IIFT 2016 Question Paper

The following 2 bar charts represent revenues and expenses (in thousands) of A Ltd, B Ltd, and C Ltd over a period of five years.

Revenues of A Ltd, B Ltd, C Ltd for the period 2011-2015

Read the following passage carefully and answer the questions given at the end of the passage.

In a study of 150 emerging nations looking back fifty years, it was found that the single most powerful driver of economic booms was sustained growth in exports especially of manufactured products. Exporting simple manufactured goods not only increases income and consumption at home, it generates foreign revenues that allow the country to import the machinery and materials needed to improve its factories without running up huge foreign bills and debts. In short, in the case of manufacturing, one good investment leads to another. Once an economy starts down the manufacturing path, its momentum can carry it in the right direction for some time. When the ratio of investment to GDP surpasses 30 percent, it tends to stick at the level for almost nine years (on an average). The reason being that many of these nations seemed to show a strong leadership commitment to investment, particularly to investment in manufacturing. 

Today various international authorities have estimated that the emerging world need many trillions of dollars in investment on these kinds of transport and communication networks. The modern outlier is India where investment as a share of the economy exceeded 30 percent of GDP over the course of the 2000s, but little of that money went into factories. Indian manufacturing had been stagnant for decades at around 15 percent of GDP. The stagnation stems from the failures of the state to build functioning ports and power plants and to create an environment in which the rules governing labour, land and capital are designed and enforced in a way that encourages entrepreneurs to invest, particularly in factories. India has disappointed on both counts creating labour friendly rules and workable land acquisition norms. Between 1989 and 2010 India generated about ten million new jobs in manufacturing, but nearly all those jobs were created in enterprises that are small and informal and thus better suited to dodge India’s bureaucracy and its extremely restrictive rules regarding firing workers It is commonly said in India that the labour laws are so onerous that it is practically impossible to comply with even half of them without violating the other half.

Informal shops, many of them one man operations, now account for 39 percent of India’s manufacturing workforce, up from 19 percent in 1989 and they are simply too small to compete in global markets. Harvard economist Dani Rodrik calls manufacturing the “automatic escalator” of development, because once a country finds a niche in global manufacturing, productivity often seems to start rising automatically. During its boom years India was growing in large part on the strength of investment in technology service industries, not manufacturing. This was put forward as a development strategy. Instead of growing richer by exporting even more advanced manufactured products, India could grow rich by exporting the services demanded in this new information age. These arguments began to gain traction early in the 2010s.

In new research on the “service escalators”, a 2014 working paper from the World Bank made the case that the old growth escalator in manufacturing was already giving way to a new one in service industries. The report argued that while manufacturing is in retreat as a share of the global economy and is producing fewer jobs, services are still growing, contributing more to growth in output and jobs for nations rich and poor. However, one basic problem with the idea of service escalator is that in the emerging world most of the new service jobs are still in very traditional ventures. A decade on, India’s tech sector is still providing relatively simple IT services mainly in the same back office operations it started with and the number of new jobs it is creating is relatively small. In India, only about two million people work in IT services, or less than 1 percent of the workforce. So far the rise of these service industries has not been big enough to drive the mass modernisation of rural farm economies. People can move quickly from working in the fields to working on an assembly line, because both rely for the most part on manual labour. The leap from the farm to the modern service sector is much tougher since those jobs often require advanced skills. Workers who have moved into IT service jobs have generally come from a pool of relatively better educated members of the urban middle class, who speak English and have atleast some facility with computers. Finding jobs for the underemployed middle class is important but there are limits to how deeply it can transform the economy, because it is a relatively small part of the population. For now, the rule is still factories first, not service first.

Read the following passages carefully and answer the questions given at the end of each passage.

PASSAGE 2

The company will tackle this problem much more readily if reverse innovation is part of its repertoire. And yet until recently, PepsiCo took a glocalisation approach. The company developed products for the US and then sold and distributed substantially similar products throughout the world. As a result, PepsiCo’s growth, particularly in emerging markets, hit a wall. The company’s brands bumped up against local needs, tastes and habits that could not be satisfied by lowest-common-denominator global products. Under the glocalisation scenario, what first appears to be promising momentum hits a wall - often sooner than later. The renown of even the most potent global brands wear thin when the offered product is neither designed expressly for local markets nor priced for local means. These days PepsiCo is finding ways to address sharp differences across borders by designing products with local tastes and consumer needs in mind and is capturing a greater share of the opportunity in emerging economies. But that’s not all. PepsiCo is finding that its innovations in emerging markets have the potential to have an impact and deliver performance with purpose all over the world. For example, PepsiCo is finding that some long-popular ingredients in emerging economies such as lentils in India have healthy profiles that suggest new dimensions for snacking across geographies. The company’s approach to reverse innovation combines local product development efforts, strong support from global resources, plus efforts to ensure that the raw material of PepsiCo’s innovation - ideas, flavours, ingredients, marketing expertise, packaging materials, manufacturing methods and so on can flow in any direction within the organisation. Concerns about childhood and adult obesity are on the rise. It’s not news that snack foods are not commonly associated with health and wellness. Nonetheless, PepsiCo saw that there was an enormous opportunity for impact in creating options for healthier snacking. “Consumers interact with our products on three levels; the neurological level, the gut level and the metabolic level.” Traditionally food and beverage companies have focussed only on the first. The neurological level is where brands, marketing and sensory payloads operate. Looking at the problems of emerging markets it is important to also understand what PepsiCo’s products do to the person’s gut? What do they do to their body chemistry? If those effects are ignored then it is indulgence without any balance. As PepsiCo geared up for its efforts to develop Aliva, it wondered whether there were any examples in which PepsiCo had already practised successful reverse innovation. There was one such example in India. It was a lentil and rice-based snack called Kurkure. Introduced more than a decade ago, it had grown to be Frito Lay India’s top-selling product. PepsiCo had learnt a lot from the Kurkure experience. Once emerging nations aspired to have access to rich-world products. But these days they want rich world quality baked into products with local origins. It exemplified the idea that innovations shouldn’t simply be handed down from on high.