The current heated debate and discussions are all directed at how India can usurp China’s place in the global manufacturing arena. Covid-19 and Geopolitical events of late, have probably accelerated this thought process, as global supply chains, including India, felt the insecurity of large dependence on China.
Let’s face it, China worked hard to achieve that formidable dominance in manufacturing. The pace at which they created the infrastructure and scale, and leveraged their resources to entice the world to buy from them, is nothing short of phenomenal.
Chinese students also went into mission mode across the world acquiring skills and degrees and worked towards overcoming their only handicap, that of their grasp of the English language which they picked up in due course.
Post the free-market reforms, in the 80’s and 90’s, the people of China worked their hearts out in pretty much every area, while the Americans, Australians and Europeans holidayed and some wanted a four-day workweek.
Switch to India today and one cannot hire a decent tool room worker because most of them are sitting in call centres answering questions from technically-challenged Americans. At the same time, the Chinese model of doing business has had its chinks and post Covid, the compulsion for companies to shift to alternative manufacturing destinations has been catalysed.
The narrative is, that China usurped the world economy, how they are not deserving as they claim to be, how they are unethical by stealing all intellectual property and how we are doomed if we do not stop downloading Tiktok. The reality though is, you cannot discount China. If India must take their place, it has to be a graded and strategic process of easing ourself in and easing them out from the manufacturing arena, over a period of time. Let’s face it, shutting doors is definitely not the answer.
The Chinese business model though flawless in terms of infrastructure, scale, technology and efficient output, has the following blind spots:
1. They prevent overseas businesses, setting up a base in China for cheap manufacturing costs, to completely own the businesses and have silent or sleeping partners with voting rights, as a rule.
2. They have issues with communication, especially with non-Chinese speaking customers, prompting them to use interpreters who are not very communicative either due to lack of understanding of business discussions.
3. They created to scale and sometimes push clients to place high volume orders only.
4. Due to lack of proper communication and at a time, ethics, they forced overseas clients to hire and station their own agents to ensure smooth transactions, which further added to the client’s costs.
5. The Chinese companies replicated patented technologies from overseas companies who set up a base in China and created cheaper alternatives, thereby driving these foreign companies aground. The legal system (without any penal laws) favoured the Chinese and there was little or no chance for a foreign company to get compensation or reprieve.
6. At the same time, Chinese labour costs are treble that of India now and perhaps a lever which we could use.
7. With global demand weakening and the Chinese economy growing in double digits, for almost two decades, almost the entire world also looked upon China as a lucrative market to sell into and became largely dependent for survival.
8. The Chinese currency was internally controlled to their advantage.
However, over time trading with China became a love-hate relationship and forced people to look elsewhere. Manufacturing prowess was acquired by several countries as a result, which included Taiwan, South Korea, Turkey, Israel, India, Bangladesh, Thailand, Malaysia, Indonesia, Cambodia amongst others. With the sentiment to alienate with China post-Covid growing stronger, all China-centric companies woke up to reduce their dependency.
However, as mentioned earlier, no one can wish China away overnight. They are too deeply entrenched in almost every major economy. After the USA and China, India is the only large economy which has the propensity to grow exponentially, to match the scale and diversity of the global supply chain. It is a myth that what China can do, others cannot.
We as a company, which exports our entire production of automobile components, ventured into China to sell, without much luck, as ‘import’ was not a very favoured term. However, what we did manage to achieve in subsequent years, was to wean away and poach various global but China-centric companies. It took us a while to convince them of our manufacturing capabilities as they never knew that India manufactures world-class products.
And they were so engrossed in their China story that they would not dare look elsewhere. But once these companies moved their supply chain from China to us, in India, they were convinced that India was a better supply source. Indian manufacturing capabilities therefore are underrepresented or exposed. This perception must change.
Here’s another example of Indian Manufacturing prowess. The market leader of motorcycles in Europe is not BMW, its KTM, which is part-owned by Bajaj. China is slipping fast not only in the manufacturing of bikes but also in the manufacturing of 2 wheeler components. Indian suppliers are beating them hands down. Between three Indian companies—Hero, Bajaj and TVS—India today dominate the world motorcycle market. China did try and enter the Indian market with their motorcycles but was driven out very quickly.
