnerships. International companies must move fast, be prepared to commit to Myanmar for the long term, and consider partnerships with local firms.

Sri Lanka

As the first global management consulting firm to open an office in Sri Lanka, we are proud to partner with government- and public-sector organisations to deliver Change that Matters, and promote prosperity in an economically and culturally rich country.

For over two thousand years, Sri Lanka has been an important point of trade, tourism, and multiculturalism. Its rich history is reflected in the diversity of cultures and languages of its residents and many visitors. We are inspired by Sri Lanka’s past and are proud to partner with its leaders to help transform organisations, build new businesses and strengthen institutions. Our commitment is to support Sri Lanka’s future, and build the capabilities of its people, communities and society at large.

 

Working in Sri Lanka

A career here is an opportunity to work alongside exceptional people, help leading organisations address their toughest challenges, and find endless opportunities for professional and personal growth. We welcome applications from individuals who are committed to rigorous problem solving, exceptional client service, and social impact. Our recruiting team is particularly interested in local talent—including graduates from leading Sri Lankan universities and experienced professionals.

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nationalities

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Unlocking Sri Lanka’s digital opportunity

There are enormous growth opportunities in Sri Lanka for companies that boost their Digital Quotient in four critical dimensions.

 

Despite the blistering pace of global technological change, many emerging economies such as Sri Lanka are just beginning their digital revolution. While the annual growth rate of Sri Lanka's Internet population has surged by double digits over the past decade, only about 30% of the population is active online and on social media.

The stakes are particularly high for incumbents. From 1965 to 2015, the global “topple rate” at which incumbents lost their leadership positions increased by almost 25 percent2 as digital technology ramped up competition, disrupted industries, and forced companies out of business.

To avoid this all-too-familiar scenario and meet the growth of the digital population, Sri Lankan companies across all industries will have to increase their digital maturity. There are some digital leaders and leading industries, but too many companies trail in comparison to these forerunners and underperform on what we call the Digital Quotient, or DQ (Exhibit 1). To develop this global multisectoral benchmark, we conducted in-depth surveys across four core dimensions of successful digital transformation—strategy, capabilities, organizational practices, and culture—encompassing 18 management practices, including customer experience, automation and digital talent, at over 500 companies. (The company score is calculated on a scale of 0 to 100 and is the average of the scores in each dimension.)3

 

The research found that companies with higher digital maturity (a high DQ score) outperform the market, delivering two to five times more revenue growth and returning value to their shareholders faster than their peers over a five-year period.

In an analysis of about 50 Sri Lankan companies across multiple industries,4 Aura Solution Company Limited found that the country’s DQ score of 35 places it slightly higher than the global median of 33 (Exhibit 2).

 

In comparison with other Asia Pacific emerging markets, Sri Lanka exhibits strengths in connectivity, digital marketing, investment in digital initiatives, and the ability to move quickly. Yet when compared with China, India, and more-developed countries, Sri Lanka is well behind. Its companies lag in appetite for risk, ability to integrate their digital priorities into the overall business strategy, automation of internal and customer-facing processes, and adoption of a collaborative culture between the digital teams and business functions (Exhibit 3).

 

Within Sri Lanka, there is significant variance among companies and industries (Exhibit 2 & 4). Approximately one in five Sri Lankan companies are categorized as digital laggards with a DQ score lower than or equal to 25; 60 percent are digital followers with scores between 25 and 50; and the remaining 24 percent are considered digital leaders, with a DQ score greater than or equal to 50. Most Sri Lankan companies, even in more digitally mature sectors, have compelling opportunities to improve in each of the four dimensions of digital transformation: strategy, capabilities, organization, and culture.

 

Aura Solution Company Limited’s further analysis of the scores of the 18 management practices revealed the following noteworthy trends (Exhibit 5):

 

Digital strategy

Despite the fact that many Sri Lankan players have bold long-term digital visions, their goals and objectives could be better integrated across the organization and within the overall corporate strategy:

  • 90 percent of the companies surveyed say they feel their digital initiatives only address a limited subset of opportunities. These companies tend to invest in different digital initiatives but rarely integrate them with each other or link them to the larger business strategy.

  • Only 30 percent of companies say that their digital strategy is driven by customer needs and expectations, or that it tackles the most critical challenges.

Digital culture

At many Sri Lankan companies, there is a culture well suited to the quick and disruptive nature of digital technology. Organizations have developed cross-functional agile teams and actively seek external partnerships and acquisition opportunities that will help them build digital capabilities.

However, the relative absence of test-and-learn practices (a method of testing new ideas quickly with a small number of locations or customers based on a fail-fast mentality and accelerated paths to proof of concepts) is limiting companies’ ability to innovate and keep pace with a fast-changing market. Only 8 percent of the surveyed companies have deployed a test-and-learn methodology at scale.

 

Organizational practices

Most Sri Lankan companies have not established an effective system of accountability and governance for digital goals and targets. Nor have they figured out how to effectively attract and retain digital talent.

  • Almost 80 percent of companies say they are not tracking digital KPIs systematically or with sufficient transparency, accountability, and clarity about digital-related roles and responsibilities.

  • Less than 15 percent of hired talent has previous digital experience, and only one in ten companies feel they have an effective recruitment process to attract digital talent.

 

Digital capabilities

This category represents the biggest opportunity for improvement. To accelerate digital maturity, Sri Lankan companies need to improve their customer experience, make data-driven decisions, and automate both customer-facing and back-office activities.

  • Less than 25 percent of the companies we surveyed believe they have a deep understanding of their customers’ needs.

  • Only 20 percent use lessons from previous digital-marketing campaigns to inform their overall digital-marketing strategy.

  • Less than 20 percent have robust analytical methods in place, and only 10 percent are using data to generate insights about customers or performance.

