Mumbai: Long considered a laggard, the Indian shop floor is gaining an edge over its global peers.
A 30% savings in overall costs is an obvious attraction that few global manufacturers of automobiles, components and pharmaceuticals from the developed markets can miss.
As Paresh Kumar Vaish, managing director, Alvarez and Marsal India Pvt. Ltd, an affiliate of a global consultancy firm, puts it, “A key incentive is a 30% overall savings in costs.”
This is a huge advantage for global companies to set up base in India as it comes along with a captive market.
There are other factors that have helped made India a competitive global manufacturing hub. One is India’s population and its growing middle class.
Says Ramesh Srinivas, executive director at KPMG, a global consulting firm, “We will get competitive only in sectors which have large domestic consumption.”
An export-led model is not sustainable, he said. However, even as the Indian shop floor acquires an edge, Srinivasan points out: “Infrastructure issues such as power, the cost of which is much higher than other economies, pin down manufacturing.”
India is an attractive manufacturing destination also because of its demographics and an ageing population in the west. As Prakash M. Telang, managing director, India operations, Tata Motors Ltd, said in an interview: “Volumes are going to be important in all the manufacturing activities.”
Telang also reasons that the ageing population in Western nations is a major factor for manufacturing to move to countries such as India. “There aren’t too many hands coming into the job market (in the west)—particularly in the blue collar segment where jobs can be tough, dirty and grimy,” says Telang.
Telang and Vaish believe that there are a number of areas in which India has a strong competitive advantage vis-a-vis global businesses. Historically, Indian companies have gained in areas where some amount of knowledge input and obviously higher labour content are required. A typical example is auto components, where a company like Bharat Forge Ltd has gained an advantage over its global peers.
Even in automobiles, India has been able to build a competitive advantage, as the assembly of vehicles is “labour-intensive,” says Vaish.
In recent years, India has also made inroads into automotive design, which is an important attribute for the success of automobile firms and drug firms such as Divis Laboratories Ltd.
“They have been able to establish low-cost manufacture because they were able to take advantage of low-cost intellectual capital,” says Vaish. He cites Mahindra and Mahindra Ltd (M&M), as another example as the company used its in-house design and engineering staff to design the Scorpio, which redefined M&M’s brand in a sport utility vehicle market in which it competed with the likes of General Motors Co. and Toyota Motor Corp.
Telang cites another example: “For instance, if you want to change parts from steel to plastics, we can’t change the manufacturing process unless the design is changed,” he says.
Cooperation between competitors has also helped India. Access to tooling, technologies and machinery is much easier now than what it was before. While some industries such as cement are by nature local, raw materials and freight charges make it difficult to take advantage of India’s inherent low costs, and therefore make it tough for the country to become a hub for global industry. Still, India will have an advantage over others, as automobile manufacturers want component makers to actually participate in the design process. In certain segments, India offers a 90% cost advantage, says Vaish. It is in sectors such as design, research and development activities that India scores over others, including China.
However, in mass-production industries such as toys and chemicals, China scores over India, say Vaish. On the other hand, India scores in segments such as discreet manufacturing, design and R&D (research and development). However, India’s manufacturing sector still has a long way to go. Perennial power shortages act as a huge disincentive. When companies put up captive power plants, it adds to the costs.
As Telang, whose company Tata Motors in the past encountered problems in Singur in West Bengal over acquiring land, says: “Manufacturing needs a good piece of land and it has to have an ideal location as we need skilled people. We have to have longer-term perspective,” he says. This is where a pro-business environment would help.
Employment policies in India are very much in favour of labour. For instance, labour regulations specify that if a worker works for 240 days in a year, he or she has to be confirmed as an employee. “We need an exit policy,” Telang added.