Towards Change

Learnings India National
Competitiveness Forum 2015 

The Present State of Manufacturing in India

NCF2015_Wilfried

The theme of the National Competitiveness Forum revolved around competitiveness & manufacturing. Vivekananda international Foundation drove with the idea of how manufacturing is going to be important for a country like India. The opening keynote was given by Dr. Wilfried who discussed the growth story of India and its comparison with the Chinese counterparts. He pointed out that growth of India is 3 times faster than the world average as compared to the China; which started 13 years earlier. Looking at GDP, India in 2014 vis-à-vis GDP China in 2001, India is at 88%. India has not overinvested as compared to China which has empty cities and airports. Looking at the top 50 companies whose CAGR has grown by 21% in the past 10 years it is observed that Indian entrepreneurs have been able to leverage the opportunity of this country very effectively for their own benefit. In spite of numerous challenges, Indian players have been successful and were able to build companies that were highly competitive on a global level. Some of the examples are Bajaj Auto which is no 1 player in 30 countries and JSW steel which has overcome the iron ore crises successfully.

The Indian players are able to compete internationally because of higher margin innovation driven businesses but it cannot compete with the Chinese on a cost-for-cost basis. India’s growth story is a story of aspiration and internal consumption. According to the International Labor Organization, India is still competitive in 2015 because the salary increases have been lesser than productivity increases. The ratio, import vis-à-vis GDP export vis-à-vis GDP is in line with China. We are as sensitive to the vagaries of the global market. There has been a dramatic increase in FDI in India since 2006 despite a global financial crisis. After the FDI ceiling was lifted in 2003, there has been a dramatic activity of Indian companies buying assets abroad. Overall Indian companies have bought access to markets, access to clients, leverage technology and leverage their own capabilities both in terms of efficient manufacturing and back end operations as well as technology to build a global position. The present government is actually moving to make India a manufacturing hub so as to create more jobs which further creates more tax income. Manufacturing is not only good for the emerging markets but also for developed nations. Manufacturing also creates service jobs because we need to build services around the product that has been created. The labor should not be the determining factor and we would have to find ways to “Internet of Things” or a low CAPEX approach. This is also one of the challenges that we would have to look at.

He highlighted the fact that we would also need a lot of innovation and cooperation between academia, the government, and companies. Today this is a challenge as the Chinese are publishing 35 patents vis-à-vis one Indian patent. In conclusion one could say that manufacturing coupled with innovation is the right way to go forward and we need to leverage this window of opportunity over the next 5 to 10 years to really create the 100 million jobs.

Manufacturing in India Vs China

NCF2015_Enright

The session started off with the definition of competitiveness which is none other than productivity and how this can be improved and gaps be bridged in order to make a nation competitive. There are 3 important questions which define the drivers of competitiveness. These are – Who are the relevant competitors and the relevant markets? How important are different drivers of competiveness in the industry and How does the country rate in terms of these particular drivers? We need to have the right rules, regulations, labor force, clusters, the interlocking companies and firms. We also need to have the right set of industries or firms that can either take advantage or if necessary drill back through the disadvantages.

A very intriguing talk was given by Michael on lessons for Make in India from China in order to make itself as a manufacturing hub. If we look at China’s emergence particular as an export manufacturing powerhouse there are a number of lessons to be learnt. First and foremost is that the supply chain in China is global for e.g. China has 349 suppliers of Iphone which India does not have. We have to think about international production systems. China started by taking the assembly portion of what already existed as a very dynamic East Asian production system and then gradually, has absorbed more and has been an international phenomenon. Secondly, the export processing is vital to China’s exports. China exports more than $800 billion worth of export process in trade where the inputs are imported for the most part and capital goods are assembled in China and sent out. 74% of China’s exports come from 3% of its land mass. This was achieved by building the infrastructure around three major ports and then bringing the labor to the infrastructure rather than the other way around. In India this has to be thought through and one needs to think about location, labor mobility, infrastructure, and what should be the mix that allows it to penetrate through the export markets. Foreign invested enterprises are key to China’s trade and less than 50% of China’s exports come from foreign invested enterprises. Foreign invested enterprises export over a trillion US dollars worth each year from China and have a net trade of over USD 200 billion.

Michael stressed that a lot of questions have to be answered if we have look at “Make in India”. The first one being what is the supply chain strategy in India? Globally a country has to be a part of the supply chain as everything in a sector is not manufactured locally. We would also have to look at regional production chains and trade network because of the difficult environment in South Asia. What is the export strategy for Make in India? What’s the infrastructure strategy for Make in India? Is it going to be 200 kilometers in from three major port regions? Are we going to have to connect the entire country in order to connect the manufacturing capabilities to global markets? What’s the labor and labor mobility strategy? What’s the trade-off between labor mobility and infrastructure investment that India can make again to access global markets? What’s the foreign investment strategy for Make in India? Are Indian Cities like Delhi or Mumbai capable of becoming the centres of integration of manufacturing with the rest of the world and link businesses to the global economy? He concluded by saying that Make in India has to be a mix of making products for the international markets and the domestic markets. The things have to be worked out differently for both the markets and we would have to look into the affordability factor. Initially China was focusing on the export markets as the people could not afford the products but after building up the capabilities over a period of time their focus shifted on the domestic markets. At the same time using the vast amount of wealth that had been generated by being able to penetrate global markets in order to create a consumer base at home. A deeper analysis of the Indian market has to be done to understand the perspective of Make in India.