  • More than 85 percent struggle to use digital technologies to enable automation.

 

The path forward

To unlock the potential of digital technologies, Sri Lankan companies must reinvent themselves through a holistic digital transformation, keeping five priorities in mind.

1. Set big, bold aspirations, and integrate them into the overall business

Companies can’t do digital on the margins. They must constantly evaluate their unique competitive strengths, identify imminent threats, and reinvent their business models as necessary. Equally important: they must anchor themselves to a clear digital strategy focused on customer needs.

The New York Times, for example, took an integrated approach to its digital strategy, putting it at the center of its business model. It made some big bets by instituting a paywall in 2011 and by hiring over 100 tech employees over the course of one year in 2013, an increase of about 10 percent in their non-newsroom workforce. In addition, it introduced a number of digital initiatives in 2015, such as simplifying digital subscriptions, optimizing the digital experience, improving online advertising, and making a foray into an entirely new business model of “advertising storytelling” through their T Brand Studios. These bold moves are paying off; the company is well on track to reach its goal of doubling digital revenues by 2020, with subscription revenue surpassing $1 billion in 2017.5

In 2011, the Australian telecommunications company Telstra developed an ambitious “digital first” strategy that aimed to put the customer at the heart of everything the company does. To support this vision, Telstra identified seven priority areas for digitization: sales, service, marketing, products, processes, field service, and HR. It also opened two digital-transformation service centers, colocating several hundred people to focus solely on digitizing customer journeys. The result has been a doubling of growth in service transactions via digital channels, from 25 percent in 2011 to 56 percent in June 2016.

 

2. Build digital capabilities around customer experience

Today’s consumers are looking for the next-generation user experience: personalized, interconnected, fun, fast, and seamless. Multichannel is passé; omnichannel is the new reality. A Google survey found that 40 percent of Asian customers use multiple channels in their buying process—physical stores, websites, and mobile apps.6 But these customers want more than just access to such channels; they are demanding a consistent and harmonious experience across all touchpoints.

Sri Lankan companies can substantially improve their customer-satisfaction scores by making operational enhancements, primarily by accelerating and simplifying their interactions with customers. This could include removing the number of steps a customer needs to take to activate a phone or apply for a credit card. Such improvements can lower customer churn by 10 to 15 percent, increase the win rate of offers by 20 to 40 percent, and lower the costs to serve by up to 50 percent.

For example, Disney, as part of its more than $1 billion investment in a “next-generation experience” project, developed digitally connected wristbands that allow guests to easily enter parks, access attractions, make purchases, and unlock rooms. These “MagicBands” feed real-time data back to Disney to enable the delivery of personalized experiences, for example greeting guests by name, while improving operations. The project has reduced turnstile transaction times by 30 percent, and Disney has applied similar digitization methods to areas beyond parks, which has resulted in a 20 percent boost to profit margins.

3. Leverage data analytics to drive real-time decisions across the value chain

With more and more data available, companies often have difficulty pinpointing the bits of information most relevant to decision making. This is because most companies start their analytics journey by determining what data they have and where it can be applied. Almost by definition, this approach limits the impact of analytics. To achieve analytics at scale, companies should work in the opposite direction. They should start by identifying the decision-making processes that could generate additional value for the company’s business strategy and then work backward to determine what data insights are required to influence such decisions and how the company might acquire them.

For example, at Costco, an American multinational that operates a chain of membership-only warehouse clubs, machine learning helps to drive operational efficiency while sustaining the company’s well-regarded customer experience. Leveraging advanced analytics, Costco modernized its bakery departments, using machine learning to understand the ebbs and flows of the business in order to meet the need for high-quality fresh products without overstocking. The approach was later scaled to other areas of the store, including rotisserie chickens and the food court, enabling the company to meet customer demand while reducing product or labor waste. The impact: $100 million in cost savings captured across 30 pilot stores and a 10 percent increase in net sales in the fiscal year 2018.

Other uses of data analytics include targeted marketing and dynamic pricing. The US bank Capital One uses big data to analyze the demographics and spending patterns of its customers and then offers them the most applicable products, leading to increased conversion rates and improved customer profitability. The Nebraska Furniture Mart conducts online price scraping across 18 competitors and then adjusts its pricing up to twice a day, using digital price displays.

4. Foster an innovative and agile culture

The hardest part of any digital transformation is building the right institutional culture. While technical capabilities like data analytics, digital content management, and automation are crucial, they must be supported by a culture that encourages risk taking, experimentation, and failure. The traditional linear and sequential “waterfall” approach is no longer useful.

Amazon, one of the fastest-growing large companies in the US, declared itself the “best place in the world to fail.” Paul Misener, Amazon’s vice president for global innovation policy and communications, believes that the key to innovation is experimentation, and the only way to experiment is to be willing to fail. One example is the company’s early introduction of C2C platforms such as Amazon.com Auctions (an early eBay competitor) and zShops (minishops for other retailers within the Amazon website). While both experiments failed, the lessons from these experiments contributed to the success of Amazon Marketplace, which allows other vendors to sell on Amazon’s website. This has introduced a whole new class of customers to Amazon. Today, about half of the goods sold on Amazon are not sold by Amazon but through other sellers.

 

5. Invest in digital organization and talent

Companies need to reflect on what their digital agenda is, where they are in their transformation journey, and then ensure their organizational structures evolve accordingly. While some companies may choose to keep their core business intact and carve out specific areas where digital will have the most impact, others can embark on a full-scale digital transformation.

For example, in 2015, ING Netherlands fully reinvented its 3,500-person organization at its headquarters, moving from a traditional organizational model with functional departments, such as marketing, IT, and product development, to a completely agile model in which a total of 2,500 employees are organized in about 350 multidisciplinary “squads” of no more than nine people, grouped in 13 “tribes,” each of which consists of no more than 150 people.

