The challenge before us is daunting. What should we do and where we do we begin? CK Prahalad spoke recently at a CII Summit in Bangalore. The following is taken from a note on the CII website on Prahalad's talk:

Domestic companies should consider India's large poor population as a huge market opportunity and design products and systems that are targeted at them. The skills and innovations developed through this process can then be used for selling products and services to poor people throughout the world. The success of this model will contribute towards an annual economic growth of 10 to 15 per cent and the creation of 10 to 15 million new jobs every year, India's two top priorities for transforming the economy.

"Can we convert 800 million poor people of India into an opportunity for innovation for developing and marketing products for 4.5 billion people through out the world,'' Mr Prahalad said. This approach would help Indian companies become innovation driven, create global scale, scope and technology and result in the creation of global Indian companies as well as a world scale domestic market.

Mr Prahalad said India would be able to influence global industry evolution only if it becomes a growth market, focuses both on manufacturing and services, creates global scale companies, stops differentiating between domestic and export markets and develops low cost high quality technology.

A 21st century super power, Mr Prahlad said would have to be both militarily and economically strong. If India continues on its current five per cent growth path, the gap between India and other countries including China will continue to widen and by 2010, India's economy will be one-sixth that of China. "The challenge before India is to transform its economy. With a five per cent growth rate, India will be unable to compete with China in transforming its economy. At five per cent growth, you won't get a chance to play,'' he said.

Therefore, unless India was willing to accept a diminished international status, it had no option but to clock an economic growth of 10 to 15 per cent and to create 10 to 15 million new jobs, year after year, for the next 20 years.

Mr Prahalad said global firms today were in a constant search for new revenues, cost reduction, quality improvement, scale and speed. In this context, he said India had sold itself short by focussing too much on low labour cost advantage and not adequately emphasising the quality aspect.

It is interesting to think about Prahalad's comparison with China. In the one area where India leads China, see what the Chinese are starting to do. Saritha Rai wrote about it in a recent New York Times article, "Chinese Race to Supplant India in Software" (January 5, 2002):

The world's two most populous countries, with more than a billion people each, will fight this war with programmers, which they both churn out in the thousands.

Indian labor is cheap, but Chinese labor is cheaper. Programming produced by Chinese costs about 20 percent less than that produced by equally qualified Indians, and some see this as eventually giving China a big advantage. At the same time, companies like Infosys and Wipro are looking for ways to use Chinese talent for their own software development efforts.

Kiran Karnik, president of Nasscom, said China would take several years to catch up with India. "However, we can't afford to be complacent," he said.

Crisscrossing the 50-acre Infosys campus in a golf cart, [the Chinese] delegation was asked how long it would take China to overtake India as software powerhouse. "In the next 5 to 10 years, we hope to do that," Mr. Weiping, vice president of Jiaotong University in Shanghai, said with quiet calculation.

Are we thinking of getting ahead of China in manufacturing? Are we thinking 5-10 years ahead?