Cost Leadership Strategy for Global Competitiveness

Dr. D. Mukhopadhyay
It may not sound much to state that Indian business houses are lagging far behind the business houses belonging to the economically advanced countries as well as even less economically advanced countries. Primarily cost of production of goods and generating services in India is quite high and quality of the products does not match many a time with the set standard. As a result , India fails to achieve targeted export and on the contrary she does import many of merchandises including agricultural products as usual which leaves her attributed with adverse balance of trade. In the context of economic performance, China is the second largest economic power house just next to the United States of America (USA) and it has occupied a very important room in the international market due to its consistent up gradation and usage of business management strategies including modern tools and techniques for quick, significant, meaningful and relevant decision making under different business situations. Today’s market whether domestic or international is characterized and influenced by the effect of globalization, technological advancement, shorter product life cycle, new generation of customers with dynamic pattern of needs. Customers want quality products at competitive prices and it may be mentioned that cost competitiveness is the key to success in such cut throat competition in national and international market. All the countries who are able to compete in the dynamic business situations are adequately equipped with valid, reliable, authentic and timely available cost information and strategic cost management methodologies and processes . In simplicity, no business can survive and sustain without reasonable profit and profit is the gulf between price and cost. In competitive market, price of the products is determined by the prevailing market forces and the business houses do have hardly any individual roles to control and tame price in accordance with their requirements. Left over option is only the cost. Cost is the pivotal denominator for generating competitive advantage in the market. In majority of the situations, business houses function in the buyers’ markets and therefore cost leadership strategy is the panacea for survival, sustainability and overall success of the business. Today, centralized economy can hardly be seen to be remaining prevalent anywhere and days of protection and subsidy is no more and in the days of protection and subsidy, no one used to put any weightage on cost management perspectives. Chinese products are practically ruling the Indian consumer durable products and Indian products are hardly found to be at par with that of Chinese products for which simple reason is low price and reasonable quality offered by the Chinese companies. Cost management is essentially is an art and science of measurement of waste and techniques for waste reduction which is measured in quantitative terms in a scientific process and essentially it is the practice of Professional Cost and Management Accountants (CMAs) who emerged to be in place in early 1940s during the World War II and they were born out necessity to make industry cost competitiveness.. India is one of the leading countries in the world in producing cost management experts and the profession of the CMAs is known as Cost & Management Accountancy Profession which is 75 years or more old (1944-2019) and the primary objective of having a Parliament Recognized Body of Cost Management Professionals was to make India cost efficient, cost competitive and to emerge as a cost leadership nation in the world. Every object whether tangible or intangible is subject to cost and cost represents sacrifice of economic resources measured and expressed in terms of money as the unit of measurement. Indian industry has been badly suffering because of orthodox practice of production and distribution management system which in most of the cases is not based on scientific process but rule of thumbs and this is definitely contrary to the essence of the age old Theory of Scientific Management . Indian business houses are found to be interested to save tax but not cost. If cost of production and distribution become more, obviously profit will be less and to pay tax at standard rate in compliance with the requirements of the prevalent fiscal laws of the land is an obligatory option . Therefore, tax is a constant factor which depends on the volume profit. It needs a logical answer to the question what is the problem to show more profit and consequently to pay more tax as the result of efficient and effective cost management practice.