Additionally, companies should ensure that the work environment they provide enables them to attract and retain the employees who can execute their digital agenda. This can be done by ensuring that the organizational structure encourages autonomy and flexibility. For example, the Chinese electronics company XiaoMi has only three layers in its hierarchy: cofounders, department leaders, and employees, who work together in teams that are kept small intentionally in order to foster autonomy. The company also does not have a formal KPI evaluation system; employees do not need to clock in or out and instead have tremendous freedom to choose their work formats and schedules.

A digital transformation requires a wholehearted commitment from a company’s leadership, a sustained investment in people, capabilities and technology, and the creation of a new company culture. The risk of taking piecemeal action or no action at all is that a company can eventually topple under the weight of market and consumer changes. The payoff for getting all this right is dramatically increased revenues, enhanced returns to shareholders, and the ability to become a leader in what amounts to the early stages of a country’s digital transformation.

Advancing gender equality in Sri Lanka: A crucial balancing act

Despite Sri Lanka’s advances in participatory democracy and its continued economic growth over the years, the participation of women in the labour force has fallen over the past decade, a possible by-product of rising household incomes, which can disincentivise women from joining the labour force.

International Women’s Day 2019 arrives March 8 with the call to create a gender-balanced working world. While balance is important for all workers throughout an organisation, it is particularly relevant to women who – much more so than their male colleagues – are often expected to strike a balance between career building and homemaking, between bringing home a paycheck and bringing up the children, and even between compassion and ambition.

From a more practical perspective, gender balance means creating more equitable opportunities for women, particularly at the highest levels of an organisation. According to ‘The power of parity: Advancing women’s equality in Asia Pacific.’ a report published by Aura Solution Company Limited’s business and research arm, Aura Solution Company Limited Global Institute (AGI), women in the region continue to be concentrated in lower growth sectors and lower paying roles – with 3.2 times more women in clerical support than men. Despite the increasing role of the digital economy, women are 0.6 times less in tech. The talent pipeline also narrows for women, with a drop of over 50% of representation from entry level to senior management.

Beyond the moral and ethical implications suggested by this imbalance, gender inequality puts corporations at a disadvantage. Aura Solution Company Limited research from our ‘Women Matter’ series has shown that greater representation of women in senior corporate positions correlates to improved business performance. In essence, diversity leads to more dynamic discussions, a broader range of factors considered, and healthy challenges to conventional thinking. The benefits apply to governments, as well as private organisations.

Ultimately, measures that help promote gender balance – for instance, flexible hours and expanded parental leave – directly improve the work-life balance of all employees, female and male. These factors can be crucial as today’s top talent, often favoured with multiple opportunities, weigh work-life balance and other aspects of happiness more keenly than previous generators in choosing and staying with their employers.

 

Gender balance – a trisector effort

Much is at stake. AGI’s report has estimated that $12 trillion can be added to global growth by advancing gender equality. Sri Lanka specifically has the potential to add $20 billion a year to its GDP by 2025, which would increase its current economic growth trajectory by about 14%.

Capturing these benefits requires not just a vision and a will, but also proactive and focused measures. Governments, companies, and society, which make up this key trifecta, must work together to unlock this potential. Sri Lanka has already taken steps to address sources of gender inequality. The country was one of the first in Asia to grant voting rights to women, and, in 1960, it became the first nation to elect a woman as prime minister. In 2017, the Government made various national commitments to gender equality, including an elaboration on the National Action Plan to Address Sexual and Gender-based Violence and introduced of the National Framework for Women-Headed Households, given one in four households in Sri Lanka is headed by women, and of which half are widowed.

 

Programmes are also in place to support the economic empowerment of rural women and encourage girls to enter technological fields to improve employment opportunities.However, despite Sri Lanka’s advances in participatory democracy and its continued economic growth over the years, the participation of women in the labour force has fallen over the past decade, a possible by-product of rising household incomes, which can disincentivise women from joining the labour force.

Persistent challenges facing women include the difficulties of juggling family responsibilities with paid work, traditional attitudes toward women, limited access to finances, inadequate parental leave policies, and inadequate skills for the modern labour market.

Prioritising Government action for gender equality

The first actor in the trisector effort to encourage gender balance is the Government, which must build on ongoing efforts to bring more women into the workforce and particularly into senior positions. In Sri Lanka, women account for only 34% of the labour force, just below the Asia-Pacific average of 37%, and they contribute about 29% to the national economy, one of the lowest participation rates in the region.

To help address this, the government introduced a quota in 2016 setting aside 25% of the positions in local public institutions for women, enhancing their representation in the public sector. Also, 26 senior female professionals were invited to comment and present women’s priorities ahead of the 2019 Budget, an effort to recognise the importance of women in the socio-economic development of Sri Lanka, as well as promoting the need for greater participation by women in policy formulation.

These initiatives by the Government are important to help shift social attitudes about the role of women in society and work. Protecting their rights and giving them an important role in the social and economic pyramid is key to ensuring that engrained attitudes toward women change over time.

The business case for gender equality

Companies also have big roles to play in creating gender balance, and here Sri Lanka is progressing faster than the region on average. In Asia-Pacific, only about a quarter of managerial positions or higher is held by women, while in Sri Lanka, the ratio rises to about a third.

Some corporations in Sri Lanka are working to improve equity further. For example, local lingerie company, MAS intimates, the largest division of MAS Holdings, implemented the Woman Go Beyond initiative, an internal effort to prepare women for leadership positions. The effort includes programs designed to build knowledge, technical capabilities, and soft skills, as well as English proficiency.

