The current narrative in India on manufacturing is ‘how does one compete on cost’ against, you guessed it, China. China’s ability to conceptualise, finance, and execute massive projects is unparalleled. Let’s face it, despite a few recent political setbacks, China is still the 800-pound gorilla of the manufacturing industry. Comparably, Indian manufacturing is seen as a lumbering elephant. Well, it’s time for the elephant to pirouette. It’s time for Indian manufacturers to draw inspiration from 1940s American manufacturers (like the Willow Run factory and Kaiser Shipyards). Or even the 1970s Japanese auto manufacturers. One thing is certain, Indian manufacturing needs a makeover.
There is a palpable sense of achievement and optimism in India today. Our recent moonshot, where we landed on the lunar south pole, is a big reason for optimism within and towards India. The Indian space program showed that we can build world class technologies without throwing money at the problem. It demonstrated India’s competence in precision engineering and ability to manufacture highly complex systems at low cost. Heck, even Oppenheimer cost more than India’s lunar mission. To be global manufacturing leader India must build world class manufacturing systems at low cost.
India aspires to be a global manufacturing powerhouse. Even the odds are in our favour – we have a long-standing tradition of craftsmanship; a vast and diverse workforce; and steady supply of engineering talent and raw materials. Yet India ranks 6th with a 3% share of the global manufacturing output. The current dominant player is obviously China with a 28% share.
Over the past 30 years China has built a commanding lead in the metal processing, battery, and electronic manufacturing industries. Essentially sectors which contribute to electric vehicles and other sunrise sectors like renewable energy, drones etc.
To imagine the sheer scale, China alone produces almost 50% of the global steel output and 58% of the global aluminium output. While India is the second largest producer of steel and aluminium, it is far behind China, with only 5% of the global market share.
Another example of their dominance is in the processing of some critical minerals. China has built 80% of the global lithium-ion cell production capacity, refining 75% of the world’s nickel and cobalt, 50% of copper smelting capacity and 97% of the global rare earth permanent magnets. By some estimates China also has more than 50% of the global electronic manufacturing output.
This monopolistic dominance allows China to set the market price, making it harder for competition to catch up and sometimes even survive. China can drive the market price down because it has achieved economies of scale. It is winning the manufacturing race through brute force.
China, through years of proactive government policy, subsidies, and support, has become the global leader in electric vehicles. It found its niche in the automotive market and has now come to thoroughly dominate it. So much so that even the traditional established automakers like GM, Ford, Volkswagen and even Toyota with their established lean manufacturing principles are unable to compete with the Chinese exports of electric vehicles. Tesla is perhaps the only manufacturer competing with Chinese auto manufacturing, because of its scale and brand value. Truth be told, India is a newcomer in this race.
But can the Indian David take on the Chinese Goliath? What metaphorical stones should be slung at Goliath to bring it down? Broadly speaking this requires firm action by the manufacturing sector and the government. To be fair the government is making some efforts to incentivise production in India, this is reflected in India becoming a net exporter of smartphones. But we need to do much more to capture a higher value and increase our share of the value. And lots more needs to be done.
Setting up the Field
With the current global trade wars and supply chain challenges, countries, companies, and consumers are rethinking the benefits of globalisation. In other words, they are all looking to reduce their reliance and dependence of goods from a single country.
In this supply chain reorientation, India is considered a strong alternative to China by the western nations. We also have our own ambitions to be a global manufacturing powerhouse catering to domestic and international demands. To achieve this, we have been taking steady steps to address our infrastructure bottlenecks and bring down the logistics and energy costs. While the government must address more structural challenges in terms of labour and land acquisition laws, startups and established businesses can approach the challenges from a fresh perspective.
What Needs to be Done
So, how does India compete? How can it take market share away from China? Create a niche for itself? To achieve winning outcomes like cost competitiveness, high production and economies of scale certain key competencies must be developed by Indian manufacturers. These are a few core principles that Indian manufacturers must adopt to be competitive at a global level. Let us call them the “CDEs” of the business.
1. Continuous Improvement: The ability to increase productivity and efficiency of existing resources including capital and labour. Our current competencies are largely based on labour arbitrage. There is an opportunity to increase productivity and reduce waste by increasing use of tools (machine, power, and software tools) and bringing in greater automation. Capital goods in India accounts for 2% of our GDP, while it contributes more than 4% in China, further multiplying its manufacturing capabilities. We are not the most prolific tool builders.
This problem becomes even more accentuated in MSMEs and in agriculture. Textiles, dairy-farming and other unorganised sectors of the economy all bear witness to this fate. Inspite of being the largest producers of milk and other agricultural commodities we have low productivity levels and high waste. The same can be said for unorganised sectors like brass and leather processing in the country. With better systematic training programs, skill development and workforce discipline this problem can be tackled head on.
2. Disruptive Innovation: The ability to create and implement radically improved products, services, and technologies. This requires not only an understanding of the customer behaviour but also the ability to create and adapt technologies which creates new opportunities. Disruptive innovation can be in both hard and soft technologies. Hard technologies like additive manufacturing, digital twins and AI and robotics are the new frontiers of innovation. Soft technologies include innovations in organisation structures, manufacturing and production know-hows, techniques etc.
We have a large base of engineering institutions and scientific laboratories in the country. MSMEs and startups should treat them as their extended R&D centres. Academia and industry must collaborate to develop practical focused solutions, rather than they being islands of R&D. Even with over 50 centrally funded laboratories, India has not produced cutting edge research and technology. Yet.
3. Execute to Integrate: Being agile and able to quickly incorporate customer feedback and market opportunities as a part of the production process. This requires a workforce skilled enough to understand key operational metrics and having manufacturing and operational flexibility which can compete in highly dynamic global environments. Speed and ability to quickly respond are the name of the game.
MSMEs and startups should naturally be more nimble and able to pivot based on market and customer feedback. Yet manufacturing startups and MSMEs in India are slow and unresponsive. This is because they lack an enabling ecosystem and depend on large external vendors.
Building these competencies is critical. They will give the strategic advantage needed for manufacturing startups to become global businesses. These core competencies will help India excel in the specialised niches that it identifies for itself. Niches like electric vehicles (which is still in its infancy), drones and UAVs, AI and robotics, medical devices, software led manufacturing etc.
Changing the Game
Apart from focusing on building core competencies, Indian manufacturing businesses can change the rules of the game. Rather than focusing on purely a race to the bottom, startups and small businesses can build on core philosophies and work towards strategies which create differentiation.
Strategies like sustainability and customer satisfaction can provide long term advantages. Further businesses can compete on quality and design and change the narrative for the customer. For example, the Japanese automotive industry competed and outmanoeuvred the American car manufacturers in the 1970s by building more compact, fuel efficient and reliable cars, changing the rules of the game.
When a nation collectively decides to put its might and efforts to achieve something of monumental importance then nothing can stop it. It was America’s manufacturing might and its organisational capabilities which led to its world war 2 victory and its subsequent position as a global economic power. At its peak the Willow run plant was producing one B24 Liberator plane every hour and Kaiser shipyards were building three Liberty ships every two days.
If India wants to have its position in the world as one of the global leaders in manufacturing, building on core competencies and finding the right mix of government policy and business strategy will be required.
At Alphasine Technologies we are focused on building a resilient manufacturing business which can compete against the current leaders in the global markets, including the highly cost competitive Chinese businesses. We are constantly looking to innovate and improve while executing to integrate and be a part of our customer’s success by offering quality products made with sustainable processes.