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58 LBS Journal of Management & Research www.IndianJournals.com Members Copy, Not for Commercial Sale Downloaded From IP - 115.248.73.67 on dated 30-Nov-2010 Disease Control, and other leading institutions and companies around the world. These people can do anything that can be done in Japan, North America, and Europe. Indeed, they can often do it better, and they can do it for twenty percent of the cost. In particular, because of the Internet, they can do highly sophisticated services as well as high tech. Intel and Texas Instruments, for example, have teams in India doing design of cutting edge semiconductors. GE has one of its main R&D centers in India. Brain scans and radiology of all types are read on-line in India. Indian hospitals are flying patients from all over the world for high quality-low cost treatment in Indian facilities. On top of this, India has an entrepreneurial culture and experience that is second only to that of Silicon Valley and far ahead of Japan's. India may well outdo Japan and even the United States at inventing the next generation of technology and bringing it to market. Thus, the comforting neo-classical paradigm in which developed countries do R&D and high tech invention along with sophisticated services while developing countries specialize in agriculture and low end, simple manufacturing is being stood on its head. China and India will excel at both the high end and the low end and in services as well as manufacturing. This means Japan's ability to compete in the future will be severely challenged and America's even more so. Indeed, it means acceleration of the likely collapse of the current global economic structure. The U.S. trade deficit cannot grow indefinitely. The ability of Japan to help finance this deficit will be dramatically reduced by Japan's increasing inability to retain high tech manufacturing as China more and more produces its own components and equipment and as India takes more and more of the sophisticated service work. Japan's trade surplus and level of savings will drop significantly. Likewise, the United States will not be able to expand its exports because China and India will be more competitive in both high tech and services. In light of this, experts like former Federal Reserve Chairman Paul Volcker are predicting a 75 percent chance of a global financial crisis in the few years. This would entail a dramatic devaluation of the dollar, spiking global interest rates, and recession if not depression on a world wide scale with China and India emerging as the new arbiters of the direction of the global economy. THE SITUATION IN INDIA The resurgence of India's manufacturing sector has been quite magical. Not only are profits soaring, the sector is fast spreading its roots abroad as many Indian manufacturing firms inch close to becoming true blue multinationals. Indian government statistics released in June held a pleasant surprise for those with a stake in the Indian economy. India's Gross Domestic Product (GDP) for the January through March 2006 quarter grew by 9.3 percent, beating market expectations. That growth compared to 8.6 percent in the year-ago period, and came mainly on the back of a healthy 5.5 percent growth in the agriculture sector. Full-year GDP growth for fiscal year 2005/06, ending March 31, 2006, was revised to 8.4 per cent from a previous estimate of 8.1 percent. The better-than-expected performance in the economy was also due to healthy growth in manufacturing and services. (a) Scope for Improvement "The Indian manufacturing sector has to grow much more before its full potential is realized, particularly when the share of manufacturing in gross domestic product has remained between 16 percent and 17 per cent during the last two decades. Indian industrial sector has shown signs of strength in recent years. Traditionally, the country has been strong in laborintensive industries such as apparel, footwear, jewelry, leather and textiles. But of late, it has emerged as a key player in skill-intensive industries such as auto components, hardware, generic drugs and specialty chemicals. The Indian manufacturing sector has by and large withstood the "competitive pressures" from imports, even as tariffs on industrial goods have been cut from the levels of more than 100 percent to a peak of 15 percent. Domestic manufacturers have demonstrated their global competitiveness by notching up export growth by 20 percent or more during the last three years. "With a growing middle class and their increasing purchasing power, domestic demand is likely to be a more powerful engine of growth than external demand. The realization that India is not just a provider of services but a huge market in itself is pushing companies across the world to rethink their strategy toward India. The effect of this can be seen across the manufacturing spectrum, from small to
India's Manufacturing Strategy: Global Perspective 59 www.IndianJournals.com Members Copy, Not for Commercial Sale Downloaded From IP - 115.248.73.67 on dated 30-Nov-2010 mid-sized to very large companies. They are all looking at India as a sourcing and manufacturing location. (b) India Discovered As global multi-national companies (MNCs) move their manufacturing bases to India, several of them have realized that they need to create products for India locally. The primary reason for this is to achieve success not only in India, but globally as well. A silent but stirring revolution is under way among many eminent global high-end technology companies. After having established themselves firmly in the Indian sub-continent, utilizing local talent to work on essentially western problems, India has come a full circle now. Information technology (IT) majors are now seeking out help when it comes to producing products in the country itself. This phenomenon has already sparked a lot of activity in companies including Cisco, Ericsson, Nokia, LG and Samsung.. India's dream of becoming a global manufacturing hub now seems to be moving in the right direction. So much so, that even high-end semiconductor chip manufacturing companies such as AMD and Intel are not far behind when it comes to committing themselves toward establishing their manufacturing bases in this region. The most recent technology major that plans to set its base in this part of south Asia is Dell. Having done so, it aspires to increase its workforce by 50 percent within two years. (c) Strong Vision U.S. conglomerate General Electric says it is considering India as a manufacturing hub. Indicating that the company was looking at enhancing its investment in India, Chief Executive Officer and Chairman of GE Worldwide Jeffrey Immelt said recently that "this is the right time to invest in India, and we will be bold on the market here." India Finance Minister P. Chidambaram is also unflinching regarding India's manufacturing future. "We will become a global manufacturing hub for small cars in the next three to five years," Chidambaram declared recently, adding, "we will emulate this success story in other sectors to become one of the world's top three manufacturing centers." India has displaced the United States to become the second-most attractive destination for foreign direct investment (FDI) among manufacturing investors, according to consultant A. T. Kearney's latest FDI Confidence Index rankings. Will the manufacturing industry in India emerge as the major contributor in the overall growth of the country? "Despite the recent rapid growth, there is no evidence of overheating in the Indian economy", as stated by Mr. Montek Singh Ahluwalia, deputy chairman of the Indian Planning Commission. There is scope for further expansion in the manufacturing sector, he said. In fact, the highgrowth rate can't be 'sustained' on the basis of services alone, he added. "Manufacturing sector must be given greater thrust." The domestic manufacturing sector reported impressive growth for the April-September period of 2005-2006 compared to the corresponding period in the previous year says an ASCON-CII survey. Of the total 140 manufacturing sectors in the country reporting production, 27 recorded a growth rate of more than 20 per cent, according to the survey. Fortythree sectors recorded a growth rate of 10-20 per cent and 50 sectors registered growth of up to 10 per cent. These figures have a story to tell — of tightened belts and focus on innovation. Energy expenses are being monitored, says an Economic Times study. Between FY00 and FY05, sales have grown at a CAGR of 11.5 per cent, while power and fuel expenses have grown at 7.3 per cent only. This despite a hike in fuel prices during this period. Chemicals and steel, for which fuel costs form a significant part of the total cost of production, have brought down the fuel/sales ratio by 4.2 and 2.8 percentage points respectively. Indian manufacturing is also leveraging innovation like never before, using it to push the envelope on operational efficiencies. Faster product development, smart supply chains and deployment of lean manufacturing for dynamic production have become the order of the day. Lead time for new product development has come down by as much as 50 per cent in the past three years. Inventories are being reduced too by about 20 to 30 per cent in the last four years, added to which is the reduction in defects from about 20,000 parts per million (ppm) to below 100 ppm. On a scale of 1-10, Indian manufactured goods quality could be 7, against Germany's 9. The Indian economy has been made more and more
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