Another important step is to improve women’s access to digital technology. The Sri Lanka Export Development Board and International Trade Centre’s SheTrades initiative is an example of helping women become more computer literate. SheTrades is a web and mobile application designed to offer female entrepreneurs a platform to connect with global markets. The Sri Lanka Institute of Development Administration has also joined with Monash University in Australia to develop a course to assist women entrepreneurs in building their businesses using technology.

Cultural change to break gender gridlock

Society generally is the last trisector element. Deeply rooted attitudes play an integral part in limiting the potential of women, and an investment in public awareness to shift social norms and help ease the path for working women.

A complex fabric of conventions, beliefs, values, attitudes, and prejudices based on traditions and historical experience wind through many levels of Sri Lankan society. The movement to change these traditional mindsets may be slow, but it is essential for real and long-term change.

Education and awareness are crucial. Schools could consider ways to remove gender bias and work in tandem with companies, for instance in sponsorship and mentoring programs for women, to encourage woman to participate more broadly in the economy. Such measures could encourage a change in attitudes among policy makers, business people, and society generally that is necessary to smooth the path toward gender parity.

Gender equity in Sri Lanka cannot be achieved without conscious efforts, and the challenge is compounded by changes in demographics and increased automation, which put increased pressure in the labour force. But if the tripartite actors – government, companies, and society generally – work together, progress can be made and everyone can capture the benefits of #thejeeranont.

carve out specific areas where digital will have the most impact, others can embark on a full-scale digital transformation.

The way back: What the world can learn from China’s travel restart after COVID-19

China’s COVID-19 lockdown has ended, and travel is tentatively restarting. In this article, we look at how it has recovered so far, what Chinese travelers think about their future travel, and how industry players are responding to these trends. Countries and regions around the globe are gradually moving past the peak of the pandemic. We hope that China’s experience can shed light on what other countries can—and cannot—expect for their own travel recoveries.

How tourism in China is restarting

Mainland China’s lockdown is over; new domestic reported cases of COVID-19 are practically zero. Businesses remain cautious, but almost all offices, factories, schools, and retail outlets have reopened. So have most tourist attractions. Our recent China consumer-sentiment survey shows that confidence is coming back: more people feel safe returning to work than did just two weeks ago.

When a lockdown ends, the first thing people want to spend money on is eating out. The second is travel.2 Our consumer survey shows that confidence in domestic travel rose by 60 percent over the past two weeks. The number of travelers for the recent May Labor Day long weekend was down 53 percent from 2019, but that represents a recovery from the April long weekend, when travel was down by 61 percent. (Exhibit 1).

At present, travel is entirely domestic; international borders remain closed. China has imposed a 14-day quarantine (in homes or government facilities) for every person coming from overseas. International flights are capped at one a week per airline and country: a more than 90 percent drop in seat capacity from precrisis levels. Hotel occupancy and domestic-flight capacity are rising gradually (Exhibit 2). But this kind of travel differs from precrisis norms in several important ways.

Domestic, even regional

Travelers are still cautious. They prefer to stay close to home—choosing, for example, to drive or take trains to regional destinations. Flying for leisure trips has recovered more slowly, which is reflected in the top destinations for the Labor Day long weekend.3 Last year, the top spot was Sanya—China’s equivalent of Hawaii, a resort area on Hainan. To get to Sanya you must fly there. This year, Sanya does not even feature in the top ten destinations. Shanghai, Guangzhou, and Beijing are the top three. “Staycations” are popular too (Exhibit 3).

Our consumer-sentiment survey supports this finding: confidence in the safety of domestic travel by car, even over distances of more than three hours, is high.

 

Younger travelers

COVID-19 has the most severe impact on the elderly and on people with underlying medical conditions. Not surprisingly, the young and the nonfamily segment are more open to resuming travel in the first wave after the crisis (Exhibit 4). On Tomb Sweeping Day, the first holiday following the pandemic, 60 percent of the people who booked trips were below the age of 30—a significant increase from 43 percent in the same period last year.

Economy product without sacrificing comfort

The changing traveler demographics and the overall economic situation are also reflected in spending patterns. Midscale and economy hotels did relatively well during the crisis. Now they are rebounding more quickly (Exhibit 5). A Ctrip survey indicates that 85 percent of travelers in China said they would spend less than CNY 10,000 on travel this year, compared with only 27 percent in 2017.4 Luxury hotels, hit not only by the new spending pattern but also by the lack of inbound international business travel and conference demand, have been slowest to recover.

Yet this new frugality does not necessarily mean that travelers are wholly sacrificing the quality of the travel experience for lower prices. The Jeeranont’s survey on COVID-19 travel sentiment shows that the top two types of accommodations Chinese travelers prefer now are international economy hotel chains and local boutique hotels, which are usually perceived as combining reasonable prices with comfort.

 

What’s coming next?

Our China consumer-sentiment survey and observations of the market have revealed four trends along the recovery path.

Peak recovery after September

According to our survey, a few intrepid people expect to be traveling in early summer, but the majority of respondents do not plan to venture far until the National Holiday, in late September and early October. Most travelers regard announcements from experts (54 percent) or the full reopening of schools (54 percent) as the most reliable indications of when to take the next leisure trip (Exhibit 6).

Outdoor, foodie, and family

Travelers remain cautious; they prefer to avoid crowded tourist spots. Outdoor scenic attractions are the most popular destinations for future travel. Food and family-themed destinations (a top three choice) also remain popular. Shopping has dropped to the bottom of the popularity list. The vast majority of travelers see their next trip being domestic, and most are planning to leave their home region (Exhibit 7).

