Description
Competitiveness Vs Triumphalism for manufacturing in India- getting the equations right
Competitiveness Vs Triumphalism for manufacturing
in India- getting the equations right
By: Amit Bhushan Date: 1
th
Aug!
"#1
$ith %supposedly& having focus on manufacturing'industry( the
government is trying to drum up support for %the )usinessmen& again(
amongst the )ureaucracy as *ell as pu)lic( so that they %)ecome&
responsive'sensitive to the concerns of the %sector&+ %much more than
previous&! The interpretation is that this is as per desires of the
populace as e,pressed through %votes& in elections! The %great ne*
idea& is that these )usinessmen *ill invest in putting up plants *hich
*ill employ %millions& and the country *ill )ecome a %manufacturing
po*erhouse&! -othing can )e farther from truth( if past e,perience is
any indicator! In practice( the )usinessmen *ill only invest is some
ramshac.le operating unit *hich churns out shoddy products( perform
some )randing and develop distri)ution for such )rands! This is
)ecause seasoned )usinesses *ill pour investment *here %pro/t& is!
And for pro/ts( competitiveness is paramount and not doses of myth or
lectures! In a serious operations for manufacturing i!e! other than
assem)ly( the factors that impact competitiveness is %cost of
procurement& for *hich infra including payments infra plays a role+
then there is %cost of works or factory& cost *hich are impacted )y
cost of energy( manpo*er( *ater and facility rent+ and then %ofce
cost& involving )randing and distri)ution etc! Distri)ution a)road is
e,ports and again relies heavily on infra and underlying transaction
cost including /nancing for such e,ports and payments ris. there
under!
India has high transaction cost for procurement of goods 0especially
imports and e,ports1 as our trade facilitation mechanism and infra is
still under developed for cost e2ective movement of goods and trade
lin.ages for most of the minerals and components is *ea. )ecause
supply chain is not *ell planned and mature! The facility or factory cost
is high in comparison to competing countries )ecause of high rentals+
inadequacy of po*er( *ater and sanitation+ e,pensive /nancing due to
perceived ris.s 0*hich includes high ris. of pro3ect development as *ell
as high cost of imported capital goods1+ and perception a)out la)our
)eing uncompetitive'uns.illed for the .ind of *ages! It is the o4ce
costs components *here our entrepreneurs try to out-compete their
5-C counterparts 0in same location1 and feel that they are doing some
good 3o)! This is )ecause such cost need to )e a)sor)ed *ithin the
country as )randing and distri)ution are mainly for home consumption
0provided goods manufactured are not for e,ports1! $e have situation
that due to e4cient professional services from %o4ce&( such services
can also )e e,ported to other costly locations due to manpo*er
ar)itrage for s.illed manpo*er *ith necessary maturity'competency!
67D( pro3ect planning and accounting( credit management( payments
processing and settlement'reconciliation etc! can deemed to )e part of
such o4ce operations!
Any hasty decision )y some megalomaniacal organi8ation *ith limited
understanding of %manufacturing scenario& to push the government for
%manufacturing' industry&( results in encouraging )an.s to lend
aggressively to %large conglomerates& to put up %large factories& a)out
*hich )an.ers really have no clue! 9laying around *ith )ureaucrats
other statutory )odies including 3udiciary( *ho can o)struct and
question( serves to reduce scrutiny that the %policy and pro3ect
assessment reports& deserves and further ma.es investors'people
suscepti)le! Assumption is made'developed )y )an.ers( retail investors
a)out the units )eing proposed+ that such units *ill manufacture huge
quantum of goods for domestic consumption as *ell as e,ports on the
)ase of gung ho ne*s )eing poured out )y %your friendly media&!
Volumes of :easi)ility reports are designed to 3ustify the needs for
%your')an.&s funds& and this involves %investments& )y corporates in
large s*athes of lands on *hich supposedly a futuristic plant *ill )e
put up! In e2ect it is only the competitive %assem)ly& and %o4ce& is put
in place *hich may include a fe* actual manufacturing units 0generally
small to med-si8ed1 for components *hose local manufacturing can )e
pro/ta)le 0for a speci/ed period of time in future1 given the %landed
cost of such components&! The /nishing assem)ly line processes some
domestic and other imported components for local )randing and
distri)ution! The rest of the investment )y )an.s )ecomes ready for
almost perennial or sometimes suita)le 0i!e! for limited period of time1
restructuring! -ote that some manufacturing assets'factories also
)ecome non-performing due to emergence of more competitive ne*
locations as *ell as due to technological o)solesce! The Businesses
%settle& *ith )an.s )y %commerciali8ing& and capitali8ing land holding in
con3unction *ith political god fathers and move on to %ne* pro3ects& at
emergence of suita)le opportunity! This may also involve pepping up
stoc. mar.ets to get equity component from %small investors& to ma.e
them partner in %pro/ts& 0any)ody&s guess *hat such investor *ill get
%over the long term&1! It may )e noted that despite the long e,perience(
)an.s- local as *ell as glo)al( still follo* the call of the government to
shore up /nance as per priorities!
