Trade Agreement & Supply Chain ROTI
Data
shows that Indian Enterprises have productivity much lesser than China or
Vietnam or countries with whom India competes for global share of trade. Data
like Labour cost % to GDP or measures like travel time, etc make the case very
open that Indian industry has a higher cost to serve its customers.
Indian
Supply Chains were shielded from the impact of their lack of productivity due
to government protecting them using levers at its disposal, predominantly
Tariffs. With that shield used frequently, what it has done is it has built a
high cost Supply Chain which is to large extent is not necessarily exposed to
beyond border competition & is able to pass on the inefficiency to its
customer.
With
BTA or FTA or even the Tariff war, it looks eminent that shield is going away.
Trade agreements and Tariff wars is the opening gambit of the structural change
in the landscape. The lever of
government being the shield to the industry to make customer absorb the
outcomes of less productivity will be almost over.
Traditionally
ROCE or ROIC was the measure for enterprise. It fits very well in the financial
metric of the company. The sense that practitioners like me have is that ROCE
is an output measure while we all wish to focus on input measure. ROTI is an
input measure. Return in time invested is the single most important measure at
personal or enterprise level. Each one should try and maximize his ROTI.
An
improved ROTI can lead to improved ROIC.
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