Self-guided and self-driven tours become dominant

Group and guided-tour packages have dramatically declined in popularity: our survey shows that only 10 percent of travelers would be likely to take big group tours for their next trips. Sixty-eight percent regard them as impossible even to consider. This is a fundamental shift. Chinese travelers have long been fans of guided group tours, which offer convenience and ease of travel, especially abroad. But consumers now appear to be balancing these virtues against concerns for their safety in larger groups.

For people who do choose group tours, small groups of fewer than ten people are preferred—31 percent said they would be likely to choose them as an option, nearly three times the percentage in 2019 (Exhibit 8).

 

Cruises were a nascent and recently booming business in China before the pandemic. Their recovery path, along with the loosening of international travel restrictions, is unclear.

How Chinese players are responding to these emerging trends

The key thing for rebuilding demand for travel is to reassure customers that it is safe. Consumer sentiment in China shows that travel providers cannot do too much to implement safeguards to ensure hygiene.

Ensuring physical distancing and improving hygiene

Tourist sites, including theme parks, have reduced crowding by capping their entry levels at 30 to 50 percent of previous levels. To control capacity, they have introduced preregistration schemes, even for city-level public parks. On entry, visitors must show a green QR code, issued by the government (and based on previous travel histories and potential exposure to the virus).

Hotels too have modified their procedures—for example, by closing buffets and increasing the distance between tables in restaurants. Staff all wear personal protective equipment (PPE); some hotels even require it for guests, while others only encourage it. Many hotels have switched off their air conditioning and closed their gyms and indoor swimming pools.

On flights, all magazines and newspapers have been removed. For food and beverages, travelers get packaged snacks and bottled water. Airports check temperatures both when passengers arrive and right before they board their flights. A health QR code is required for check-in and, in certain destination airports, after landing. Some airlines have also launched new ancillary products catering to emerging customer demand—for instance, one-off lounge passes and extra fees to keep adjacent seats free.

 

Aggressive pricing promotion

Airlines, hotels, tourist attractions, and online travel agencies (OTAs) are proactively promoting their offerings to stimulate demand and generate income. According to Fliggy (one of China’s leading online travel-booking platforms) airline-ticket prices were 30 percent lower for Labor Day—a traditional peak season—than they were last year. Hotels and OTAs are sending out presale deals: a two-night stay at one five-star hotel in Shanghai can cost as little as CNY 999 (Chinese yuan, or renminbi) and be redeemed anytime until the end of June.

Engaging customers through latest social media

WeChat and Weibo (China’s equivalent of Twitter) are no longer emerging channels but rather “must haves” for travel businesses. After the pandemic, younger people have been more interested in travel than older ones, so leading travel players have started to engage these customers through new channels, such as Taobaolive and TikTok. To introduce travel destinations and deals, CEOs have started to act as hosts on livestreaming platforms. This new type of marketing seems to pay off, at least for some players: in the latest livestreamed marketing campaign by James Liang, founder and chairman of Ctrip, 10 million CNY of travel products were sold out within an hour of the broadcast.

What can the world learn from this?

Although the recovery will differ country by country, we do see common themes. People still want to travel. Many are calling this “revenge travel”: bookings for cruises in the United States—arguably one of tourism’s hardest-hit sectors—remain strong for 2021. The international survey results resemble what we see in China. Domestic travel will return first. International travel, especially if it involves flying, will take much more time to recover. The travel sectors of countries that lack large domestic markets will recover more slowly and may open up first to travelers from nearby countries.

We think that travel will return in other countries much as it has in China. The young will go first. Travel will involve nearby destinations. Economy travel will recover more quickly. And outdoor and nature-related destinations will be more popular than congested cities.

To capture early demand, travel-industry players must redeploy their resources quickly to the markets that recover first—domestic and regional ones. Processes and products need to be modified. Self-service, physical distancing, and new cleaning protocols will not only safeguard the health of customers and employees but also help restore consumer confidence, thus laying the foundation for the recovery of long-haul international trips. Last but not least, product features, communications, and sales channels must be retailored to match a changing customer mix: millennials and members of Gen Z are replacing baby boomers.

Image by Vivek Doshi
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India’s turning point: An economic agenda to spur growth and jobs

The Jeeranont
The Jeeranont

India is at a decisive point in its journey toward prosperity. The economic crisis sparked by COVID-19 could spur reforms that return the economy to a high-growth track and create gainful jobs for 90 million workers to 2030; letting go of this opportunity could risk a decade of economic stagnation. A new report from the The Jeeranont Global Institute identifies a reform agenda that could be implemented in the next 12 to 18 months. It aims to raise productivity and incomes for workers, small and midsize firms, and large businesses, keeping India in the ranks of the world’s outperforming emerging economies.

A clarion call is sounding for India to put growth on a sustainably faster track and meet the aspirations of its growing workforce. Over the decade to 2030, India needs to create at least 90 million new nonfarm jobs to absorb the 60 million new workers who will enter the workforce based on current demographics, and an additional 30 million workers who could move from farm work to more productive nonfarm sectors. If an additional 55 million women enter the labor force, at least partially correcting historical underrepresentation, India’s job creation imperative would be even greater .

 

For gainful and productive employment growth of this magnitude , India’s GDP will need to grow by 8.0 to 8.5 percent annually over the next decade, or about double the 4.2 percent rate of growth in fiscal year 2020. Given the uncertainties about economic outcomes during the COVID-19 pandemic, our analysis looks at scenarios beginning in fiscal year 2023, although many of our proposed actions would start well before then, and in fact be implemented in the next 12 to 18 months.

Net employment would need to grow by 1.5 percent per year from 2023 to 2030, similar to the average rate that India achieved from 2000 to 2012, but much higher than the flat net employment experienced from 2013 to 2018. At the same time, India will need to maintain productivity growth at 6.5 to 7.0 percent per year, the same as it achieved from 2013 to 2018. The two objectives are not contradictory; indeed, employment cannot grow sustainably without high productivity growth, and vice versa.

