Create Small-Scale Multinationals

Despite rhetoric about small being beautiful, Indians have always regarded small as weak. We see multinational as strong and small-scale industries as weaklings to be protected.

A radically different view in Taiwan has helped take its per capita income to $13,000, 40 times higher than India’s. Taiwan’s prosperity is based but not on giant conglomerates (as in Korea) but on small and medium industries. It views small industries not as tender infants to be mollycoddled but as world-beaters to be envied.

Believe it or not, thousands of small Taiwanese companies are multinationals in their own right, with factories in China and Southeast Asia. These are fondly called “an army of ants”. The average Taiwanese investment in China is only $800,000(Rs 2.8 crore).

Estimates of Taiwanese investment in China (official data are incomplete) range from $16 billion to $35 billion, Even the lower figure implies, at $800,000 per investment, that there are 20,000 Taiwanese projects in china alone! This army of ants, harnessing China’s cheap labour for export production, has proved that small is not just beautiful but multinational.

We are not afraid of American or Japanese MNCs,” says industries director Chuo. He views MNCs as training centres—Taiwanese learn skills working for MNCs, then set up their own companies. Since small firms are much more flexible and nimble than a lumbering giant, they are able to produce components more cheaply and shift constantly to new lines of production. So small firms see MNCs as an opportunity, not a threat.

Indian businessmen want (like Koreans) to become giant conglomerates, and seek government help to keep to MNCs or force these to become junior partners. The Taiwanese, says Mr Chuo, have no such delusions of grandeur. They want to profitable and world-class, not big and protected, and do not see small as inferior. Small Taiwanese firms are consequently more focussed expert and nimble than Korean ones. So he feels his country has a brighter future than Korea, whose once-protected conglomerates are running into trouble—Hanbo has collapsed and others may follow. This will not happen in Taiwan, says Mr Chuo. He views smallness as a strength, not a weakness.

Over 300 Taiwanese firms have grown large, yet small and medium firms still constitute its backbone. It has only one global brand name, Acer. Two decades ageo, Taiwanese debated whether (like Korea) they needed to develop global brand names. They decided no, that brand creation was costly-scare country. They felt surer prosperity lay in action as nimble suppliers to brand-owing MNCs. Even those disagreeing with this strategy must admit it has been vindicated.

Most Indian businessmen want government support to create global brand names, like Korea. Taiwan has shown than an alternative route can be even more rewarding.

Taiwan is not alone in showing that small firms can be world beaters; this is true in Italy and Germany too. In the USA , large companies have not created a single new job since 1980, while small firms have created 5 million. None of these countries have reservations or cheap credit for small industries.

Why then, do we in India insist on such props for small industries? Mainly, misguided paternalism Also, it gives politicians and bureaucrats a patronage network, which they prize. Without reservations, many small companies would still flourish (especially in gems, garments and leather). Reservation helps only inappropriate, unviable units, which have no incentive to grow, improve quality or become world class.

Indian politicians believe small means needy. But Taiwan and many other countries have proved that small means strong and world-class. India has, sadly, created a category of small units that be can be described sympathetically as cripples on crutches, or unsympathetically as parasites exploiting customers with sub-standard goods.

Surely, we need strong small industries that conquer the world, not weak ones on crutches. The way out is not laissez faire. It is to abandon reservations and confessional credit and adopt the Taiwanese strategy of strong, well-targeted promotional support.

Taiwanese small firms find it difficult to get bank credit, and borrow mainly from the informal market at high rates. This may seem to starve them of capital. But it also obliges them to focus on labour-intensive activities that minimise capital.

Small industries face problems in infrastructure and marketing. The Taiwan government helps in both these areas. It has created industrial and science parks with world-class infrastructure. It finances exhibition space and the cost of shipping exhibits to industrial fairs the world over. Its educational system creates quality skills. It has training courses for small managers. Thus it has created conditions for small companies to become world class. Small exporters get duty-free inputs without the enormous hassles created by venal cusoms officers and wooden rules in India.

It will astonish most Indians that many small Taiwanese companies do R and D, developing state-of-the-art components. Sun Race is a component company focussing on speed-shifters for bicycles, and is a world leader in this technology. Ching Tai, a small expoxy resin manufacturer not growing big, allots five per cent of its workforce to R and D. This is a consequence of an incentive structure that encourages globalisation.

In India, small industries get many props, yet face innumerable hurdles in exports (a garment exporter may need 50 signatures for one consignment). Taiwan gives no reservations of subsidies, but provides world-class companies. India must learn from this, and create its own small-scale multinationals. Let these become objects of envy, not remain objects of pity.

What do you think?