India's fight to slay the dragon

Indian manufacturing may not rival China's, but prodpects are imprvng writes Peter Marsh in his third Financial Times piece: India's fight to slay the dragon:

Michael Marks is an enthusiast for India-based manufacturing. The chairman of Flextronics, a Singapore company that is the world's second biggest contract manufacturer for the electronics sector, says India is "climbing the league table fast" in terms of its attractiveness as a place to base large-scale production of basic electronic goods such as computers and mobile phones.

Accordingly, Flextronics has spent $1bn (£530m) acquiring companies in India in the past three years. It will spend a further $100m in the next three years expanding its manufacturing base in the country, boosting staff numbers there from 5,000 to at least 7,000. Even so, it will take years for India to become anywhere near as important a manufacturing centre for Flextronics as China - where it now employs 65,000 people in about 30 factories.

Comparisons between the Asian giants are inevitable. China has progressed strongly in manufacturing in the past decade, becoming the third biggest manufacturing economy after the US and Japan. In statistical terms, India is a long way behind, with its value-added output in manufacturing only about one-sixth that of its neighbour. While China's manufacturing production has more than doubled since 1995, India's has risen by only 60 per cent over the same period.

Scott Bayman, president of the India operations of General Electric, the US industrial company, agrees that there is "huge potential" for Indian manufacturing in the next 10 years but that in contrast to China it has obstacles to overcome. Differences remain in the size of the two countries' manufacturing bases and the quality of physical infrastructure. China has better roads and ports, and good quality parts available from an established supply network.

Roshanlal Kariholoo, president of the India operations of Schneider, the French electrical equipment company, says: "Schneider has about 20 plants in China, while we have four in India. We can get a return on investments in three years in China but it takes twice as long in India."

Many observers believe India has a lead in those areas of manufacturing that require a "service approach" - for instance, in product customisation. In these activities output per person might be expected to be high, says Bert van Ark, a productivity expert at the University of Groningen in the Netherlands. Yet he says that while individual companies in India have performed well in this area, any overall lead has yet to show up in macroeconomic data.

"Where India has made improvements [in its overall standing on productivity in manufacturing] this has come through cutting factory jobs and improving on India's dismal performance in use of labour in the past," says Mr van Ark.

Parts supply in India is a worry for many companies. Anant Talaulicar, managing director of the India operations of Cummins, a large US maker of diesel engines, says India is good in the field of specialist engineering-intensive parts - where products are made in short production runs to customer order - but not so good in high-volume manufacturing.

A. Gururaj, general manager for Flextronics in India, says the supply of vital components used in electronics goods such as power supplies, cables and casings, from Indian factories islimited. "We are beginning to see signs of a supply base emerging but it is slow."

However, he expects the growth of such companies to accelerate, due to both Flextronics' greater involvement in India and plans by other big electronics goods companies - such as Nokia of Finland, Hewlett-Packard of the US and Taiwan's Hon Hai - to increase production.

Others, too, believe trends are improving. Ashok Jaya-ram, managing director of the India arm of Rotork, a UK engineering group, runs two plants in India.

"Until five years ago the quality of component production in India was a nightmare," he says. "But the situation has got considerably better, thanks as much to the growth of the vehicle industry in India. Companies such as Ford and Hyundai have come here and insisted on better quality standards from their suppliers and this has had an impact on the entire engineering industry."

Anand Sharma, president of TBM Consulting, a US-based manufacturing advisory group, says Indiancompanies are taking up manufacturing techniques such as "lean" production to keep quality high and boost efficiencies. "Three years ago there wasn't much interest in India in lean production," he says. "But now I think in this field India has a lead over China."

Sanjiv Bajaj, director of Bajaj Auto, India's second biggest maker of motorbikes - a big advocate of using robots and other labour-saving techniques to boost efficiencies - says "lean" ideas emphasising job cuts on the shop floor and boosting productivity often make sense in India, in spite of the country's low labour costs.

He says India can get ahead in manufacturing by emphasising quality and a willingness to work with customers - not just cheap labour. India may also offer an advantage in the control of intellectual property in manufacturing (see left).

Probably the biggest challenge for India is to get the right balance between engineering-intensive, service-led manufacturing and the standardised way of making products that is one of China's strengths.

N. Srinivasan, director-general of the Confederation of Indian Industry, the Indian employers' organisation, estimates that three-quarters of Indian manufacturing output involves a large element of customised or engineering-intensive production, against an equivalent proportion, he believes, in China of about one-quarter. But he says it would be wrong for India to ignore the "mass production" side of manufacturing. "I feel we need to get the balance right between these two sectors of manufacturing and aim for a future where the split of output between the two is 50/50," he says.

India's ability to widen its manufacturing base will be put to the test in the next five years, as it strives to become a site for large-scale electronics industry manufacturing.

If the likes of Flextronics and Nokia can point to a network of world-class electronics production sites in India that rival those in China - supported by good infrastructure of parts suppliers and co-existing with companies that are good at the low-volume parts of manufacturing - then many will feel India will have met its goal of becoming a global force in manufacturing.

Comments

[Roehl Briones]

I hate the use of murderous, subjugative language in describing market competition. It is possible that growth in Indian manufacturing coincides with growth in Chinese manufacturing. It is not a zero sum game. In a globalized manufacturing world, vertical chains spanning India and China may materialize.

[Kelvin]

Indian celebrated its first six-lane expressway from Mumbai to Pune last year. Most Indians probably are not aware that Chinese build the same length of Mumbai-Pune expressway in every two weeks. Without infrastructure, how can Indians compete with Chinese in manufacturing? Please see following articles.
http://www.theglobalist.com/printStoryId.aspx?StoryId=4226

[prinks]

Rightly said:
“Compounding is the eighth wonder of the world.”
-Albert Einstein
“Take away the terms asset allocation, long term and compounding from a financial advisor’s vocabulary, and he is pretty much tongue-tied,” remarks a friend.
Let me show you exactly how much saving can help. Say you spend Rs 40 every day on cigarettes. Let us see what could happen if you stopped smoking.
Read full article: The secret to making crores is out

[prinks]

Blogging away debt has some interesting insights on consumers who use debit cards. When she went to return an item at Walmart she asked for the credit back on her card. Much to her surprise she learned that her debit card information was stored within the bar code of the receipt-as it turns out the card information is not on the bar code but rather the transaction!
On another note concerning debit cards-banks are raking in tens of millions of dollars in fees from customers who don't keep good track of their debit purchases. Most banks will gladly pay the merchants and charge you $35 a whack. If you don't keep meticulous records-go back to the credit cards!
See this: http://diggindianews.com/ScienceTechnology/Do_You_Use_Debit_Cards/