India on its way to become manufacturing hub
India as WorldS Manufacturing Hub For long, Taiwan and China have been at the outsourcing manufacturing boom in Asia. So much so, that 80% of toys sold in the US are made in China. But things are slowly working in favor of India. India is on its way to become a major contract manufacturing hub. There is a huge opportunity In manufacturing waiting to be tapped. A new India Is transiting from a third world country status to a league of developed nations. It Is the world’s third-largest repository for foreign direct investment (FDA), after China and America. Goldman Sash’s Report (Brazil, Russia,
India, and China – BRICE major players), projects India as a potential winner ahead of China and would overtake U. S. A. And China by 2025 in terms of Real GAP. India- Past & Present The ass’s, ass’s and ear ass’s: There was dominance of Public Sector across industry. The market was mainly governed by sellers with limited competition. There existed closed Economy with negligible presence of multinationals. GAP growth was below 4% (Hindu rate of growth) and primarily agriculture based. India post 1991 and counting: 100% FDA in most sectors has seen Pepsi, Coke, Shell, Ford, GM.
Suzuki.. Toyota, Ames, Citibank, GE, Microsoft, Pfizer, Innovation, ASK, Merck operation in India (availability of world class products). A new India is transiting from a third world country status too league of developed nations. Current Scenario: Indian’s manufacturing sector Is gaining momentum and has been ranked fourth In terms of textiles, tenth in leather and leather products etc. Government of India, to promote exports and make India a manufacturing hub, has taken various initiatives including the development of Special Economic Zones.
Major global companies have already invested in India to name a few like Samsung, LAG, Suzuki, Soda Auto, Philips re among the some who have already invested and most of the global giants have stated the process to enter In India STRENGTH: The country has become a manufacturing outsourcing destination because of cheap labor, talented and knowledgeable workforce, supportive governmental policies, improved quality control measures, world-class technology and consistent economic growth. The most promising sectors for India are auto components, pharmaceuticals, electronic hardware, apparel, foot ware, toys and specially chemicals.
Cost of employing engineers – essential to manufacturing services – is en-third to one-fifth lower in India than in industrialized nations such as the UK and the US There is adequate availability of manpower and skills. WEAKNESS: India is growing by leaps and bounds but there is a major problem of unemployment. There is an immediate need to generate 10 million Jobs per year. And above all, due to multi party rule, India need to accommodate political ideology with economic reality (reservation, labor law reforms). Growth has been urban centric.
Rigidity in labor laws is also contributing to higher capital intensive. Population increase of about 100 million in last 5 years, which has seen about 50 lion new Jobs, is largely in the unrecognized sector. Transaction costs are high due to capacity constraints at ports resulting in delays. Opportunities: India has become a growth destination for several global companies. Organizations are becoming increasingly competitive on the efficiency and flexibility of their supply chains and not merely on their product features and quality.
They have realized that being technology driven and updated is the key to compete in the global market. Fastest growing sectors: Automotive: The Indian automobile sector currently generates revenues of $34 billion a year; Auto sector could grow to $145 billion by 2016. India has gradually become a sourcing hub for auto companies worldwide. Among the companies outsourcing from India are General Motors, Ford, Daimler Chrysler, Handy, Fiat, Toyota, Delphi, Invariants, Visited, Cummins and Caterpillar.
Healthcare & Pharmacy: Indian’s Pharmacy market ranks 4th in the world in volume and 13th in domestic consumption value. Indian pharmacy market estimated at US$ 3. 8 billion ranks 12th in value terms and accounts for around 1% of the global market. Expected to grow at 12-14% p. A. , as against the global average of 6-8%. At the current pace of growth, IIS$ 2 billion industry by 2012. Construction: The Indian construction industry grew by 5. 5 % to reach a value of $35 billion in 2006. The sector will continue to grow at a CARR of 6. 5% to reach $38 billion by 20011 representing an increase of 35. % since 2004. India accounts for 4. 7% of the Asia- Pacific construction and engineering market. Retail: Indian retail industry ranked second most attractive retail destination by AT Carney. The total domestic retail market is currently estimated to be over IIS$ 330 billion and is growing at a rate of 4-6 % in real terms. Organized sector accounts for Just 2 % of he market (I. E. IIS$ 4 billion)- expected to grow four-fold to IIS$ 15 billion by 2012. There are 12 million retail outlets in India out of which 9 lack are in the organized sector.