Importance of ‘Make in India’

NCF2015_Bajaj

The session was started with a strategic mantra “Less is More”. Al Ries a marketing guru also articulated strategy as “narrowing of focus” and suggested that in difficult times a company should sharpen their focus rather than trying to do more. The presence of strategy in a company is best indicated by what it decides not to do. So, the term “Less is more” means narrowing the focus and doing well. This is very relevant to Bajaj Auto because about 12 years back they made every conceivable kind of 2 wheeler but then suddenly they ventured into making of motor cycles, i.e., not to make all the other kind of two wheelers. Also till about 12 years back Bajaj Auto was a 100% domestic player, it wanted to become a global player because that was the only way to demonstrate excellence. This thought process also lead to the observation that in this hypercompetitive world if the companies want to excel on a global platform then they would have to narrow their focus and do one thing really well. The entire product range of Baja auto is manufactured in India and half of the production of is exported to US, Europe, Asia, Africa, Japan, Latin and it is the number one/ two company in all the markets.

Rajiv stated that management is not a science but it is a hindsight or an anecdote. It is luck by chance and that is why the success rate is 5%. This can also be called disruption. This new theory of disruption states that one should unlearn everything and learn up disruption. So, every person in the organization from chairman to watchman must learn disruption. This is called a soda can strategy i.e strategy of familiarity where familiarity breeds contempt though he does not believe in this strategy. I believe in the strategy of differentiation – making everything except what the leader is making. I believe in this strategy because only novelty breeds desire and curiosity. There are three ways one can make things differently. Firstly, we can make our own Coke but make it different, i.e., make a Pepsi that is sweeter or Thumbs-Up that is stronger. We produced a brand called the Discover which was in the same space as our competitor but was different. Secondly, make something so different that it becomes the opposite. Eg. Don’t make a Coke which is black, make a 7UP which is transparent, make the opposite of the leader. In case of motorcycles, if something is high on mileage, make a powerful motorcycle, that is what we did with a Pulsar. Thirdly, make the product so different, that it’s almost incomparable in a space of its own. It’s a niche as everything starts from a niche. If you want to market volumes, market from a niche. This is the bedrock of our strategy which helps us to make of importance in India in the last 12 years and we have been successful in going across the world and doing it profitably. This makes us for the last five years, the most profitable auto company in the world not only in India.

The power of strategy is how do you make something subjective as objective. The average human being cannot perceive a difference if it is under 10%. If the improvement is 10 to 20%, people begin to perceive it but they only appreciate it off the leader. The prerogative of a leader is to make things better with different strategy. This would not work for the challenger. It is not a strategy of customer acquisition but a strategy of customer satisfaction. A “Leader” needs a different strategy as compared to a “challenger”. The strategy for the challenger starts when he makes a product which is completely different, creates a category of itself, develops its own customer base who gives pricing power, who doesn’t compare you with the leader, who doesn’t ask for discounts and who does’nt lead the advertising support and finally make more money. Bajaj auto was successful in doing this by acquisition of a company called KTM, a motorcycle company based out of Austria. If you make it so different that it is niche, i.e., an off road racing motorcycle then you are in a league of your own anyway like Harley Davidson in the US or like Royal Enfield has done so remarkably in India. So, this is how we actually took a subjective idea and made it objective. So to make successful in India, I would like to say – Ignore the buzzwords, ignore the slogans, ignore the press and the pundits, which means all the media and the advertising agencies. Believe in somebody who has done it, who has demonstrated it such as the legendary. If Make in India is approached logically whether it is to decide where to put infrastructure or where to move labor, we will successfully “Make in India.”

Q & A with Rajiv Bajaj – MD, Bajaj Auto by Anurag Batra, Chairman, BW Business World

NCF2015_Q&A

What you think of Indian government strategy on “Make in India”?

As a manager I have to deliver everyday or every quarter so it is not right to compete with other countries. From my viewpoint companies and individuals compete. So, Bajaj auto competes with Honda and all the success that we have achieved is by putting together in R&D and engineering by 5 youngsters.

“Make in India” is a thought or an idea or a slogan and everything is created twice, once in the mind and once in reality. The idea given by our present PM is a thought in his mind which is about 1 % but 99% perspiration has to come from the citizens. So, if at Bajaj auto we all Make in India then the government will Make in India.

Where does your inspiration come from?

Broadly my inspiration comes from two places. Firstly, is from the people I work with because I firmly believe that one learns by doing and I was very fortunate to have a good team of very young people. I worked as a trainee engineer at TATA motors for a year before joining Bajaj Auto. I have really learnt a lot from the talented people in this country. Secondly, in my pursuit of understanding things at a deeper level and looking for answers that stand the test of time because in my opinion something is scientific only if it is capable of producing repeatable and sustainable results and I did not find this with most of the management theories. So, I found my way to two gurus; the greatest homeopath in the world, Dr. Rajan Sankaran out of Juhu in Mumbai and second Yogacharya, guru ji B.K.S. Iyengar from Pune.

