Wilfried Aulbur is Managing Partner, Roland Berger Strategy Consultants
Manufacturing and related services have created virtuous cycles of economic growth in many countries. Germany, Japan, South Korea and China are just some of the positive examples of a consistent focus on manufacturing and related technology development.
India’s potential to become a leader in manufacturing and technology cannot be doubted. Well-run manufacturing companies in India clearly demonstrate that Indians are as adept at high-quality manufacturing as Germans or
In many ways, the automotive industry has been at the forefront of this development. Companies such as Nissan and Hyundai have established India firmly as an export hub in their global manufacturing network. Local companies such as Tata Motors, Mahindra, Ashok Leyland, Bajaj Auto and others are able to compete with their products in selected global markets. Suppliers such as Bharat Forge, Amtek, and Motherson have expanded their reach and brands on a global scale. Many Indian companies have adopted Japanese or Western management and quality techniques or are in the process of doing so. Appetite for global acquisitions has been strong for a number of years now and a respectable number of those have been successful.
CHALLENGES WITH THE CURRENT INDIA MODEL
However, so far, there have been two main challenges with the Indian manufacturing model.
For one, Indian manufacturing leaders have increasingly looked abroad to grow and de-risk their business. For many of the big Indian players, more than 50 percent of revenue is earned outside India. Investments have happened in developed and emerging economies and created or secured jobs in those countries rather than at home.
In addition, India has not yet managed to create a ‘manufacturing DNA’ in the sense that generally Indian companies are perceived as (and provide) high-quality products that are produced in an efficient way. Consistency across companies is necessary to drive brand building at a national level.
Both points can potentially be addressed through the ‘Make in India’ program. For this to succeed, however, we need solutions to some key challenges that the manufacturing sector faces. Labour reforms are overdue. While workers’ interests need to be protected, flexibility is a key requirement in manufacturing. India needs to move up in the ‘Ease of doing business’ rankings by cutting red tape and improving government interactions. Infrastructure needs to be upgraded to allow efficient production, distribution, and export of goods. FDI needs to be encouraged, the developments in defence monitered and some of the inherited welfare schemes adjusted.
Industry will need workers and can’t compete against government schemes that keep workers in agricultural areas. Provision of basic services (schools, hospitals, etc) is also easier and more economical in cities rather than across the countryside.
Innovation is another area that must be addressed by private and public sector alike. China is currently moving from ‘Make in China’ to ‘Innovate in China’, India can’t afford to be far behind in this journey.
Many of India’s innovations have been cost-based, i.e., provide appropriate value with less cost by changing materials, value chains, product specifications. Other innovations have focused on new business models, e.g., the transformation of fix cost into variable cost. Real product-based innovations resulting from the R in Research & Development are still rare in an international comparison. This area needs to be driven going forward; it is after all an area that provides the most sustainable competitive advantage.
The task that industry, the new government and the nation face is massive. The opportunity and upside are tremendous. I am confident, that a consistent, step-by-step approach towards ‘Make (and eventually Innovate) in India’ will bring the change that we all desire and deserve.
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