Will India Match China's Manufacturing Might?

The case study talks about the possibility of India (which is now considered to be having the expertise in software and services) becoming a global manufacturing base, giving competition to China. India is expected to become "a second sourcing destination" for the world economy due to its technical capabilities and skilled manpower. Moreover there are many factors which go against the favour of China such as declining working age population, increasing inflation and lack of expertise. India has a comparative advantage in these areas and if it adopts a global mindset, then it can undoubtedly come at par with China and other developing countries as predicted my most of the economists.

This is evident from a UNs report which found that India tops developing countries (China excluded) in production of textiles, chemical products, basic metals, general machinery and equipment, and electrical machinery. In motor vehicle production, the country has overtaken Brazil
and is behind only Mexico among developing countries. India's manufacturing value added has grown by over 10%, compared to 3.4% for the industrialized countries

The prospect for Indias growth in the area of manufacturing can also be felt from the various examples: General Motors India expressing its willingness to become an outsourced vendor of car engines made at the newly-opened Maharashtra plant which it also wants to export to GM's joint ventures in China. The CFO of Pharmaceutical company AstraZeneca, which sources active pharma ingredients (APIs) from India for use in its global operations, considers India to be ahead of China in terms of sourcing. Indian subsidiary Maruti Suzuki that manufactures the Pixo model compact car for sale in Europe and is likely to start making vehicles for Volkswagen soon. Pfizer India, which has experienced a significant increase in sourcing activity from India with an average annual growth of 35 to 50% which includes source drug formulations, APIs and drug intermediates. Thus India is becoming a leading country in drug productformulation outsourcing although there lays competition from other markets, including China.

HOW INDIA CAN EMERGE AS A THREAT TO CHINA.?

(A SWOT Analysis of Indian Manufacturing Industry)

STRENGTHS: India, because of its technical capabilities and qualified manpower, holds the potential of becoming a global manufacturing hub. According to the McKinsey report, the global trend to manufacture and source products in low-cost countries is gaining strength, particularly in the skill-intensive industries where India has a significant competitive advantage. If India takes advantage of this trend, manufacturing exports could increase from US$40 billion in 2002 to approximately US$300 billion by 2015, leading to a share of approximately 3.5% in world manufacturing trade. Many Western companies head to India for outsourcing manufactured parts and subassemblies because China lacks the required expertise. India is preferred in cases that call for "sensitivity" to intellectual property rights and manufacturing in low-to-medium volumes with high degrees of variation in products. Also Global companies attracted to India's markets realize that they need to invest in local manufacturing for gaining maximum advantage Big Automobile Giants like General Motors, Ford, Nissan and Hyundai are investing in setting up manufacturing facilities in India with a view to export the products to other third world and African & Asian Countries because the conditions in India( roads, infrastructure, etc) are similar to these countries Also unlike China, India has gone for a conservative approach of allowing foreign investments in the beginning which has made Domestic industries in India strong enough to compete with their global counterparts while China is becoming apprehensive of the failure of its domestic industries and total dependence on foreign industries India has traditionally had an edge in high-end manufacturing with lower volumes relative to China and design-intensiveness

OPPORTUNITIES (India as a Second Sourcing destination):

Economists have long predicted that China will cede its outsourced manufacturing base to other developing countries as Its working-age population is on a decline. Efficient and younger-age factory workers have been in short supply. Money supply has risen 52% in the past two years which has resulted into a powerful inflationary force. Thus goods coming out of China will cost more which might cause it to lose its business. China's "weak spots" are in low-margin manufacturing such as garments, toys, pharmaceuticals and foods.

The following reasons have been stated as being indicative of the possibility of India becoming a Global Second sourcing destination: India's large market for everything from cars to cell phones will attract investments in capacities that will be used also to supply West Asia and Africa. Secondly China will selectively divest low-end manufacturing to other parts of the world to protect its own resources. By using modern manufacturing techniques to tap into its vast agricultural and industrial resources, India can lower costs and improve its competitiveness India is becoming a strategic alliance partner with America, which is the world's largest market. There is also an increasing fear that foreign investors will not be allowed to achieve critical scale in China. If MNCs get too big for comfort in China, the government could extend preferential treatment to local companies to control over-reliance on outside investors.

WEAKNESSES:
India's problems are in low-end manufacturing, where wage costs play a role. In order to be successful, Indian companies needed to "adopt a global mindset to build scale and achieve cost excellence; acquire market access rapidly, including using inorganic routes such as acquisitions where required; strengthen design and innovation skills; build a global or regional operating footprint, and master the ability to manage a world-class talent pool and organization." Also the instability in the political conditions in India to a extent discourage multinationals to invest in India.

THREATS: Chinas structural" solutions to including a 'Go West' policy to tap into the still incredibly-large labor pools available in the western part of the country can revive Chinas position strengthening competition to India .. The second policy of Chinese State to compel foreign investors to disseminate technology to domestic companies, so that the local entities can begin to compete on nonprice dimensions and move up the proverbial value chain can also pose a threat to India. China is making a great effort to train its population to speak English with fluency. Currently an English fluent workforce is a distinguishing factor of India.

HOW INDIA CAN REALIZE ITS FULL POTENTIAL:

There are no free lunches in this competitive world, & so it is the situation for India. India needs to develop a strategy if it really wants to outperform China as a global manufacturing hub: In India the cost of logistics and distribution sometimes exceeds the total cost of the product; hence there is immense scope of improvement in the Indian logistics model and the infrastructure. Also the complicated system of taxation in India (different rates of VAT for different states and interstate products) can be eased to implement a simpler and uniform GST. India needs to gear up its quality standards to match up to the level of its global counterparts. Indian government needs to further promote SMEs and train them to meet the challenge of global competition. Also training to human resources in order to make of them skilled manpower is required. Indian manufacturing units also need to be more technologically advanced and implementation of ICT can further reduce inefficiencies of time & distance. And last that India needs to incorporate more transparency in its operations although China also gives India a tough competition in Corruption.