I have been studying homeopathy since 2002 and it’s a wonderful science because if you can trust it to heal yourself, you can certainly trust it with the wellness of your organization. I am also a student of yoga. I am a student of guru ji and through his teachings, aphorisms and his sutras on yoga I learnt on how one can produce better wellness in oneself. So all my management comes from homeopathy and yoga.

What is the future of mobility? Do you think about the issues of urban transport in terms of quality of life and finding solutions to them and hence creating a business?

Over the last five decades, one would see the theories change every now and then. As shared earlier predictions are usually not worth the paper they are written on. what is important is a quote of Charles Darwin “not the strongest nor the most intelligent of the species that survives but the ones who are most adaptive to change”. So, we need to have the confidence so that we can adapt because change is inevitable. I don’t think that an egoist way of thinking “main janta hoon kal kya hone wala hain” works. A more humble way to approach would be to prepare oneself, to be receptive, flexible and build a capability to adapt oneself for the future. Homeopathy rests on 3 fundamental principles.

1. Principle of individualization – We are all individuals so each patient and each company and each country is unique and must take that into account when it charts its course to holism

2. Everything should be looked at holistically

3. Vitality – That means our strength, our energy, our life force, our immunity does not come from outside by using a crutch, it comes from inside by exercising mind and body. The one who is inherently predisposed and weak is the one that suffers.

Does India really need a Hong Kong?

Simplistically 2 things are important in business. First is excellence i.e. taking one thought and doing it really well. Second is skill and what is most important is not to put scale before excellence. If Hong Kong is to be interpreted as example of excellence then that becomes a beacon or a lighthouse for all of China to emulate appropriately then I think even India needs that, because somewhere we all have to look for inspiration, for benchmark, for direction, for guidance.

What made you exit the scooter business in 2009 and what is making you to come back now?

I think the very simple articulation of the word strategy is specialization. Specialization means sacrifice so I must sacrifice everything and do one thing well. This was the reason why we exited the scooter business in 2009. We are not coming back into scooters and will not do that till Bajaj Auto becomes the best motorcycle manufacturer in the world.

Tell us how Bajaj auto has integrated sustainability into a supply chain?

We essentially do 2 things at every level. We make a product and we go to market with it. So, we must look at all aspects, whether it is design, manufacturing process, servicing, etc.There are so many points where one can contribute towards sustainability. The other is wherever we are present in markets, we would like to believe that we try and contribute in a way that is not just relevant to society but also meaningful to the company. For eg, since we are an engineering company, we support the ITIs and other relatively lower class engineering institutes to develop the engineers who will skill India tomorrow to Make in India tomorrow.

India’s present Manufacturing Capability, Future Potential and the way forward

NCF2015_Manufacturing

Steel Industry

It is very important to understand what India is good at producing at an efficient cost. So, disaggregated supply chain is the theme, where one would be able to give a product to the customer, at a good price and also create value. For eg. India is the cheapest country to produce steel. So, we should not have a strategy of exporting iron ore and importing steel into India. India is also good in several other sectors and we need to look into these sectors where we are capable of producing an efficient product at a low cost and also compete in the international markets. It was suggested that Make in India would not help in creating jobs, it should not be constituted as just manufacturing but focus should be on services. Though India has been into manufacturing in the past years but we have to kick start in a bigger way. There are policies which force people to manufacture in India. Sports manufacturing was not successful in India. Today we have a global supply chain, which is dependent. For eg. Gionee doing a partnership with Foxconn and has made an announcement that they would be manufacturing in India if there is sound economic reason for them to manufacture here.

Electronic Manufacturer

80% of the electronics is manufactured in China and this has been possible because they have invested in infrastructure in developing the facilities and also bought in component manufacturers. The government has incentivized the manufacturers by reducing the duty. Initially, there was a 5% incentive for manufacturers for local production but now this has been to 11.5%. The manufacturers did not start the production in India because of receiving less benefits in the local manufacturing as compared to importing from China directly. The additional 5% is not attractive enough for the brands to come and start production in India. Serious players have to emerge from India and it has to start producing for the global markets to make it really sustainable and a viable business for brands. Today, the incentives are still available even if they do just the local assembling instead of the real production. Assembling is a labor intensive, low value-added operation but still there is no serious money to be invested in the country. They get the benefit because component manufacturer unlikely to shift to India unless they see a big volume coming from India. The supply of raw material that we need to produce electronics does not exist in India. So, the component manufacturers can only come when they see companies like Foxconn, Flextronics, Inventec producing serious volumes in India. This would lead to a bigger contract and commitment to the suppliers to establish their shop. Presently the benefit is only from the assembling which is the fiscal duty benefit. China controls almost 98% of the rare earth materials that are used in electronic component manufacturing. India does not have those raw materials and to import the raw materials would mean net export or net production will be offset by the import. 40%-50% of the value addition in the electronic devices is in terms of the R&D. Although Apple outsources everything of their manufacturing, but they still command 40 to 50% of the profit just because of the IP that they import in that device. So that’s where the bigger value of opportunities are rather than assembling or the local production.

