 | « Back to article | Print this article |
Rather than focussing on manufacturing, Indian companies need to go the Apple way. They need to concentrate on conceiving, designing and branding products. Manufacturing can be outsourced.
There is no point in reinventing the wheel by getting into conventional manufacturing now.
India’s strength lies in entrepreneurship when compared to its Asian peers - not in costs and labour.
Red tape, corruption and poor infrastructure are cited most often as causes of India's manufacturing backwardness.
These are important, but there are several other critical areas with deficits - areas where it is easier to act, as there is little dispute over what needs doing.
To get a hang of this, and put policy in sharper focus, we need to add three words to the new slogan so that it reads, "Make in India, not in China".
The winning attributes of Chinese manufacturing are, among others - economies of scale (large production runs), use of very current technology, high productivity enabled by a healthy, skilled and disciplined workforce, and continued technological lead maintained by a powerful research-oriented higher-education system.
Focus must also dwell on an area of supposed Indian advantage - entrepreneurial robustness born out of several indigenous merchant traditions.
Sure, netas and babus have let us down, but business leaders represent a very mixed bag. To make manufacturing succeed it is also important to highlight where India's businessmen have fallen down.
There are several manufacturing sectors where India has succeeded like pharmaceuticals, automobiles and auto parts, and textiles (spinning, knitting, weaving) up to the stage of garment making, which has more recently become a pure "low wage, low cost" play.
Why are there globally competitive Indian businesses in all these sectors and not in others?
The most powerful play has been put in by auto-component manufacturing that sits at the heart of manufacturing, and in which there are a large number of Indian companies that have won Deming Prizes for quality.
From this, India has now evolved into an attractive geography for manufacturing smaller cars and bikes.
Bajaj Auto's overseas earnings make up a third of its total earnings, and Hero seems to be taking the right steps in innovation and design.
Global auto makers like Suzuki, Hyundai, Ford and General Motors all see their Indian manufacturing base as serving more than just the large domestic market.
Against this has to be placed India's abysmal performance in consumer electronics. When colour TV sets first began to be assembled in India, major foreign players like Philips were not allowed to use their brand names. But this infant industry protection got the sector nowhere.
It is not as if there were no serious major manufacturers early in the game. In the 1980s, BPL was a respected name both because of its range of products and their quality.
Some Indian names in TV sets are still around but with a minuscule share of the market. Indian business families in this sector did not deliver. Where is the commitment to quality manufacturing that the TVS group has displayed?
It is not as if there is a dearth of innovativeness in consumer electronics. Brand names like Micromax and Karbonn have been established by importing virtually off-the-shelf handsets that will suit Indian needs and wallets and by fixing labels on them (though they claim to do a bit more).
What is important is to move backwards and start assembling some of those handsets. Both the Japanese and the Koreans went step by step up the manufacturing ladder by making incremental progress in adopting leading Western technologies and then improving upon them.
It is absurd to try to exactly retrace the footsteps of the Asian Tigers. Taiwan, which is a global leader in semiconductor manufacturing, is crying because the margins in it are now narrow - and, what is even more distressing, youngsters don't consider the innovative atmosphere in the country adequate.
Why subsidise the manufacture of semiconductors in India at this stage, particularly when it is a water and power guzzler?
There is one route that takes advantage of India's global competitiveness in software. The role model has to be Apple and not Sony.
Apple conceives of and oversees the design of the products that the consumer loves, owns a lot of the intellectual property in them, gets them designed and manufactured by others, and walks away with the lion's share of value.
Indian software firms are now actively engaged in not just writing software code but designing the product (engineering services) that extends to the highest level - semiconductor design. Bits of intellectual property in individual products are owned by these original designers.
What Indian companies do not own is the brand and do not play much of a role in is in conceiving the product. This is where the likes of Micromax come in. They own the band but that's it.
There is no point in reinventing the wheel by getting into conventional manufacturing now. Indian business houses should own the brands, conceive the products, get them designed in India or wherever, and get them contract manufactured from wherever.
Hindustan Aeronautics Ltd manufactures aircraft parts, facilitated by offset requirements. Tata Consultancy Services designs parts of aircraft, as also avionics.
A business house has to come forward and use such expertise to manufacture aircraft like Brazil's Embraer. That's the way to go.
subirkroy@gmail.com
