Core sector industries have always been treated with special priorities in our country as part of the political-industrial policies of successive governments. Among them, nine of the financially successful ones are now being called Navaratnas, planned to be steadily developed as Indian examples capable of standing up to competition, with the oil sector units enjoying added special status.

While this policy deserves appreciation, more so in terms of their crucial role in national development, it is also essential to have a second look at these units from the points of view of their ‘core competence’.

Well known management guru, CK Prahlad, in his oft-cited Harward Business Review publication, has introduced the concept of core competence for corporates as follows: A company’s competitiveness derives from its core competencies and core products. Core competence is the collective learning in the organisation, especially the capacity to co-ordinate diverse production skills and integrate streams of technologies. First, companies must identify core competencies, which provide potential access to a wide variety of markets, make a contribution to the customer benefits of the product, and are difficult for competitors to imitate. Next, companies must reorganise to learn from alliances and focus on internal development.

This concept has been extended by James M Higgins in his article “Achieving Innovation, the Core Competence” in the R&D Innovator (Volume 5, Number 6, June 1996). To quote: “Recently, NEC Corporation was forced to withdraw its low-priced monochrome ink jet printer from the market only four months after its introduction. Why? Because the dominant firm in that industry, Hewlett-Packard, had already beaten them to the market with a cost reduction of forty percent on its monochrome ink jet printer and the introduction of an improved colour printer. HP used product innovation to enhance the existing products, and process innovation to reduce costs and create a relative low-cost position in the market. HP’s entire philosophy of business is based on innovation, from product development to human resource management. There are other firms where innovation is also a way of life. Then there are firms where innovation may not be a way of life, but where it has been critical to success. For example, when Intel was faced with new and nimble competitors, it chose speed of product development as its key strategy, and blew the competition out of the water. Finally, General Electric’s introduced best practices (GE’s version of benchmarking), process mapping (reengineering) and workouts (energetic, highly participative employee-manager retreats), all in order to get more new ideas from employees.”

These ideas were aimed at significantly increasing innovation in order to substantially increase productivity. These actions were taken in a firm which already, in most years, files more US patents than any other firm headquartered in the US. In each case, these firms—HP, Intel, and GE—as well as some others, met strategic challenge through innovation. These types of firms are the ones that others should emulate for they know that to do business, as Peter Drucker suggested in a recent Harvard Business Review article: “Every organization—not just businesses—needs one core competence: innovation.”

Innovation gives these firms a competitive advantage. Now and in the future, more than any time in history, the secret to competitive advantage is innovation. It can help businesses meet all of their strategic challenges, not just competition.... Innovation allows a firm to solve its challenges in unique ways that build competitive advantage either through relative differentiation, a relative low-cost position, or some acceptable level of both. Innovation can’t guarantee success, but success cannot be achieved in the long run without it”.

In essence, without continuous innovation and invention, core competence will steadily lose its steam, making the industry unviable and uneconomic, however much it is kept supported by other means.

Depending totally on technology import, both for initial establishment and for subsequent modernisation/expansion, our core sector industries, by and large, did not concurrently chalk out any corporate plans to develop autonomously the ability to climb up the technology ladder on their own through well-structured and dedicated in-house R&D and T&D programmes. Alarmingly, this malady has not really been adequately appreciated by successive governments even after the New Economic/Liberalisation Policy regime, including enactment of the TRIPS-compliant IPR Regime.

Take the cases of two core sector industries in India, namely, the petroleum/oil refining companies in the infrastructure category (also among the Navaratnas) and antibiotics units in the health sector.

For the petroleum/oil refining industries, a study published in Economic & Political Weekly, May 29, 2004, finds the following: “All the five public sector oil-refining companies have turned up profits through the two decades under study in this article. Paradoxically, public profitability (appropriate indicator of operational efficiency) has declined for all five companies. This observation is supported by the upward trend in real unit cost of throughput of these companies. These disturbing findings are corroborated by strikingly upward trends in the ratios of working capital-to-throughput and gross block-to-throughput over the period. Thus the operational efficiency of the profit-making PSUs is in serious doubt”.

Among all these, Indian Oil Corporation alone has a meaningful R&D Centre. While in fairness, it must be presumed that IOC would have made use of its R&D results well, its weak patents portfolio (USPTO describes only 19 patents during 1976-date) highlights its continued backwardness in the Innovation Index. One can appreciate the seriousness of the situation only when one compares the situation with an MNC like Shell Oil Company with a total of 5,634 patents during the same period and with 1,082 for catalysts alone, both thrown to the same vagaries of the international globalised scenario.

The antibiotics scenario is more alarming. Hindustan Antibiotics Ltd, set up by the government as a prestigious industry, is now before the Board for Industrial and Financial Restructuring, though reportedly the new minister is devising a new rehabilitation strategy by writing off its accumulated loans and providing fresh ones to restart operations, essentially under political compulsion. Those under the private sector which were established only in the 90s at a cost of Rs 500 crore are facing closure due to ‘unsurmountable’ competition from China. Here again, one must remember that though Indian R&D has virtually forgotten the penicillin field, USPTO has granted 412 patents during 1976-date with the latest US 6,383,773, dated May 7, 2002, from the prestigious MIT. Neither the penicillin industries nor the departments of industry/biotechnology nor any other established R&D centres seem to be interested in such R&D programmes, even though they are essential for maintaining a state-of-the-art industrial base for such a life-saving antibiotic. What, then, is the true meaning of “core competence” of our core sector industries even if “the sector has grown at the rate of 6.7 per cent in April-May 2004”? Our industrial policy certainly needs a re-look.