By focusing on %manufacturing& alone( no country has ever shored up
manufacturing! It is )y focusing on competitiveness that the countries
have shored manufacturing' industry and maintained'developed their
position in glo)al order! ;ne can quote e,amples of ? or China! The mechanism for achieving competitiveness can )e
)asis innovation and technology 0?1( highly developed and mature supply chains 0=apan1 or
Cheap la)our and infra 0China1! Access to mar.ets including favoura)le
opinion a)out )rands for premium positioning and lo* )arriers in other
countries is the other hidden component for competitiveness 0this
happens *hen there are prevailing lo* standards in )uyer country 7
need to invest for product upgrade is lo*+ a country engagement
model is )uilt around this and supported )y institutions in e,porting
country along *ith the promotion material for such *ares and may
some time involve dollops of )uyer /nance1! The pundits in India *ill
discuss %model states& and %state models& for manufacturing *here an
ordinary vie*er *ill end up )eing totally clueless as *hat the
discussion is a)out and the targeted end state and this can include
learned )an.ers as *ell as seasoned investors! The *hole )et is on
hype and euphoria *hich *ill yield retail investors on *hom costly
%paper& can )e dumped 0*henever this fact is reali8ed )y them1 so that
the ris. ta.ing is easier for such seasoned investors! This is all the
*hile *hen %good data& is churned out and discussed )y %learned
economists( )an.ers and 3ournos& *ho are adept to )ehave as though
stunned and spell )ound )y the turn around in )usiness
scenarios'speci/c pro3ects')usiness groups( even though *e may not
have any change at ground level *ith reference to competitiveness(
although a sle* of ne* *idgets may start appearing including some
ne* sign)oards and advertisements to .eep the )u88 a)out something
ne* happening some*here( *here@
doc_230441291.doc
Competitiveness Vs Triumphalism for manufacturing in India- getting the equations right
Competitiveness Vs Triumphalism for manufacturing
in India- getting the equations right
By: Amit Bhushan Date: 1
th
Aug!
"#1
$ith %supposedly& having focus on manufacturing'industry( the
government is trying to drum up support for %the )usinessmen& again(
amongst the )ureaucracy as *ell as pu)lic( so that they %)ecome&
responsive'sensitive to the concerns of the %sector&+ %much more than
previous&! The interpretation is that this is as per desires of the
populace as e,pressed through %votes& in elections! The %great ne*
idea& is that these )usinessmen *ill invest in putting up plants *hich
*ill employ %millions& and the country *ill )ecome a %manufacturing
po*erhouse&! -othing can )e farther from truth( if past e,perience is
any indicator! In practice( the )usinessmen *ill only invest is some
ramshac.le operating unit *hich churns out shoddy products( perform
some )randing and develop distri)ution for such )rands! This is
)ecause seasoned )usinesses *ill pour investment *here %pro/t& is!
And for pro/ts( competitiveness is paramount and not doses of myth or
lectures! In a serious operations for manufacturing i!e! other than
assem)ly( the factors that impact competitiveness is %cost of
procurement& for *hich infra including payments infra plays a role+
then there is %cost of works or factory& cost *hich are impacted )y
cost of energy( manpo*er( *ater and facility rent+ and then %ofce
cost& involving )randing and distri)ution etc! Distri)ution a)road is
e,ports and again relies heavily on infra and underlying transaction
cost including /nancing for such e,ports and payments ris. there
under!
India has high transaction cost for procurement of goods 0especially
imports and e,ports1 as our trade facilitation mechanism and infra is
still under developed for cost e2ective movement of goods and trade
lin.ages for most of the minerals and components is *ea. )ecause
supply chain is not *ell planned and mature! The facility or factory cost
is high in comparison to competing countries )ecause of high rentals+
inadequacy of po*er( *ater and sanitation+ e,pensive /nancing due to
perceived ris.s 0*hich includes high ris. of pro3ect development as *ell
as high cost of imported capital goods1+ and perception a)out la)our
)eing uncompetitive'uns.illed for the .ind of *ages! It is the o4ce
costs components *here our entrepreneurs try to out-compete their
5-C counterparts 0in same location1 and feel that they are doing some
good 3o)! This is )ecause such cost need to )e a)sor)ed *ithin the
country as )randing and distri)ution are mainly for home consumption
0provided goods manufactured are not for e,ports1! $e have situation
that due to e4cient professional services from %o4ce&( such services
can also )e e,ported to other costly locations due to manpo*er
ar)itrage for s.illed manpo*er *ith necessary maturity'competency!