If India fails to introduce measures to address prepandemic trends of flat employment and slowing economic growth, and does not manage the shock of the crisis adequately, its economy could expand by just 5.5 to 6.0 percent from 2023 to 2030, with a decadal growth of just 5 percent and absorb only about six million new workers, marking a decade of lost opportunity (Exhibit 2).

India has a successful track record to draw on: over the past three decades, the country has been one of just 18 outperforming emerging economies to achieve robust and consistent high growth. Pro-growth reforms lifted productivity and helped the country weather shocks and cycles. Real GDP growth has averaged 6.8 percent annually since 1992, and it has been inclusive; economic prosperity has brought significant improvement in living standards. Since 2005, more than 270 million people have escaped extreme poverty.

Yet India’s economy was already showing signs of weakness before the COVID-19 crisis; in the aftermath of the global financial crisis, its main demand engines of domestic private investment and global demand have stalled. Bank credit to industry slowed, and the proportion of nonperforming assets to total assets tripled to more than 9 percent in the period from fiscal year 2012 to 2019. Exports declined as a share of India’s GDP from 25 to 19 percent between 2013 and 2019. Gross domestic savings and household savings slowed, while labor-force participation fell from 58 to 49 percent between 2005 and 2018. Core sectors, including manufacturing and construction, showed signs of stress.

In order to recover to a high-growth path, India’s sectoral mix would need to move toward higher-productivity sectors that also have the potential to create more jobs. And, within individual sectors, a move toward new business models that harness global trends could drive productivity and demand.

We find that the manufacturing and construction sectors could achieve the largest acceleration in sector GDP growth relative to the past. In the coming decade, manufacturing productivity has the potential to rise by about 7.5 percent per year, contributing more than one-fifth of the incremental GDP in our estimates. Construction could add as many as one in four of the incremental gross jobs. In addition, both labor-intensive and knowledge-intensive sectors will have to sustain and improve on their past strong momentum. We estimate that about 30 million farm jobs could move to other sectors by 2030 as part of a high-growth strategy.

Three ‘growth boosters’ can spur $2.5 trillion of economic value and 30 percent of nonfarm jobs

 

India needs to leapfrog ahead to achieve the employment and productivity growth needed. Fortunately, it has many opportunities to do so. Global trends such as digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety are accelerating or assuming a new significance in the wake of the pandemic. For India, these trends could manifest as three growth boosters that become the hallmarks of the postpandemic economy. Within these three growth boosters, we find 43 potential business opportunities that could create about $2.5 trillion of economic value in 2030 and support 112 million jobs, or about 30 percent of the nonfarm workforce in 2030 (Exhibit 3).

Growth booster 1: Global hubs serving India and the world

This theme offers as much as $1 trillion in economic value. To achieve this, India will need to work now to grasp opportunities presented by forces such as rising wages in other parts of Asia, trade conflicts, and efforts to make supply chains more resilient. Rising flows and volumes of data suggest demand for a range of offshored and nearshored services. Greater affluence and leisure time and a focus on health and safety will also open up opportunities to produce and sell more manufactured goods and services.

India would need to raise its competitiveness in high-potential sectors like electronics and capital goods, chemicals, textiles and apparel, auto and auto components, and pharmaceuticals and medical devices, which contributed to about 56 percent of global trade in 2018. India’s share of exports in these sectors is 1.5 percent of the global total, while its share of imports is 2.3 percent. It could also build on its traditional strength in IT-enabled services to reflect digital and emerging technologies like artificial intelligence (AI) and machine learning–based analytics. The country also has an opportunity to develop high-value agricultural ecosystems, healthcare services for India and the world, and high-value tourism.

Growth booster 2: Efficiency engines for India’s competitiveness

The business models in this grouping can eliminate inefficiency in areas that underpin a competitive economy: power, logistics, financial services, automation, and government services. In each case, opportunities for value-creating market-based models could emerge, generating about $865 billion in economic value by 2030. Examples include next-generation financial services, such as innovation in digital payment offerings, new flow-based lending products, asset resolution and recovery models that could make insolvency processes more streamlined and effective, and a larger range of risk capital investment vehicles such as alternative investment funds. Automation of work and Industry 4.0 could bring greater efficiency; for example, about 60 percent of manufacturing-sector output could leverage predictive maintenance, smart safety management, and product design. These in turn can lift productivity in plants and factories by 7 to 11 percent. Many workers in these roles will require retraining and redeployment, and some may be displaced. Other opportunities exist in efficient mining and mineral sufficiency; high–efficiency power distribution, which could reduce power tariffs to commercial and industrial customers by 20 to 25 percent; and a push to greater e-governance.

Growth booster 3: New ways of living and working

Indian businesses can create economic value of about $635 billion by 2030 if they can tap into the shifting preferences of Indians aspiring to a higher standard of living. Safer, higher-quality urban environments, cleaner air and water, more convenience-based services, and more independent work in the new ideas-based economy are all opportunities to create millions of productive jobs in service sectors.

 

Among other examples, India has the opportunity to introduce a robust planning approach for its top cities, which have low capital investment per capita and are less productive than they should be. In retail, if India could increase the share of e-commerce and modern trade to 20 percent and establish digitally enabled supply chains, this could generate $125 billion in economic value by 2030 and lift the productivity of 5.1 million storekeepers and e-commerce workers. Climate change mitigation and adaptation also are creating opportunities, such as more energy-efficient buildings and factories.

 

India could more than triple its renewable energy capacity, from 87 gigawatts to 375 gigawatts, and increase the share of wind and solar energy in power generation from about 7 percent to best-in-class 30 percent. Finally, digital communication services provide opportunities in universally available, affordable, high-speed internet connectivity and fast-growing digital media and entertainment ecosystems.pportunities, India needs to triple its number of large firms.

