Can The Indian Manufacturers Benefit From The China Exodus, By US Based Companies?
Last year the Indian manufacturers welcomed the announcement about the government pushing for multiple defence corridors. We clearly acknowledge that this is a massive step and a much needed initiative to propel the growth the Indian MSME needed. As the foundation and the policy is taking shape, it’s imperative that excessive caution and judicious approach needs to be adopted. Things will fall in place, but we need to give it time. Yes it’s an opportunity for the future.
Let’s now look at something which caught the eyes of major business dailies in India. The Indian MSME couldn’t believe what they were reading. The headline read “Around 200 US companies looking to shift manufacturing base from China to India, says USISPF” . USISPF stands for The US-India Strategic Partnership Forum. They are a non-profit organization, with the primary objective of strengthening the U.S.-India bilateral and strategic partnership. The chairman of the partnership is John Chambers who is also the current Chairman Emeritus at CISCO. John Chambers has at close quarters seen the power of MSME, both through the CISCO value and market chain. So we have a man who is keen to be at the epicentre of a new rising business opportunity for the future. Is that business opportunity for the Indian MSME? If Yes, how do we get ready to ride the wave.
Let’s look at the facts as to why are the US companies looking to move away from China. Fundamental reason being, they want an alternative to China by investing in India. Which means that they are looking to expand their manufacturing base with buyout or strategic partnership. Now what steps needs to be taken to get them interested to do business here. On the policy front USISF is coming up with a policy recommendation’s s to what India needs to do to enhance its exports. If a free trade agreement comes in, it will be early Christmas for India and The US.
What more fundamentally should the Indian administration and the Indian MSME need to do next?
Finding Parallels: We need to find parallels with GDP growth and the Indian MSME still needs to learn how they can employ better utility of resources, with existing technologies. Thankfully innovation, is not a foreign word to Indian MSME, although execution is.
Policy Matters : Loosening of controls on foreign investment, reduction of export-import taxes, and the removal of price controls, will push the growth forward.
Manufacturing Giants Producing In India : With Nokia, we probably learnt a lesson on how not to turn away major manufacturing company. Samsung, the South Korean mobile giant, has announced that their Noida plant will be the largest in the world. The coming of the Samsung factory might do to electronics manufacturing what Maruti did to the auto industry in the 1990s. When Maruti came in collaboration with Suzuki, the industry suddenly saw disruption. Suzuki brought scientific manufacturing techniques. And, the auto manufacturing industry here went on an upward trajectory.
Industrial Revolution 4.0 : The convergence has already started between digital and manufacturing and it is already visible in Internet of Things, sensors, robotics, predictive analytics, etc. The cost of production can come down heavily with the help of 3D printing and automated real-time processes in manufacturing.
Scale & Best Practices : The scale of manufacturing needs to increase in India and it can come from learning best practices. We need to replicate or form best practices from leading manufacturing countries to improve India’s ranking on competitiveness. Companies need to be able to tap global markets, for which India needs a strong policy that provides incentives for export of electronics goods. This is what happened in auto manufacturing as well . This would create the scale that will attract FDI into the country from global electronics component manufacturers and create jobs. The Indian MSME will then automatically become priority supplier of components.
Transportation : Looking at the World Bank Report, it states that the cost of transporting 1 ton of freight over 1 km works out to Rs 2.28 by road. By rail it costs Rs 1.41 and it costs only Rs 1.19 for waterways. Using ports in a big way can help India lower logistics costs substantially. The saving could be massive. This can easily make domestic goods more competitive in the global market.
If India has to win this battle for global manufacturing supremacy, it has to focus on these areas. Only then it can drive innovation and cost competitiveness and be attractive to global companies