Competitiveness as a notion is barely a decade old in India. For more than 40 years post Independence, Jawaharlal Nehru's Soviet-inspired central planning system ensured that Indian businesses had a captive market. Capacity was the only marketing constraint, and competitiveness meant the ability to swing licences from a highly political and corrupt bureaucracy. A cost-plus pricing system encouraged companies to build assets and overheads, without worrying about efficiencies. Small wonder, then, that the sins of those 40 years are proving so hard to wash in a bare 10. But atone, India Inc. must. By not being remorseful, but resourceful.

Most of the local industries such as automotive, chemicals, and foods are still protected by tariffs. However, the duty rates are coming down every year and all the World Trade Organisation (WTO) signatories are committed to lowering them to zero, although no time frame has been set (the US has suggested 2015 as the deadline for developed countries). Can Indian industry withstand an unrestrained global onslaught? No way. Over the past 10 years, industry has been preparing for global competition by addressing structural issues. That has meant reducing workforce, improving manufacturing processes, selling or closing down unviable plants or businesses, restructuring expensive debt, decentralising decision-making and developing a conscious strategy for markets overseas.

For instance, the country's oldest conglomerate, the Tata group, has sold lots of different businesses and entered newer ones. Reliance, the largest business group today, has not only consolidated its core business of petrochemicals, but made big bets on sunrise industries of telecom and biotech. The A.V. Birla Group is focusing on its commodity businesses for scale and efficiency, while some other family-managed groups like the TVS Group have spent the past decade addressing fundamental issues such as manufacturing. Yet others, especially Ranbaxy, have systematically built their marketing networks abroad to capitalise on new opportunities.

None of them, however, is anywhere close to global leadership, which is what true competitiveness should finally afford. Be it IT services, it-enabled services (BPO), garments, auto components, or drugs, cost is the single-biggest selling point for India Inc. While price competitiveness does give a definite edge, it is not the ideal-and far less, sustainable-advantage. As any marketer will tell you, buyers have a way of knocking prices down year after year. Besides, prices are the first thing to be targeted every time there is a demand slump. That's why India's it services companies are looking at consulting work, and that's also why Ranbaxy-despite its clear advantage in making off-patent drugs-will necessarily have to play the basic research game.

The other components of the winning equation are quality, service, image, and innovation. But how is India Inc. to make the leap from cost to innovation? The answer: slowly and steadily. Indian companies enter the world market with such crippling disadvantages that any significant change in strategy overnight is impossible. It is impossible for Ranbaxy to invest $3 billion(Rs 14,400 crore) in developing a new drug even if it comes up with an innovative molecule. Similarly, Tata Engineering cannot afford to wager a billion dollars on a revolutionary luxury car even if it could make one. It must first become a Hyundai before it can aspire to be a Toyota. Until then, it must find profitable niches in which it can survive and grow. The point: there is no one answer for India Inc.'s competitiveness. Each company must find its own winning formula, work on it, and hope that it succeeds.

The prevailing wisdom suggests that Indian companies should focus on knowledge-based industries such as software, engineering design, and biotechnology. For good reason. The infrastructure constraints are so severe and the cost of capital so high that only skill-based industries that do not demand intensive capital investment or physical transfer of goods have any chance of succeeding. Besides, there is a reasonably abundant annual supply of white-collar workforce from India's educational institutions. Industry must use this not only to enter new knowledge industries, but to upgrade research and development in its existing businesses. That may be the only way of accelerating India's growth. A Nasscom-McKinsey study, for instance, puts the opportunity in it and it-enabled services at a staggering $57 billion by 2008-that's only five years away.

But the development of knowledge-based industries must not come at the cost of, say, agriculture or manufacturing. Can you imagine living in a country that imports everything? Rather the idea should be to offer a competitive platform from which every industry can launch its own global strategies. In auto components, for example, a handful of companies are beginning to claw up into the international aftermarkets. Some others like Bharat Forge are building up capacities in niche areas like castings, and already have some top-of-the-line OES as customers. In chemicals-a market dominated by China-a company such as Jubilant Organosys is beating Chinese manufacturers in speciality chemicals. Just imagine how much more competitive these companies could be if only larger macro issues were addressed.

Just like all countries cannot be competitive in all things, all companies in corporate India will not become globally competitive. The stronger ones will need to grow out of India and tap different countries for disparate competitive advantages. China is emerging as a manufacturing base for some companies. They must use this not just to cater to the local markets, but as a springboard to other markets. Could the government draw up a policy that favours a "Winners Inc.", by removing bureaucratic hassles, developing roads and power generation on a priority basis at places where these companies are located? A portion of their profits could then be pooled to help the next tier of winners. It's a controversial proposition, but one worth exploring.

The last 10 years have been profound for the changes they have effected in industry, and understandably there's lots it must do. But ironically for India Inc., the promise is precisely due to the little it has done.