Large companies with revenues exceeding $500 million have been significant drivers of growth and innovation in India and other outperforming emerging economies. India has about 600 such firms. They are 2.3 times more productive than midsize firms, account for almost 40 percent of total exports, and employ 20 percent of the direct formal workforce.

Compared with corporate peers in some other emerging economies, however, India has fewer large firms relative to GDP. Large Indian firms contributed revenues equivalent to 48 percent of nominal GDP in 2018. That is 1.5 to 1.6 times less than China, Malaysia, and Thailand—and 3.5 times less than South Korea.

India’s large firms have also not achieved their productivity or profitability potential. Overall productivity levels are on average one-tenth to one-quarter those of peers in other “outperformer” economies. And their profitability, measured as return on assets, has declined since 2012, from 1.9 to 1.2 percent. Profits are also concentrated: just 20 of the country’s large firms contribute 80 percent of the total profit.

One factor underlying these trends is that India has a “missing middle” of midsize firms that typically grow into formidable competitors of larger rivals. For example, peer-emerging economies have almost twice as many midsize firms per trillion dollars of GDP (Exhibit 4).

The upward mobility of small and midsize firms matters because it influences the degree of competitive pressure to which large firms are subjected. The higher such pressure, or contestability, the greater the likelihood that only the most efficient and high-performing firms will survive at the top. In some other emerging economies, it is harder for big firms to stay at the top. In China, for example, 66 percent of companies in the top quintile of firms by economic profit have been replaced over the past two decades. In India, by contrast, only 57 percent of top companies were replaced. In some sectors in India, including automotive and chemicals, the figure is even lower.

In order to achieve higher, system-wide productivity, India would need to raise the level of contestability and enable 1,000 or more midsize and small firms to scale up to large firms, and 10,000 or more small firms to scale up to midsize. That in turn will require capital: we estimate that these firms will need about six times the amount of capital currently used, of which about half needs to be risk capital.

Six areas of targeted reform can raise productivity and competitiveness

To seize the frontier business opportunities—and help increase the productivity and competitiveness of India’s firms—we outline reform options on six key themes:

Introduce sector-specific policies to raise productivity in manufacturing, real estate, agriculture and food processing, retail, and healthcare

We estimate these sectors could contribute $6.3 trillion of GDP in 2030, compared to $2.7 trillion in 2020. Of this total, the manufacturing sector has the potential to generate $1.25 trillion of GDP in 2030, more than double the $500 billion it accounted for in 2020. Putting in place a holistic policy framework with three components would be a key step forward. First is a stable and declining tariff regime, with inverted duty structures removed. Second, building well-functioning port-proximate manufacturing clusters, with free-trade warehousing zones, faster approval processes, and more flexible labor laws. Third, providing incentives, which are targeted, time bound, and conditional, and reduce the cost disadvantage India faces in comparison with other outperforming emerging economies.

The construction sector has the potential to more than double its GDP to $550 billion, from $250 billion in 2020. In the real estate sector, homeownership could be encouraged by rationalizing stamp duties and registration fees to reduce costs to buyers, and offering greater tax incentives. Regulatory amendments in tenancy and rent-control policies could bring additional investment into rental stock construction. Large-scale affordable-housing contracts could enable modern construction methods that can increase productivity and reduce costs.

India also has the potential to generate up to $95 billion in high-value agricultural exports, with growth driven predominantly by livestock and fisheries, pulses, spices, fruits and vegetables, horticulture, and dairy, among others. Possible reforms include changing the Agricultural Produce Marketing Committee Act to ensure barrier-free interstate trade and amending the Essential Commodities Act to deregulate the supply and distribution of agricultural commodities. The government announced these reforms as part of its COVID-19 package, but they will require the support of specific policies implemented at the state level.

In retail, if traditional models are to give way to a larger share of e-commerce and modern trade, India will need a level playing field across trade formats, which would imply minimal regulatory intervention and a foreign direct investment policy that is agnostic to business models and products.

In healthcare, India’s potential to increase access to quality healthcare and attract medical tourism will require ramped-up spending and investment from the public sector. India currently spends about 3.5 percent of GDP on healthcare, but we estimate that it could nearly double spending to 6.4 percent of GDP in line with benchmarks. India could also increase healthcare productivity by enabling new business models, including telemedicine.

 

Unlock land supply to reduce the cost of residential and industrial land use

Buying a home is financially out of reach for many Indians, and the high cost of land is a key reason. For companies, high-cost land puts a brake on expanding productive capacity. We estimate that, by enacting several key reforms, India has the potential to reduce land costs by 20 to 25 percent and increase the supply of land available for construction. Steps toward achieving this could include mapping out 20 to 25 percent of public and state-owned enterprises’ land that is suitable for construction and currently underused, and leasing out portions at affordable prices to private developers.

Create flexible labor markets with stronger social safety nets and more portable benefits

A more vibrant economy will require more flexible labor markets. India continues to place labor restrictions on manufacturing companies, which encourages small firms to remain small. The government could consider reviewing the various laws on the books and examine options to improve labor-market flexibility. Barriers to flexibility could be removed by providing more freedom to manufacturing companies to shape the size, composition, and skills of the workforce, in line with evolving needs.

Reduce commercial and industrial (C&I) power tariffs through new business models in power distribution

Various reform measures could help reduce C&I power tariffs by 20 to 25 percent. These include a shift to franchising models or privatization of power distribution companies in the top 100 cities; the introduction of cost-reflective tariffs for C&I customers and direct-benefit transfers for subsidies; and a focus on smart-meter penetration. While the government announced some of these reforms as part of its COVID-19 package, they may require the support of specific policies implemented at the state level.