Lubricants Industry

Shell which is a very large multinational and present in most countries. Manufacturing has to be looked at locations where it is not only the cheapest but sustainable over the last 20 to 30 years and continue to service the business that’s there. It’s about servicing a local market or servicing the export market. Whether one wants to be close to their customers or one wants to actually be cost competitive in their supply chain and be able to export competitively. Shell has been quite successful because the environment is quite conducive to be able to come into the country and service the domestic market and provide solutions that fit for purpose for the present environment. The challenging part is to establish manufacturing locations in the global context and establish ourselves as an export hub for our products for all locations across the world. For eg. China does not have a very large domestic market but are actually one of the biggest exporters of oil and gas in the world. Its about knowing the environment to be able to setup the infrastructure, the capability, the type of location that can attract the investments. Its not about the participation of the government but it is upto the organization on how competitive it can be, how it can manage labor challenges, manage productivity etc. It is ultimately creating an environment and a culture to be able to extract more from the given facilities. Huge investments are made in technology so as to be globally competitive. The last thing is one has to be be nimble and flexible i.e. one should be able to supply across all of these different aspects, able to deal with 160 different environments, laws and regulations across the world. Shell has the experience of operating in China, Vietnam, Nigeria, Indonesia and many more countries which have a challenging environment.

Transportation Industry (MFCW)

Looking at the second hand car markets (MFCW), it is a network which provides service as well as second hand cars and is traditionally disorganized. It starts from the idea that cars cannot be taken across state lines and since the new car demand is very different from the used car demand and a car should be able to go across anywhere. There are a lot of inefficiencies in the system. MFCW runs online auctions and sells about 70,000 vehicles but because of the regulation that the cars cannot cross states the market is curtailed. This amounts to having buyers in the local market where the demand is very thin. There are a number of inter state issues which inhibits the vehicles to move across state lines. So, the organization has started looking at the demands of the consumer which has led to an increase in the dealer network. There are 600 dealers almost in the country in 280 towns. The market should be explored significantly so that the end consumer is benefited.

Changes that would help business to explode in this country

One of the panelist suggested that tax should be rationalized across states as having different taxation in different states acts as a challenge for the ecommerce companies. Infrastructure is also an area which should also be looked into. We should start looking for manufacturing the best quality products, at a lower cost and with the best value. We should focus on the environment of disaggregated supply chain systems across the world. We need to understand what is happening across the world within the framework of WTO and how Indian Government policies are helping to make our Make in India successful. We need to very carefully calibrate the FDI policies for the domestic manufacturing industry and carefully look at where we are good at. So, in addition to the government policies we need to look at the other constraints in manufacturing which are ease of doing business, infrastructure, tax policies, labor reforms, land acquisitions, trade policy etc. There should be a complete alignment not just between Center of Department at the central level but also state and the center will have to collaborate. Rationalizing the lifetime tax issue where free markets are allowed to develop would be the most important thing.

In conclusion Make in India can only work when we start thinking global. Making investment in R & D and recruiting talent that can compete globally is very important.

Succeeding in a tough environment & what are the best locations for Make in India – The idea of States and Cities

NCF2015_MakeinIndia

Dr. Arthur Laffer advise on competitiveness states that if one wants to attract productivity and manufacturing in the states in US, then one should lower the taxes, reduce regulatory burden, and spend the government funding efficiently. This is called the race to the bottom. But the situation is opposite in India where the manufacturer has to ask for things which are taken for granted in the US. So in India, if a state or a city wants to attract manufacturing and productivity, one has to look for tax breaks, infrastructure, power and educated workforce. The basic question to be answered is what does it take for a state to be competitive. India has a strong democracy and everyone looks for their own interest. The numerous challenges like the infrastructure, sufficient water, adequate power, accessibility to ports, educated society etc have to be tackled and practical solutions have to be found out. We have to come up with solutions quickly so as to avoid a civil unrest in the country due to lack of jobs. We have to start looking into a slightly bigger more holistic cluster based approach where almost every state in India could have some pockets which are probably more conducive to attract manufacturing investment from within the country and outside the country. Within those clusters, the state governments and the industry have to work together on four kinds of infrastructure. The first is the physical infrastructure, which is in terms of land, roads, railway heads, airlines, utilities. The second is the regulatory or the policy infrastructure which can be much better handled for a country like India the way we are at the state level then at the center level. The third is the business infrastructure which industry has to take the lead which means create linkages with raw materials, markets, look into the financial institutions, logistical companies to attract them to come to that infrastructure to make it vibrant with the cluster. The fourth one is the social infrastructure which is a combination of both the industry as well as the states. The aspiration of an Indian consumer is way beyond just finding a job for himself. He is looking for quality education for his children, quality healthcare access for their families, leisure and entertainment options etc. So, one cannot just set up a manufacturing plant or a cluster so as to get desperate workers to come and join. So, physical infrastructure, business infrastructure, policy infrastructure, and social infrastructure based on a cluster-based approach should be chosen. Optimization of all of these four could give a quick return and quick start to the country.

One of the things that’s most important for us to be able to succeed in the Make in India perspective is attention to detail and the lack of that is really hurting us. So, we should look at the micro level rather than a macro level. The second thing to be looked into is corruption. To be working on the global footprint and succeed in that area we have to have the cost which the others have in other countries. We should not have the additional costs in various services like registering the business, operating the business, getting payments from the government etc. The third this is the governance and the governance mechanisms to be supportive of what the companies are trying to achieve. The biggest challenges that we have had is of the land acquisitions. Special economic zones (SEZ’s) were created, but unfortunately 38% of that land has never been put to use, 62% that is being put to use, only about 8% of that land is being put to use for manufacturing and the rest is used for residential colonies and other things. So, if we are able to setup bigger clusters where all the infrastructures available, it would be easier for people to do business.