The moot question always is, why was this not done in the case of TVs and Appliances, Computers, Mobile phones, API’s and pharmaceuticals and other industries? It’s the same country, same labour laws, same infrastructure, but not the same entrepreneurs. Indian businessmen are characterized by a myopic vision—it’s both, short-term outlook as well as geographically limited. Of course, the government also has a key role to play.
When even ITI-trained turners and fitters hesitate to work on a factory shop floor, when an insurance agent is paid more than an engineer when typing code is mistaken for technology when we have to contend with archaic labour and land laws, when corporates think local and not global, and finally when you the reader, will not send your son or daughter to work on the shop floor, each one of these factors is as responsible, for our inability to challenge the Chinese dominance. We are largely to blame ourselves. Let’s wake up to the reality that a 9 to 5 workday and long weekends will not take us there. We will have to slog it out.
So what should be our To-Do list:
To make India an attractive and a preferred manufacturing destination to the world, here’s what we need to do. And since the speed at which we do this is key, we need to move very very quickly.
1. Make things easy or Ease of Doing Business. Make Land, labour, Electricity, Cost of Money, Industrial and Port Infrastructure world-class, and the speed of setting up a business and getting it into production, and answerable outcome for the administration. Quick reforms in all these areas are crucial.
2. Upskill our huge workforce to adapt to new technologies and manufacturing needs, simultaneously.
3. MSME’s will be the biggest drivers of growth. Let us start with at least, an authentic database of MSME in the country. A lot of imports happen because we are not aware that the very same product is being made within the country, somewhere. It’s sad indeed.
4. Upgrade our MSME’s to world standards. A separate department and fund for ‘Technology Upgradation and Research and Development ‘ will be crucial for this. MSME’s need direction and support, with regard to upgrading to global standards, especially to Industry 4.0, involving Robotics, IOT, Machine Learning, AI, Data Analytics, Augmented and Virtual Reality, 3D Printing etc. And the resource, of how to go about it, must be made easily available.
A suggestion here would be to take on board a multitude of retired Professionals, Engineers, Technologists and Manufacturing personnel, who, with their rich experience can associate with MSME’s and help them transform into world-class businesses, with continued hand-holding.
And in addition, an advisory Board of Industry leaders from various large established Industrial Houses could act as mentors, for hand holding the progress of emerging MSME.
5. Our Foreign Missions spread around the world have a very crucial role to play as well.
• They need to showcase Indian manufacturing capabilities, like never before. The perception of Indian Manufacturing needs a makeover.
• They need to collect import data for their respective countries and share the same with the MSME and Commerce Ministries in India to find Indian companies who could become alternate suppliers. This would be a very effective matchmaking exercise.
• Since a lot of companies in India would take years to acquire scale and technologies and time taken will be crucial, foreign missions can identify such companies up for sale or liquidation (as post-COVID, several companies, unfortunately, fell in that category), which in turn can help Indian MSME companies acquire them at cheap valuations and thereby grow inorganically, leapfrogging to global standards, in a matter of months.
6. Focus on industries where we are raw material rich, would be a good start. Agri and Food processing can actually be a game-changer for Industry since the global food supply chain is always hungry. The same would apply to the pharmaceutical sector where we have a fair global presence as competitive, quality suppliers, as would be the now emerging electronics sector.
It would be only fair to conclude that shutting the doors on existing and ongoing Chinese business projects or supply chains would be not the right approach. A measured, preferential and structured play, to gradually replace Chinese relevance would obviously be the more appropriate strategy.
You cannot make everything, nor can you do all this overnight. It makes no economic sense to shun Chinese capital either, as long as these investments do not impinge on strategic areas with rules, to keep the ethics in play. We cannot afford to violate contract terms and expensive litigation, as long as our self-interest is preserved.
This calls for a very smart and calibrated and long term approach, with a host of measures like adjusting tariffs, making favourable policy decisions, to prop up and make Indian companies produce better quality, at competitive prices, so that their export potential increases simultaneously.
And as I mentioned earlier, speed will be the key!
— Kiron Chopra/Lucknow
(The author is Managing Director, Chopra Retec Rubber Products Limited, Lucknow and Past Chairman CII U.P State Council, Member CII Regional Committee on MSME)