Description
It explains the factors leading to India's and china's growth in manufacturing. It also looks into outlook various sectors like chemical, energy, electronics etc in India and china.
India or China: Which
will be the next manufacturing hub
Flow of presentation
• Existing Environment and Government policies
• Current Strength/Standings across various sectors • Our outlook on the Sector
• India’s Strength and why it can be the next Manufacturing hub • China’s Weaknesses
Environment and government policy:
India and China - Key Indicators
India
Factors Leading to India’s Growth in Manufacturing
• Preferential Government Policy • Human Capital • Large Domestic Markets
– India’s rising incomes and growing consumerism are the main factors aside from lower costs that make India appealing to foreign investment
• Quality and Trade Standards
– Approximately 80 percent of automotive component manufacturers in India meet ISO 9000 quality standards
China
?Preferential Government Policy
Factors Leading to China’s Success in Manufacturing
? The cost and time to start up and close a business are lower in China ? The costs and procedures involved in importing and exporting a standardized shipment of goods in China are less than countries in the region
?Foreign Investments ?Infrastructure Investment
? One of the most important success factors is China’s superior infrastructure. It is especially essential in manufacturing.
?Human Capital
? Cheap labor is one of the main draws for firms relocating in China.
Introduction- A glimpse into the financial sector
?Both the economies are characterized by excessive government intervention- much more in China that distorts the allocation of capital and thus distorts growth. ?One of the main reason for easier availability of funds in China is banking regulations. India lend just 61% of their deposits compared to 130% of their Chinese counterparts. ?Hence, total value of loans in China is 200 percent of GDP with only 41 percent in India ?Loans are also available at a cheaper rate in China ?China has huge amount of bad loans and NPLs(25%) which can turn out to be a huge problem in the coming years
Performance in different sectors: Automotive Components:
? China is currently second in terms auto production ? India currently lies in ninth position in terms of manufacturing
Our outlook:
? In product engineering, one of India's strengths is using design to cut costs; a redesign of the Maruti Alto's steering system, for instance, reduced its weight by 15 percent ? As for capital engineering, India's advanced tooling and machining industry makes it possible to produce capital equipment locally (and therefore less expensively)
• The low-cost programming and engineering skills of Indian workers have generated savings of up to 85 percent when companies purchase secondhand capital equipment and refurbish it in house. • Peak import duty has been increased to cut imports while excise duty has been cut to reduce cost of raw materials • The government has envisaged the Automotive Mission Plan 2016 to promote growth in the sector
Electronics industry:
?The industry is characterized by rapid innovation and speed to market, short product life cycle, high volume production, continuous improvement in capabilities for reducing costs and profit accrual through volumes
?China
?Although many Chinese local firms do not possess the same technology capabilities as those of foreign affiliated firms, they have huge economies of scale as a result, they have expanded their market shares against the foreign affiliated firms ?Size: $120bn
?India
?By contrast, in India, only a few major local firms have topped the list during the 1990s and the stable market structure has been kept, therefore the property is in inequality ?Size: $20bn (0.7% of the global electronic industry)
Our outlook:
There are several advantages that India offers that can be effectively leveraged to achieve higher growth ? Manpower: India's cost of skilled labor is among the lowest in the world ? Market Demand: India has been experiencing a strong growth in the demand of consumer products and durables in recent years, driven by consumer demographic trends. ? Policy and regulatory support: Foreign investment up to 100 per cent is allowed in Indian electronics industry set up exclusively for exports. ? The growth will be assisted by trends such as increase in contract manufacturing and increase in EMS and ODM.
Chemical
• Global Chemical industry at US$ 2.4 trillion; 265 pharma and 35-40% petrochemical • Developing countries currently hold 25% of the specialty chemicals industry • China is the leading supplier of petrochemicals and commodity chemicals in Asia pacific • India’s share is around $35bn ; 3% of the GDP • Through innovations in plant design, Indian companies of performance chemicals have reduced its changeover times to 2-3 days, from the typical international standard of 8-9 days
• In commodity-grade fine chemicals, where reliable Indian producers are now emerging, multinationals can establish arm's-length sourcing relationships with one or more local producers
• • • •
Our Outlook High Quality Standards : Jubilant Biosys (BioInformatics), holds an ISO 14001 certification. Cost effective: The cost of developing a drug master file in India is 26 per cent that of the US. India is also emerging as an important base for active pharmaceutical ingredients or API (low volume high margin products) India churns out six times the number of chemists every year in the US, and it costs 1/10 the amount in US to hire these workers.
Energy Sector:
• Neither India or china have abundant Oil & Gas(proven) reserves and are largely dependent on imports • Although unlike China India is Refining hub boasting of the 3rd largest refinery in the world • India 10% of proven recoverable coal reserves while china has 12%.
•
•
• •
Our Outlook: Government has allowed 100 % FDI in private refineries through automatic route and 26 % in government-owned refineries Indian coal is of higher quality (low ash and water content) 100 % FDI is also allowed in petroleum products, exploration, gas pipelines and marketing/retail GOI aims to attract investment avenues worth US$ 120 billion-US$ 150 billion through NELP implementation
India –China : a different view on manufacturing
From the above graphs we can see that India Manufacturing growth has been more stable than China during the last period.
