India Inc's aspiration for manufacturing sector is to be the Germany of the East and not Factory to the west CII-BCG Manufacturing Leadership Survey 2012
During CII’s 11th Manufacturing Summit 2012, the Confederation of Indian Industry along with their knowledge partner The Boston Consulting Group released a report titled Re-igniting India's Quest for Manufacturing Leadership.
The CII - BCG report talks about the rapidly changing global manufacturing landscape, and the emerging window of opportunity for India. The report stresses that to capture this opportunity; India will have to fix the basic enablers of the manufacturing sector, and look beyond low cost advantage.
The Indian manufacturing sector has seen a slowdown over the last two years from a trajectory of 8% to 9%, manufacturing GDP growth has slowed to a CAGR of 2.5% over 2010-12 and has almost flattened during the first 6 months of FY 2012-13. This has ironically been after the announcement of the National Manufacturing Policy that included a bold vision for manufacturing to achieve 25 % share of the economy by 2022.
While the global slowdown has had an impact, domestic drivers too have played a key role in the current underperformance. High regulatory burden, poor infrastructure, difficulty in land acquisition, inflexible labor laws have all contributed to the decreasing business confidence, evidenced by the dramatic fall in investments in the manufacturing sector.
The recently conducted CII-BCG Manufacturing Leadership Survey, which interviewed from 70 senior representatives of top Indian manufacturing companies, reflects the modest outlook for the sector, with over 75% respondents expecting the sector to grow at lesser than 7%.
While India Inc expects growth to be modest, the long term aspiration for the sector is intact, with 70% of respondents believing that 9%+ growth is possible with a change in ecosystem and policies. In addition, the current restructuring of the global manufacturing opens up a window of opportunity. Specifically, the decreasing cost competitiveness of China and increased competition in low cost manufacturing with the emergence of multiple countries is impacting the global manufacturing landscape.
For instance, developed market purchasers are increasingly seeking to develop alternate bases to Indian and other Asian importers of erstwhile Chinese goods seeking to re-shore their imports. Increasingly, many multinational companies are also contemplating re-shoring their operations back to the US.
Indonesia, Thailand Malaysia, Mexico are already building on this low cost competitive advantage by multiple actions.
Thus, there is a clear opportunity for India to become a global manufacturing powerhouse.
However, low cost alone is unlikely to drive differentiation, as R&D and innovation grow in global importance. India is lagging behind its peers in R&D and innovation less than 1% of the country’s GDP is invested in R&D; there are only 190 R&D professionals per million population, as compared to 1,100 for China and more than 5,000 for Germany. The number of patents granted to Indians in FY 2011 was approximately 2,000 as compared to around 85,000 for China and 190,000 for the US.
Given this background, the report states that India Inc has clearly recognized the unsustainability of low cost alone as a competitive advantage and the way ahead for Indian manufacturing, with more than 75% respondents seeking a positioning beyond just low cost. Thus India Inc outlined its vision for the manufacturing sector, which is being the Germany of the East and not ‘Factory to the West.
Source - CII