67D( pro3ect planning and accounting( credit management( payments
processing and settlement'reconciliation etc! can deemed to )e part of
such o4ce operations!
Any hasty decision )y some megalomaniacal organi8ation *ith limited
understanding of %manufacturing scenario& to push the government for
%manufacturing' industry&( results in encouraging )an.s to lend
aggressively to %large conglomerates& to put up %large factories& a)out
*hich )an.ers really have no clue! 9laying around *ith )ureaucrats
other statutory )odies including 3udiciary( *ho can o)struct and
question( serves to reduce scrutiny that the %policy and pro3ect
assessment reports& deserves and further ma.es investors'people
suscepti)le! Assumption is made'developed )y )an.ers( retail investors
a)out the units )eing proposed+ that such units *ill manufacture huge
quantum of goods for domestic consumption as *ell as e,ports on the
)ase of gung ho ne*s )eing poured out )y %your friendly media&!
Volumes of :easi)ility reports are designed to 3ustify the needs for
%your')an.&s funds& and this involves %investments& )y corporates in
large s*athes of lands on *hich supposedly a futuristic plant *ill )e
put up! In e2ect it is only the competitive %assem)ly& and %o4ce& is put
in place *hich may include a fe* actual manufacturing units 0generally
small to med-si8ed1 for components *hose local manufacturing can )e
pro/ta)le 0for a speci/ed period of time in future1 given the %landed
cost of such components&! The /nishing assem)ly line processes some
domestic and other imported components for local )randing and
distri)ution! The rest of the investment )y )an.s )ecomes ready for
almost perennial or sometimes suita)le 0i!e! for limited period of time1
restructuring! -ote that some manufacturing assets'factories also
)ecome non-performing due to emergence of more competitive ne*
locations as *ell as due to technological o)solesce! The Businesses
%settle& *ith )an.s )y %commerciali8ing& and capitali8ing land holding in
con3unction *ith political god fathers and move on to %ne* pro3ects& at
emergence of suita)le opportunity! This may also involve pepping up
stoc. mar.ets to get equity component from %small investors& to ma.e
them partner in %pro/ts& 0any)ody&s guess *hat such investor *ill get
%over the long term&1! It may )e noted that despite the long e,perience(
)an.s- local as *ell as glo)al( still follo* the call of the government to
shore up /nance as per priorities!
By focusing on %manufacturing& alone( no country has ever shored up
manufacturing! It is )y focusing on competitiveness that the countries
have shored manufacturing' industry and maintained'developed their
position in glo)al order! ;ne can quote e,amples of ? or China! The mechanism for achieving competitiveness can )e
)asis innovation and technology 0?1( highly developed and mature supply chains 0=apan1 or
Cheap la)our and infra 0China1! Access to mar.ets including favoura)le
opinion a)out )rands for premium positioning and lo* )arriers in other
countries is the other hidden component for competitiveness 0this
happens *hen there are prevailing lo* standards in )uyer country 7
need to invest for product upgrade is lo*+ a country engagement
model is )uilt around this and supported )y institutions in e,porting
country along *ith the promotion material for such *ares and may
some time involve dollops of )uyer /nance1! The pundits in India *ill
discuss %model states& and %state models& for manufacturing *here an
ordinary vie*er *ill end up )eing totally clueless as *hat the
discussion is a)out and the targeted end state and this can include
learned )an.ers as *ell as seasoned investors! The *hole )et is on
hype and euphoria *hich *ill yield retail investors on *hom costly
%paper& can )e dumped 0*henever this fact is reali8ed )y them1 so that
the ris. ta.ing is easier for such seasoned investors! This is all the
*hile *hen %good data& is churned out and discussed )y %learned
economists( )an.ers and 3ournos& *ho are adept to )ehave as though
stunned and spell )ound )y the turn around in )usiness
scenarios'speci/c pro3ects')usiness groups( even though *e may not
have any change at ground level *ith reference to competitiveness(
although a sle* of ne* *idgets may start appearing including some
ne* sign)oards and advertisements to .eep the )u88 a)out something
ne* happening some*here( *here@
doc_230441291.doc