Surging Manufacturing- A Hope For India’s Tomorrow
Posted : December 16, 2005 at 9:13 pm [IST]
India has some genuine disadvantages for world class manufacturing sector, such as erratic electricity supplies, poor roads, and grid-locked seaports and airports. The government policies about the labour don’t provide flexibility in operation management for global productivity standard. However, these have not stopped some multinational manufacturers-ABB, Honeywell, and Siemens in electrical and electronic products; Cummins, Daimler Chrysler, and Toyota Motor in auto components and engineering; and Degussa as well as Rohm and Hass in specialty chemicals from setting up shop in India. And all of them operate in skill-intensive industries requiring advanced technical expertise. India has all potential to become a primary sourcing and manufacturing base. Auto components and assembly, fabricated metal products, machinery, pharmaceuticals, and telecom equipment industry in India will flourish and can attain the world class in scale too.
Majority (over 50% at present and going up to 70% by 2015) of US companies prefer to offshore manufacturing that involves skill. With high-skill sectors accounting for almost 40 percent of the manufacturing output of India, India can get a lion share of the forthcoming outsourcing business increase. India could capture up to $25 billion of auto component business, to become (along with China, Mexico, and Thailand) one of the developing world’s top sourcing bases
For becoming globally competitive, the companies must manufacture better quality with lower cost. But then there are many such players from many competing countries. India must be better in product design and introduction of cutting edge innovations too, and must offer that to the end-users promptly at the time he requires. Stories of many Indian companies with ISO and Deming Prize wins confirm the status of quality of Indian manufacturers. Indian manufacturers are getting innovative too. As just one example, out of the 800 Indian auto parts suppliers, over 600 companies have acquired ISO certification for quality.
India manufacturers are using design and product engineering to cut costs; a redesign of the Maruti Alto’s steering system, for instance, reduced its weight by 15 percent. Faster designing of good quality products helps reduce development costs and lead times. As reported in Mckinsey report, one Indian supplier took only six months to design a steering system for an automaker that had been trying for more than four years to develop a similar system with suppliers in other low-cost countries. Many MNC automakers including GM have created engineering and design centers in India to capitalize on these skills. India can cash on this design strength. The forthcoming Rs 1lakh entry car from Tata Motors, if successful will further strengthen the confidence of Indian manufacturing.
Over years, supplier bases for many sectors of manufacturing have grown in width as well as depth in India with high tech capability to manufacture almost every item of mechanical, electrical, or electronics industry. That is the reason that companies like LG, Samsung, and Nokia or Motorola are setting up cellular phones’ manufacturing facilities in India, beside the lure of a huge domestic market. Strong IT industry with capability of sophisticated chip design in India is another incentive.
India’s advanced tooling and machining industry is another strong point, as it brings down the capital cost of the production with local and less expensive capital equipment locally. One leading Japanese automaker that moved its equipment design and purchasing to India found that its costs were 20 percent lower than they would have been in other developing countries. Similarly, the low-cost programming and engineering skills of Indian workers have generated savings of up to 85 percent when companies purchase secondhand capital equipment and refurbish it in-house in India.
Almost all big global automakers already source components in India worth more than $1 billion and for years it is growing unexpectedly fast. As estimated by McKinsey, a US-based auto components manufacturer could increase its potential return on sales by three to six percentage points if it shifted manufacturing to India and sourced 30 to 50 percent of its requirements locally. So why should not they cash on that advantage?
Toyota, the world’s second largest automaker that is very soon going to race ahead number one General Motors, had been sourcing components from India. Since 2001, Toyota invested almost $200 million in six joint ventures to help local suppliers develop scale in their manufacturing operations. Toyota has turned India into a regional sourcing hub. It now exports transmission assemblies from India
The manufacturing sector is showing signs of growth. The sector is beginning to create jobs and emerge from its India-focused, tariff-protected, China-will-kill-me mindset. The sector is discovering that all else being equal, the costs are not much higher than in China-labour costs are roughly the same, cost of capital has been aligned. Chinese companies have some real advantages of scale and lower infrastructure. But with more capable management, smarter systems and processes, India can largely overcome those advantages. The manufacturing sector in India has now clearly begun to capture the imagination of the developed nations. India can hope of a boom of FDI in manufacturing from Japan and EU countries.
Arun Maira, chairman, Boston Consulting Group, India said at the recent Indian Manufacturing Vision 2020 conference, “India should set the benchmark for innovation globally. It should be a part of the vision for every company.” And that will make India compete with even China, the Giant of manufacturing.
- Indra
Category: Manufacturing |
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