India should be a place where starting business is easy, running business is easy, and closing business is easy. As stated by the World Bank it takes 28 days to start a new business, construction permits in India all of it put together takes 186 days, i.e. 6 months. Depending on the type of industry one needs a lot of environment clearances which could take anywhere from six months to a year. Getting electricity about 105 days. Overall we need to improve on the business environment.

If we look at the services sector, then the Indian workforce could be trained to global standards. Though there are logistical issues, infrastructure issues in India but today there is a big opportunity if we as a country both at a central level and at state level are able to create an environment where people come to manufacture.

From the above points we have listed the criteria that is required to create a cluster but now the objective is to identify the spots in India. We would have to look at the cluster based approach. We have to look into new sectors where raw material advantage itself completes the value chain. We need to include the agriculture sector into the job creation value chain. Leather offers one of the most exciting opportunities. India has got the largest population of livestock in the world and livestock has an economic value as far as raw hides are concerned.

Though it’s a polluting industry we need to get best practices into the tanning sector. Food Processing is another example where there is an incredible opportunity to complete the linkage of the farm produced to a value added product where the production is done. This reduces migration and creates more value for the farmers beyond MSP. If we consider India as islands then we have a number of clusters like automotive cluster in Pune, software cluster in Bangalore, leather cluster in Punjab etc. and have islands of excellence. The idea of Make in India given by the PMO is a great opportunity but we have to see how to we take the finished products from the clusters to the ports so that clusters don’t have to fight the barriers of good roads, trucking, port facilities, government friendliness etc. So, it s a race to the top rather than the bottom and compete with each other to make it better for business. There are places in India which can actually manufacture and succeed because of the raw material advantages, skill advantages, infrastructure advantages etc. But to manufacture all over India and overall be able to succeed we have to have the various linkages, proper planning, implementation and be much more competitive.

Today automotive accounts for about 40% of our manufacturing GDP. Hyundai exports about 30% of their production from India, Nissan exports about 70% of its production, Ford and Nissan export 50% and now we have to attract tier 2/3 cities. If we look at the textile industry which is full of MSME’s we have to look at creating branding and design success. Smaller technological players have to be brought in and we have to create either huge supply chain models or huge branding successes to try and make successes on both sides. From the government side we need to have discussions with people across various industry sectors to find solutions. Its critical that we have to create an environment where everyone talk as equals.

IT is the reason that all of us enjoy the credibility and recognition of the global world. We are doing IT in engineering, in healthcare- models to provide low cost healthcare is unique in India, pharma etc. The young entrepreneurs have taken the mobile revolution and created an e-commerce industry which was not created elsewhere. Investments have to be made in skill development to see the benefits. If we look at China, then it has some global brands which have emerged 8-10 years back and it would take 5-10 years for the Indian companies to come out with multiple global brands and reach to that scale.

At the end of the day, we are dealing with resource scarcity as well as climate change factors, water scarcity, and how will Make in India would be responsible enough to create that framework where we actually do something that’s different from how it’s done in a regular business. We are not bad in designing our product, service, and manufacturing system and utilization of resources but we have to find a way to utilize every single inch of the raw material. We need to have the awareness to handle things in a proper way.

Enhancing Manufacturing Capability in the Defense Sector

NCF2015_Manufacturing-Defense

Defence business has really undergone a transition and is one of the largest big sectors that has opened up. This is the segment where there are huge competencies but it needs to be developed further and the government is playing a proactive role in building policy measures. It is expected to attract significant interest in the form of collaborations, technology arrangements or investments. Indian companies produce goods under licensed production as compared to other places where ToT has led to coming up of new products. Because of the licensed production we do not have a basic edge internationally leading to low competitiveness and no major value addition to all the products. India has been producing aircrafts, missiles, tanks mostly in the public sectors and these are basically being produced with the license technologies. We have a defence research and development organization DRDO, which has grown over the years from a small time science laboratory to today’s system builders with missile programs, LCA programs, in addition to doing the technologies. We have not been able to contribute much but whatever investments have been made in DRDO it’s more than about 1 lakh 60,000 crores worth of products which are being manufactured in the Indian industry today.

A huge transformation took place after the 1980 when the private sector industries grew from a small time component supplier to manufacturing into products. For eg. Bharat Forge or Tata’s coming out with a vehicle or many others who are venturing into very difficult terrains, has resulted in the up gradation of technologies and also building a culture of aerospace and defence which is quite difficult and complex in terms of technology and quality requirements. To augment the infrastructure required for ensuring that what a product needs, those manufacturing facilities, the design facilities, testing facilities are setup in a collaborative manner with a partnership mode and that’s how HAL is getting the aerospace department exclusively for defence and aerospace and many industries setting up their own manufacturing setup including public sector and private sector. In the process of technology transfer and upgrading technology DRDO initiated programs, evolving processes of manufacturing, design and build strategic partnership has taken place. We need to have a vision through global collaboration or through offset manufacturing. Aerospace is one of the fastest growing market and is expected to have 4000 military and commercial systems.