Computer hardware: The rapid growth of software exports has attracted thousands of people into the industry and has stimulated the demand for computers. Sales of personal computers rose by 20% in 2004-05, to MN. Import liberation’s and the entry of foreign manufacturers has transformed this industry, which, until five years ago, was tiny and dominated by a few Indian manufacturers. The ease of importing components as nurtured hundreds of unbranded assemblers, which command 62% of the market. Biotechnology: Huge potential from large base of skilled technical personal and the lower costs.
Number of biotechnology firms in India has increased exponentially over the years. Developing biotech based therapeutic products takes 10-15 years and costs $ 500 million to $1 billion. Similar product development cost in India is $ 250 million or even lower. Opportunity for new investments is estimated to be in the $ 1. 5 to $ 2 billion range. Food processing: India – One of the largest food producers of the world. Output of the organized segment – IIS$ 34,827 million. Marine and Spices together contribute more than 70% of export earnings. Investment requirement is around IIS$ 15 billion.
The Indian scientific and research talent – a knowledge source that can be tapped for advantage. Steel: India produced 31. Mm tones of crude steel in 2004-05, making it one of the ten largest steel producers in the world. Landscapes demand from China as well as strong domestic demand, particularly by consumer -durables and automotive manufacturers and the construction sector are the key drivers of production growth. Around 40% of output is produced in integrated steel plants; the remaining comes from mint-plants, of which over 180 exist, almost all in the private sector.
Light Engineering: The size of Indian Light Engineering industry is estimated at US $ 7 billion. In India, the light engineering industry has a diverse industrial base with significant unrecognized market. The exports from the light engineering industry in India mainly consists of structured steel products; motorcycles, cycles and auto components; machine tools; fans, filters and pumps; and metal machine tool parts. The products veered under the engineering industry are largely used as input to the capital goods industry. Textiles: Textiles account for around one -fifth of total export earnings.
Because the government discriminated for decades against integrated textile mills, with the aim of helping cottage handloom, most mills closed down. Production in the textile industry is based on a decentralized system with continuing small-scale reservation for many items. The industry has a natural competitive advantage in terms of a strong and large multi-fiber base, abundant cheap skilled labor and presence cross the entire value chain of the industry ranging from spinning and weaving to the final manufacture of garments. Threat: India faces competition from other developing countries, especially China.
Continuous Quality Improvement is need of the hour as there are different demand patterns all over the world. Presence of Quota system leads to rigidity in Export Demand. International labor and Environmental Laws do not strike trade-off between demand and supply. Power crises and the virtuous growth cycling manufacturing sector needs immediate attention. Large informal sector, poor irking condition and low wages pose equal threat to the growth of economy in India. Inclusion of social (Labor) issues in trade dialogues generally found in exports (e. G. Child labor). High corruption and inadequate environmental safety norms affect sustainability. INDIAN’S PROSPECTS: The nations who are competitive with India are facing some or the other predicaments. Brazil is uncomfortable with force inflows and so has given its manufacturing base. Its reluctance was evident in the imposition of a 2 per cent transaction tax on capital flows. Russia is a basket case and unless oil recovers to tuning heights, internal demand is unlikely to resurface any time soon; hence, it has very little potential to attract firms to set up shop.
China is not a trusted partner; investors have learnt that China makes it easy to get in but difficult to operate. The lack of protection of hard-earned PR is a major issue in China. Restrictions on borrowing from local banks for working capital can also work as a disadvantage. Reason for optimism of the world towards Indian market: Large intellectual capital base Annual additions to the stock of science and engineering graduates Demand side – Expanding domestic market Total number of households to increase from 188. 2 million in 2001-02 to 221. Million by 2009-10 Benefits to Indian people due to the changing industrial scenario: Enterprises In Wealth Creation Government In Revenue And Employment Employees In Development And Increase In Standard Of Living Customers – Value For Money (Choice, Affordability And Speed) From an Indian industry perspective, the emerging situation may drive three trends. Within the next year or two, India should witness growth in demand and hence capacity in manufacturing. The driver will be higher internal demand and, in a short while, the needs of customers overseas.
In three or five years, India will have to develop contract manufacturing skills. A supplier must be able to make the components he or she is good at, source components and parts, assemble and test to deliver directly to the manufacturer. This cannot happen in China as the reliability of many firms, except those that have moved with their partners form Singapore or Malaysia, is suspect. In the long term, Indian manufacturers will have to develop and build, design and development partnerships. Many entrepreneurs are considering investments in small power plants to beat the lack of electricity.