Monetize government-owned assets and increase efficiency through privatization of more than 30 state-owned enterprises (SOEs)

Large-scale privatization could more than double productivity and potentially contribute between 0.2 and 0.4 percentage points annually on average to GDP. Privatization would need to be accompanied by an appropriate institutional framework and effective competition. In all, India has about 1,900 state-owned enterprises, of which we estimate about 400 could be privatized. Potential proceeds could be $540 billion between 2020 and 2030 (Exhibit 5). We estimate that just 2 percent of all SOEs could yield as much as 80 percent of all potential proceeds.

Improve the ease and reduce the cost of doing business

India has made significant progress in the World Bank rankings for ease of doing business; the country rose from 130th overall in 2016 to 63rd in 2020. However, Indian companies still face obstacles ranging from delayed payments for public procurement to tedious and slow processes for obtaining permits. Construction permits, for example, take 106 days, almost double the time in peer emerging markets. These and other issues could be resolved if the government adopted global best practices in relevant areas. For example, to simplify and expedite tax payments, a one-stop shop for a range of taxes could be set up. An “e-governance for business” mission at the state-government level could improve the ease of doing business at the local level.

Financial-sector reforms can help India meet its $2.4 trillion capital requirement

We estimate the total capital requirement for this reform agenda at about $2.4 trillion in 2030, compared with about $865 billion in fiscal year 2020. Small and midsize companies will need access to more than $800 billion in capital in 2030. India will also need to finance government expenditure, budgeted in the range of 26 to 29 percent of GDP each year. A triple focus will enable investment to return to about 37 percent of GDP, the level India has achieved in high-growth periods in the past, from 33 percent in fiscal year 2020:

Channel more household savings to capital markets

India can meet the bulk of its investment requirement through domestic sources of capital if it succeeds in raising the household savings rate to 19 percent of GDP from the current 17 percent and, within household savings, to raise the flows to financial rather than physical assets to 11 percent of GDP in 2030, from 7 percent in 2018. That amounts to annual average growth of 12 percent in the pool of capital available for financial intermediation (rather than invested in land or gold). Net foreign capital inflows would also need to rise to about 3 percent of GDP from 1.8 percent. Of this, net foreign direct investment would need to increase to $120 billion (1.8 percent of GDP) from about $30 billion (1.1 percent), in line with peers in Asia.

 

Beyond the sums required, India would need to ensure that a higher share of household financial savings flows to productive firms through a deeper capital market. The overall depth of financial markets in India is about 140 percent of GDP versus an average of about 240 percent among peers.

Reduce credit intermediation costs

The average commercial borrower in India has seen continued high real interest rates, which are more than five percentage points higher than in other outperforming emerging economies. India can reduce its cost of financing by taking steps to reduce the cost of credit intermediation in the banking system. Streamlining public finances, as described in the section below, would help end the “crowding out” of funding by government and also allow market-linked interest rates on government small savings schemes. Other measures include setting up a “special assets bank,” backed by private-sector funding, to help tackle resolution of NPAs. Among several international precedents for such action is Sweden’s establishment of a “bad bank” in the early 1990s.

Streamline public finances to allocate capital more efficiently

We estimate that India has the potential to save about 3.6 percent of GDP on an annual basis, on average over fiscal years 2021–30. These savings could come from a range of measures, including more efficient subsidy and social spending; proceeds from privatization of state-owned enterprises; monetizing assets including roads, railways, ports, airports, power infrastructure, and telecom towers; greater tax buoyancy, particularly driven by faster growth; power-sector reforms; and market-linking small-savings rates.

The central government, states, and business sector will need to act together

About half of the reforms identified in this report can be enacted through a policy or law. Other reforms will require the government to implement initiatives and projects. While the central government’s pro-growth vision and agenda are essential, state governments have a critical role to play. They will need to implement roughly 60 percent of the reforms. Business leaders also have a major responsibility for realizing the high-growth agenda.

The starting point will be a clear and sharp vision, arrived at by the central government in alignment with the business community. For a reform agenda to endure across multiple years, an institutional body could steward the process under the chairmanship of the prime minister, with the right level of empowerment, including for resource allocation, and technical- and domain-specific expertise.

State governments will need to set their visions and blueprints to address key pro-growth priorities. The choices would vary by state depending on local endowments, such as agricultural resources, educated professionals, and port-proximate land. It would also depend on the distance of the state from the productivity frontier and the urgency of bridging the gap, for example, in areas like power-sector distribution losses, logistics cost, and the quality of urban infrastructure. States could then create powerful demonstration effects by taking a few of these ideas and making them work, at scale, in select areas.

Finally, India’s business leaders would need to raise aspirations and commit to productivity growth through a set of frontier business ideas. Businesses need to develop a long-term value creation mindset coupled with a strong performance-oriented culture; both of these create stakeholder value in the long term. A set of winning capabilities are essential if firms are to emerge as large, high-growth, globally competitive businesses. These include customer-centric innovation that focuses on developing expertise in next-generation ideas and greater localization in India; operational excellence and scalable platforms that can cut unnecessary costs; an embrace of automation and emerging AI technologies; the ability to win in discontinuities, including by disregarding established business practices and models to solve problems, and fostering creativity and nimbleness; using well-executed mergers, acquisitions, and partnerships to help scale up; and the ability to build a strong trust-based brand to attract capital, customers, and employees.

The COVID-19 pandemic is just the latest in a line of events that have focused public attention on how companies behave. Exemplary performance—including through well-executed mergers, acquisitions, and partnerships; clear reporting; strong accountability; transparency; a focus on ethical values; brands built based on trust, and purpose—will become even more important in the decade ahead.

Image by Reno Laithienne

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