The military programs like MMRCA, FGFA, multi-role transport aircraft, multi-helicopters, light utility helicopters are also emerging as one of the business ventures. Today we can talk of launching the satellites of the other countries. We need to really build weapons and technologies keeping in mind about the future new technologies as it is a $200 billion market which is emerging. Guns, helicopters, mirage aircrafts, missiles and aircrafts, AWC, AWACs, radars, need large R&Ds with investments in manufacturing technologies. We need to improve our production facilities. Materials and sensors, are the two major requirements which need to be addressed if we want to compete with the world with all our weapons and platforms.

The competitiveness factors with respect to quality and cost are also brought together. The factors which impact the competitiveness and which are controlled by for example the budget, the funding, the taxation regimes, sustainability parameters, the labor laws etc. need to be addressed ensuring the requirements are met. To ensure the growth of Indian industry, sector wise industrial and military complex have to be build. DRDO should have a commercial arm so that it can make products and deliver. We should have industrial complexes around all the PSUs and these industrial complexes should be free to work with the industry partners in a level playing field manner.

The defence preparedness, defence armaments, and the technique of fighting wars are changing very rapidly. As far as India’s defence preparedness is concerned there is a lack of indigenous production and there is dependence on foreign sources. Almost 60% of our requirement is coming from outside and we would also want to avoid overdependence on a particular country. In order to have variety of defence equipment one must also have the ability to maintain it and also keep upgrading it. For Make in India we must understand that we should be one step ahead i.e at the next stage “Made in India”

We are the third largest armed forces in the world and we are importing almost 60% of our defence requirements and 40% of our budget is spent on the modernization. The budget is 37 billion dollars as compared to other counterparts where it is 160 billion dollars a year. So, in our quest for self-preparedness, India is likely to spend approximately 45 odd billion over the next seven to eight years and we also have an offset policy.

If we leave the defence preparedness to the private sector and the foreign original equipment manufacture, then they have a very good scope of relegating to a good strategic partnership with the foreign companies. If we take advantage of the offset policy, it will help build a very good ecosystem indigenously. India is now looking at the preference to buy Indian products over global products. We are looking at whatever we can manufacture within the country and government is making all the effort to simplify the procedures and also make sure that we get 60 – 70% of the transfer of technology. This is also accentuated by the fact that the defence production has been now excluded from the purview of industrial licensing for three years.

Make in India procedure aims to promote R&D within the country and also system and placement of orders which make it attractive and ambiguous for the private sector. All the partners have to work together, there have to be joint ventures where foreigners and Indian companies have to work together. Export incentives are very important so that we are able to export and our ultimate goal should move from “Make in India” to “Made in India”. Maybe over next 10 to 15 years we will have to depend a lot on the foreign companies to join hands with our own producers here and then only we will be able to make sure that we move onto the next stage and in the meanwhile, we must have our total well preparedness which is very important.

Looking from a manufacturers viewpoint Tata Motors ventured into unchartered waters making 6×6 trucks, 8×8, and now making 12×12 trucks in direct competition with imported versions that were assembled in India. The decision was taken to allow competition from the private sector against the defence PSUs in which the trucks were taken and trial evaluated against the foreign makes. In the process, the trucks not only prove to be as good but better. The price of the imported vehicle assembled in India was at least 40 lakhs which was more expensive than what the Tata’s offered and not compromising on quality.

Encouraged by the government’s resolve to take this forward DRDO wing in Ahmednagar, VRDE has joined up with Tata Motors and together designed, built, evaluated a combat vehicle called WHAP which is now under testing. This vehicle can move on all terrain requirements of the Indian Army. Since the design belongs jointly to DRDO and Tata modifications and up gradations can be done. Hence, a soldier defending the country always has the most modern vehicle at his disposal.

In automobiles, there is always the Made in India. Every manufacturing company from the world has setup shop in India. They are manufacturing in India not only for India but also for export. Huge corporations would come to India, partner with Indian entities bringing the supply chain with them. This would give a huge impetus to local industrialization in the defence sector. The government is supporting design, development, and manufacturing in India and Tata Motors is a very keen ally to the government and the DRDO in this space.

One of the panelist also stated that a nation generally would go for industrial defence because of geopolitical reasons or financial compulsions. But looking at India and its demographics we would have 400 million people looking for employment in next 10 years and we need to really boost up the manufacturing in the country. Bharat Forge has really performed admirably in this sector and runs six plants in Germany and the plants in Pune are running better than what they are running in Germany manned by German employees. In terms of R&D, today about 300,000 Indian engineers are working in about 230 MNC centers in India saving about $70 billion in last three to five years. For a defence system, 2 things are required; R&D capability and manufacturing competence. India has both of these and the company not only designed, developed, but also manufactured a gun system in less than 24 months. This was done by a team of young engineers who had not seen the gun before and virtual manufacturing was done.

Challenges

    1. A lot of activities which are happening on the top level or the political level, do not get translated into the operational actions. We have not achieved any of the targets till now. So obviously, the political will is certainly there but it’s not percolating down.
    2. Sudden change in the user’s perspective. We as designers and manufacturers, agree that changes have to be incorporated in the product at specified intervals depending on the user’s requirements.
    3. Define and approach to build operating level talent requirements. We have a shortage of around 2 million people that will hit us in the next 10 years for operating level requirement in aerospace, defence. We don’t have enough skill development programs.