Of late, change in the practice of cost management as a necessity in order to earn competitive advantage in the domestic and international market is being observed in India but not at accelerating rate. Cost of quality is normally seen in four dimensions and they are somewhat like prevention cost, appraisal cost, external failure cost and internal failure cost. These cost can be eliminated if there is a proper system of reporting cost information to the management so that management can take appropriate measures to save these cost and ultimately product or services shall be free from the burden of these cost. As a result , concerned products shall become more competitive in the market. Any business can sustain under the competitive environment if it can adopt timely strategies to increase sales revenue and decrease cost and for doing so, it needs a robust cost management practice and an efficient cost information generation system in place. As revenue increasing strategies among other include increasing productivity of the inputs including effective and judicious use of human resource, developing new products in meeting the needs of new generation customers, exploring new markets, improving customer service, increasing customers’ base, increasing retail displays, allowing price discounts etc and cost analysis, cost information generation and reporting can make it happen. Similarly, decreasing inventory , decreasing direct and indirect costs and setting benchmark are essential for accruing competitive advantage in the market. Inventory valuation is an important ingredient of modern cost management perspective but Government is indifferent and lenient to see or know how the business houses value their inventory and the values at which they are reflected in the balance sheet . Innovation , up gradation, and adoption of new technology in production and distribution system definitely play an important role in securing profitability of the products in particular and the business by and large. Productivity and investment in innovation are complementary phenomena in securing profitability of business. Product innovation gets optimized through research and development and adoption of time-honored advanced technology , managerial methods, organizational practices and other intangible factors improves productivity and productivity is the pivotal force of competitiveness. The most cost efficient firms shall only be sustainable in globally competitive environment since they can make efficient spending decisions based on strategic vision and internal capabilities for delivering value in production and distribution chain and this is only possible when the system is supported with a strong cost management practice under the guidance, supervision and monitoring expertise of the cost management professionals . In the present time line, business cannot avoid incremental global competition, emergence of new markets and increasing demographic changes and therefore, it is an inevitable exercise for the Indian business houses to develop multifaceted cost management methodologies . Cost has to be saved which is possible through preventing wastes. Today, cost management is not a supervisory or operational level management function but it is strategic issue and therefore it needs strategic management intervention in order to ensure appropriate tradeoff between revenue growth and corresponding savings in cost so that Indian business can comfortably sustain the burn of global competition .
Cost management needs to be aligned to the organizational strategies if it has to fructify the profit maximization maxim under competitive business environment and this whole issue depends on how efficiently revenue is bolstered and how effectively cost is minimized. Every business has to have a transparent view about what type of business it wants to be in so that strategic planning, R& D and product design and development process and resource allocation criteria shall be adopted accordingly in order to ensure that no cost is reported for mismanagement and therefore avoids getting the tag of waste.
Value addition and cost saving is a must in marketing, sales, manufacturing, quality control, sourcing, procurement, maintenance, customers services both pre and post sales services and other technical support. It is mentionable that , Indian business houses are found to be averse in taking the help of robust cost transformation models and statutory and non statutory services of the CMAs on the pleas that most of the countries of the world have neither Statutory Professional Bodies of CMAs nor there is statutory compliance requirements. The answer to the question is that every country may not have Statutory Body of CMAs but they have robust cost management practices. For instance, China has only one professional Body of Certified Public Accountants ( who are known as Chartered Accountants in other countries) but there is a branch of the Institute of Management Accountants , USA , in China and it helps the country in developing cost efficiency , cost culture and cost management practices and perhaps this may be one of the reasons for cost competitiveness of Chinese products all over the world. There are about 30 Professional Bodies of CMAs under different names all over the world but almost all the countries have robust cost management practices and more correctly in the economically advanced countries. For instance, presence of Chartered Institute Management Accountants(CIMA, UK) Institute of Management Accountants (IMA, USA) etc are there in most of the European countries, American countries, African countries etc and Cost & Management Accountants play a very important role in making the concerned countries cost conscious, developing cost culture, formulating cost efficiency models and ensuring the effective use of modern cost management techniques in resource management. There is no short cut process and substitute of cost efficiency as cost effectiveness is the prelude for organizational efficiency under the globally competitive business environment for ensuring economic sustainability . It is beneficial to the business houses if they change their orthodox decision making methods and avail assistance of modern cost management strategies in order to strengthen over all business management strategies . This always acts as a boon in domestic as well as international market perspectives. Government of India should take appropriate steps in making the Indian business houses cost competitive through adopting cost management measures so that India shall be able to compete with rest of the world. Singapore has overtaken the USA to become the most competitive nation in the world, according to the World Economic Forum (WEF) Report, 2019. Singapore scored highly for public sector, labour force, diversity and infrastructure and cost management implication definitely has a prominent role here. Management accounting plays a critical role in assessing the performance of the critical success factors .Therefore cost management practice under the overall scientific guidance of CMAs is not luxury but a necessity for sustainability in globally competitive business environment.
(The author is the Professor and Dean-Faculty of Management, SMVD University, Katra, J&K.)