By K. Anji Reddy

For most part of the last century, the competitive advantage enjoyed by a nation was governed by 2 variables: factor-endowments, like the availability of raw materials and, more critically, the ability of the nation to leverage these endowments towards the creation of wealth. Thus, factor-endowments alone do not lead to the creation of a sustainable competitive advantage. The example of Nigeria, which has frittered away its oil wealth over a decade, is sufficient to emphasise the importance of the second variable-leveraging endowments-in the process of creating competitive advantage. Even oil-rich Saudi Arabia has not been able to convert its resources into the source of a sustainable competitive advantage. In contrast, Japan, a nation which has no factor-endowments, has efficiently managed the application of imported raw materials to create a powerful economy.

Globalisation has, to a large extent, diluted the importance of factor-endowments like capital and raw materials. Impermeable borders that once ensured gradients in the availability of resources have turned porous. Both capital and raw materials now flow speedily and efficiently to where they are needed. The flow of capital is guided mostly by secular factors. Thus, a major share of foreign direct investment flows into the emerging economies, signalling that capital targets investments that promise the best risk-adjusted returns. As for raw materials, the declining prices of commodities means that countries dependent on the export of commodities are poorer, and nations that convert them into to finished goods are richer.

So, what will be the basis for competition? In a networked and globalised world, where the creation and application of knowledge is of prime importance, nations that excel in these 2 areas will enjoy a significant competitive advantage. The second half of the 20th Century saw the emergence of the Asian Tigers. This was predicated on efficient manufacturing by skilled and disciplined labour. The result: the ability produce better products faster. But, the economic difficulties they underwent in the last decade highlight the unsustainability of relying on factors like these alone. In contrast, while the Tigers were caught in a trap of their own making, the US powered ahead on the back of its hi-tech and services sectors.

Thanks to the boom in our software sector in the last decade of the previous millennium, a sudden sensitivity has developed for the economic benefits of developing the software industry in the country. Consequently, we begin the New Millennium with a positive outlook towards other so-called knowledge industries, like pharmaceuticals and telecom. This is propitious: this century promises to be one where knowledge and its application will be the key to global competitiveness.

Both the creation and the application of knowledge are processes driven by human capital. This is an area where India enjoys a significant advantage. The absolute number of knowledge-workers in India is large, which is only to be expected in a country with a huge population; more relevant is the intellectual and entrepreneurial capabilities of these people. There is adequate anecdotal evidence-the success Indians have enjoyed in founding hi-tech start-ups in Silicon Valley and the increasing number of Indians in senior executive positions in transnationals-to suggest that Indians, given the right environment and tools, can hold their own, and even excel against people from anywhere else in the world.

It feels good to talk about the success of overseas Indians, but doing so only serves to highlight the problems that have prevented Indians from creating similar success stories here. Ironically, barriers to the migration of labour may work to India's benefit. Countries like the US work towards maintaining semi-permeable barriers that allow only the most talented foreign labour into their country. But the majority of countries have been more heavy-handed in keeping foreign labour out-arguably, to their own detriment. Thus, even if Indians are allowed access to developed countries, the majority will, probably, decline the opportunity. Our strong familial ties and unique cultural identity makes the decision to emigrate difficult. In the first few decades of this millennium, at least, this factor will work to India's advantage.

India enters this millennium with more than a billion people. If human capital is to be a source of competitive advantage, it needs to be developed; else, it could go the way of countries like Nigeria, which frittered away resources. Indians do not lack in intellectual skills or entrepreneurial zeal. But there are structural and environmental deficiencies that prevent them from reaching their full potential while they remain locked in India. Moderating regulations that stifle business is one thing; creating infrastructure that will enable businesses to flourish is another.

However, we need to do this quickly. Today, at the beginning of the 21st Century, many talented Indians prefer to remain in India; a sizeable few return to India after spending some years in the developed world; and even second- and third-generation non-resident Indians retain their fondness for the country. India's unmatched diversity and unique culture is the magnet that pulls many home. Unlike other modern societies, we are still not a culturally desolate and barren one.

As we globalise, the population of Indians overseas will grow, and there will be little difference between being an Indian in Hyderabad or one in New York. When this Indianisation of international capitals is complete, we will witness a real haemorrhage of talent from the country. This will be to the benefit of the host nations and the individuals concerned, but it will weaken India's competitive advantage.

If product development and customisation are going to be the keys to global competitiveness in this century, the ability to function in a culturally-diverse context, as Indian companies do, will, by itself, become a source of competitive advantage. Think: an Indian FMCG business that succeeds in India's value-conscious and fragmented marketplace can surely succeed in a globalised economy. Contrast this to the typical mid-sized US firm, which sells to a homogenous set of consumers.

Centuries ago, the country we now call India was a giver of things. When the English landed, they had nothing of value to the local population, but Indian cotton was good enough to be used in their trade with other regions. In the previous century, the tables were turned; Indians scoured duty-free shops looking for gee-gaws. Today, at the break of the 21st Century, this seems set to change. A billion Indians have a lot to offer the world.

K.Anji Reddy is the CEO of Dr Reddy's Laboratories

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