We need to bring all the stakeholders together and build the trust between the various entities. There have been more policy measures promoting defence industrial base establishment in the last one year than the past 10 years combined. There is a large defence conference happening every three weeks. There is an initiative Government of India is taking which will enable the industry to take innovative actions, productive actions in terms of planning. As far as the participation of the industry is concerned GOI is playing on a level field in terms of treating the PSU’s and the private players. We have to make sure that Tata’s continue to make the vehicle or it’s derivative so that they become a prominent player in that segment and they don’t have to keep on going into the competitive mode. Dr. Athreya Committee has been formed which will talk of platforms and also identify major players. So, certain level of classification of industries based upon capabilities and capacities have to be done. So, those industries will have huge opportunities to migrate from today’s component manufacturer to even system developers which have civilian applications as well as the other applications. Financing is a also a very important aspect and is certainly being supported by R&D units of the industry, working in collaboration with the R&D units in the government whether it is DRDO units or it is PSU units. They have to work together to build the design capability and If we are able to work together, build the design capability and offset certainly is a source for meeting that requirement.

Preferences

  • Given an option the Indian Armed Forces would like to buy the equipment being produced within the country.
  • The point which was made about changing requirements that is a very important thing and there is lot of genuineness in that particular crib which is there.
  • The defence PSUs, the private sector, and the armed forces must work as one team
  • We must help them develop weapon system or an equipment rather than only finding faults.

Conclusion

  • Over last 40-50 years, we have really created an ecosystem and enhanced industrial capability. The new defence procurement procedures, which are on the anvil would certainly help us leverage the way other countries have done.
  • We have competency in naval platforms. In the private sector, we have competency in airborne platforms.
  • The armed forces have to be equipped with the as perfect system as possible because the adversary is not making concessions for all these issues.
  • The government is starting to have a pragmatic view about things
  • There is tending to be convergence between traditionally a government owned industrial base and a new emerging private sector industrial base.
  • Key challenges like talent availability remain. Key challenges like building military industrial complex
  • The Indian industry is proving capable of innovating right set of products, right specs,right priced, right timed for the use of the user services and built in India and I think that is the large background to the Make in India and design in India initiative that the government is trying to run on the aerospace defence policy.

Future of Manufacturing in Global Economy

NCF2015_Manufacturing-future

India has the vision of generating over 100 million jobs between now and 2022 by attracting manufacturing and increasing the manufacturing as a percentage of GDP from 16% today to 25% of a larger GDP in 2022. In addition, a lot of our success in the Make in India program would also depend on how we react to some big shifts happening in global manufacturing. The megatrends like internet of things which is about smart connected devices, trends like robotics, adaptive manufacturing or 3D printing and there are many other big shifts. One big trend which is observed across industry is largely driven by the volatility in the economy and that’s about flexible manufacturing. The ability to predict demand for a long time has reduced a lot because the consumer preferences keep changing. So, and ability to shift from one to the other product is something which is becoming a key competitive advantage. Manufacturing would undergo a massive change for eg. There is an oil platform where 30,000 sensors have been connected by internet of things. IoT would make entire preventive maintenance, schedules, budgets etc and the uptime will increase by 50%. It’s a great thing to the manufacturing sector and especially to the shop for a management.

The above two trends – internet of things and flexi manufacturing are very relevant and evolving over the years. We do not have to reinvent the model used in South East Asia as that would not work in India because that was a low cost manufacturing base. Instead we should be adding value to high end systems, we need to do is an interesting combination of a human as well as a robotic interface where we are able to get higher margins and also able to use a skimming strategy to make more money. Ultimately if we are looking at making in India we’re also looking at an economically and financially viable proposition. So, an intelligent combination of human systems, flexible manufacturing should be adopted.

It is anticipated that there is going to be shortage of skilled workforce in the future. The main focus of the industries over the last few decades has been on growing size and scale. So, there is going to be a reversal and miniaturization of industry capabilities. in order to respond to the very market forces of flexibility and localization whether that miniaturization is going to happen within localities or within societies. For eg. In 2015 Ralph Lauren’s launched a smart T-shirt for runners that actually measured distance, calories, heartbeat etc. similar to other devices like fitbit or apple watch. So, the internet of things and smart connected devices just breaking down barriers of industry definition itself.

Looking at the labor side it is anticipated that Make in India campaign would create 100 million jobs over the next five years. On the other hand, trends of robotics where intelligent robots are actually doing things that require judgment and decision making makes us think on how jobs would be created by the Make in India campaign. Is that fantasy or is it real?

It’s too early to talk about robotics in India because every technology has to go into a country considering the socioeconomic environment of that country. India has a huge level of unemployment and a number of people are below poverty line so, adoption of technology would infact create more jobs as technology brings the supply chain.

Looking at the case of Tata Power and Tata Motors which are reasonably highly automated organizations. Manufacturing does not constitute the entirety of any business organization. Manufacturing at best forms is significant part of manufacturing-led organizations but each of these organizations need to have a very significant interface with the marketplace and the customers. One of the banes of the manufacturing sector has been that it has not been marketing oriented in a country like India. Adopting robotics and adopting higher levels of automation starts to free up people who can go out into the marketplace and market the organization and its products and services much better and thereby generate greater volumes of demand that would be easily fulfilled by a higher level of automation.

Robots can’t innovate so that is space left for human beings. Robots are not fashion conscious so, fashion houses would not like too much of Robots and certainly Robots don’t consume products, goods, and services and, therefore, for manufacturing to survive it’s essential that maximum jobs are created. Probably India is going to show the way by creating greater demand that higher levels of automation will fulfill accurately in a more quality manner. There is a scope for both robotics and automation and higher levels of jobs and people working coexisting and thriving together.

Diverse thoughts and ideas were there as one of the panelist said that Indian economy being largely entrepreneurial led so it would be rare that a mindless robotisation of a manufacturing will take place which will make the whole thing very capital intense there without adequate benefits. So, it becomes a socialist approach to looking at what will happen to the jobs whether it would increase or decrease. It is believed that there would be an increase in number of jobs, increase the opportunity and upscaling will happen. The biggest dilemma faced by the country is that everyone being interested in white collared jobs rather than blue collared jobs. So if the blue collar jobs could go to the robots and the white collar designing the robot jobs go to the more interest in a white collar, it would be a win-win situation.

From a policy perspective – International business is ambivalent about the market environment here. Research has shown that the innovative environment in India as reflected in government policy relating to IP protections is a key distractor, that, it inhibits companies thinking about their futures here. The new IP draft national policy is the step in the right direction. The central feature of the policy states how a mind set needs to be changed at an educational level, mobilization level, motivational and the government needs to do its best to encourage a mindset shift.

With robotisation coming in we are making people ready for their new bosses with metal pants. Though they cannot share the lunch with the bosses but can leverage the unique capabilities that advance robotics brings in. A different approach would be to adapt the manufacturing system so that one meets the demand on just in time basis or an as-needed basis on a pull mode rather than push mode. This requires a greater engagement of the organization with the customers. The revolution would start to happen when capabilities of automation and robotics are leveraged.

Recommendation for India to make things happen

  • The biggest challenge of India is its federal structure. A lot of time one is not able to figure out where to go for what. So, having a website which lets us know the steps that one needs to take can make a huge difference.
  • Opportunity to redefine things and not to make the mistakes that other countries have done.
  • Creating centers of excellence in three or four core areas like internet of things, robotics driven by government funding which would become templates and from where things should percolate down to industry to MSMEs because at the end of the day one of the main objectives of creating Make in India campaign is to give jobs to 400 million people.
  • We need to find a balance by looking across the various models that governments across the world have implemented as it’s the government which has the money power to do it.
  • Make in India is a strategy crying out for improved IP protection.
  • Make in India cannot happen until we first develop India.
  • Make in India will succeed when we provide employment to every student who graduates out of colleges.
  • Make in India will succeed when we have more and more skilled people ensuring that the infrastructure that will inevitability grow sustains.

Terence Tse on India and the EU: How Make in India can help International Expansion and build new value chains

NCF2015_Terence

EU has a problem of not doing well because of the Eurozone crisis and this is because of the level of debt. If we compare the GDP of France which is 90% as compared to US 100%, Greece is 170% and Japan is 220-230% we could say that the crises is not because of debt but due lack of companionless. EU perhaps offers an opportunity for many because of a very different, mysterious and even mythical market. The EU is actually the largest economic entity in the world and India actually performs much better than the EU. India exports a lot of goods and in return the EU put in a lot of FDI. For eg, the trade has gone up from 29 billion Euros to about 72 billion whereas on the service side, it has grown from about 5 billion to about 23 – 24 billions. What we observe is is that the trade between the EU and India has been going up substantially. Textiles and chemicals are one of the major imports from India and diamonds are exported to India and there after processed diamonds are imported. EU exports a lot of products that are for production rather than the products that are for to be processed. EU make among the five BRICS countries makes the least amount of FDI in India and India ranks low and is not major partner in both exports or imports in terms of goods. The same is seen in the service sector.

Germany, UK, and Italy are bigger markets whereas India has been trading with Belgium, Netherlands, and France and it seems that Europe represents a fantastic opportunity for Indian companies. One big major obstacle that is standing in the way is the lack of free trade agreement between the EU and India. EU is an entity of 28 different countries and it is important to understand the mentalities of the different countries. European companies are a lot more environmental friendly. There is an initiative to push the circular economy i.e., using less resources, creating less waste. The European investment funds, EU companies have been looking for new partners over the last 5 to 10 years because the Chinese partners are getting more and more expensive. So, there is a chance that Indian companies can take over the place of Chinese companies.

In other words, manufacturing is a very, very tight margin business and Europe has been putting in a lot of money into the system but the money is not going anywhere. It is either being held by banks and the banks are unwilling to lend and secondly there is not enough risk capital. Innovation is going to suffer in the EU and Indian Companies with the capital that they have, can compete with the Chinese. The Chinese are very good at the efficiency driven businesses and about customer focus.

Conclusion

  • It’s too early to write off the European markets.
  • We have to get the value proposition in place
  • We should consider the market space and the science and the engineering space
  • We have take the conversation to the next level instead of Make in India we should have Make by India

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