Head to Head
Aspects India China
Political
World’s largest democracy
one of the most brutal totalitarian regimes Aging population
Demographic
Half the population under 25
Social
Much more freedom to speak and act than China
Stronger rule of law
Much bigger wealth gap than India
Weak judiciary and ignored rights
Legal
Why India will be manufacturing hub
Cheap labour More English speaking professionals
• Takes lesser time for foreign companies to develop Human resource needed
Influence of Japanese manufacturing principles
• Leads to improved quality and higher customer satisfaction
Leader in software & allied services
• Helps optimize the supply chain and reduces the overheads. • The cost of establishing an ERP system in Indian company is much cheaper
Why India
Increased Vertical Integration by companies
• Reduces the manufacturing cost and ensure competitiveness.
Element of cost consciousness in product design
• Indian customer is cost conscious and hence we have innovative and economical products like Tata Nano
Big market with a great market potential
• India has a huge domestic market while China is largely dependant on exports
Why China’s model is unsustainable?
• China used top-bottom model where govt. invested heavily in infrastructure. • Unlike India, lack of Entrepreneurship and less developed domestic market
• While India is one huge version of the Silicon Valley where government has merely enabled the transition to capitalism
Other issues
• China’s legal system that does little to protect intellectual and physical property rights
– International Property Rights Index ranks China with Nigeria
• Poor quality
– 2007 pet food recalls, Toys recall by Hasbro and Mattel ,2008 Chinese milk scandal
• India is a consistent performer at Deming awards: High quality is the USP • China’s manufacturing is based more on economies of scale so companies going for low volume production prefer India.
Multifold problems with China
Less environment sensitivity
• China's carbon emissions are soaring past those of the US
Lack of innovation
• A full 57 per cent of exports are from foreign-invested factories, and China underachieves in software,"
Quality of education
• 5 of Asia’s top 10 science and technical schools are in India. None in China
Hugely wasteful
• Its 9.5 per cent growth rate in 2004 is less impressive when you consider that 850 billion - half of GDP -- was plowed into already-glutted sectors like crude steel, vehicles, and office buildings
Multifold problems with China
Too much government intervention
• Inefficient capital markets • Restricts entrepreneurship and growth of SSEs and MSEs • Many hard asset companies in China exist because the government funnels money to them. • Two-thirds of China's 1,300 listed companies don't earn back their true cost of capital • This also kills competition, which is the main compelling force behind productivity and long term economic growth (Investment as % gdp is very high as compared to India but growth is not that great)
• Trade unions in china are not as strong as in India.As a result statutory minimum wage rates are not followed strictly in China than India. Ex: Chinese workers in the Pearl River Delta; Wal-Mart child labour abuse
• India also has Western legal institutions, a modern stock market, and private banks and corporations. As a result, it is far more capital-efficient. • India is a "natural ally" of the US, while America's "relationship with China will at best be wary and tense."
Thank You
doc_283566258.pptx
It explains the factors leading to India's and china's growth in manufacturing. It also looks into outlook various sectors like chemical, energy, electronics etc in India and china.
India or China: Which
will be the next manufacturing hub
Flow of presentation
• Existing Environment and Government policies
• Current Strength/Standings across various sectors • Our outlook on the Sector
• India’s Strength and why it can be the next Manufacturing hub • China’s Weaknesses
Environment and government policy:
India and China - Key Indicators
India
Factors Leading to India’s Growth in Manufacturing
• Preferential Government Policy • Human Capital • Large Domestic Markets
– India’s rising incomes and growing consumerism are the main factors aside from lower costs that make India appealing to foreign investment
• Quality and Trade Standards
– Approximately 80 percent of automotive component manufacturers in India meet ISO 9000 quality standards
China
?Preferential Government Policy
Factors Leading to China’s Success in Manufacturing
? The cost and time to start up and close a business are lower in China ? The costs and procedures involved in importing and exporting a standardized shipment of goods in China are less than countries in the region
?Foreign Investments ?Infrastructure Investment
? One of the most important success factors is China’s superior infrastructure. It is especially essential in manufacturing.
?Human Capital
? Cheap labor is one of the main draws for firms relocating in China.
Introduction- A glimpse into the financial sector
?Both the economies are characterized by excessive government intervention- much more in China that distorts the allocation of capital and thus distorts growth. ?One of the main reason for easier availability of funds in China is banking regulations. India lend just 61% of their deposits compared to 130% of their Chinese counterparts. ?Hence, total value of loans in China is 200 percent of GDP with only 41 percent in India ?Loans are also available at a cheaper rate in China ?China has huge amount of bad loans and NPLs(25%) which can turn out to be a huge problem in the coming years
Performance in different sectors: Automotive Components:
? China is currently second in terms auto production ? India currently lies in ninth position in terms of manufacturing
Our outlook:
? In product engineering, one of India's strengths is using design to cut costs; a redesign of the Maruti Alto's steering system, for instance, reduced its weight by 15 percent ? As for capital engineering, India's advanced tooling and machining industry makes it possible to produce capital equipment locally (and therefore less expensively)
• The low-cost programming and engineering skills of Indian workers have generated savings of up to 85 percent when companies purchase secondhand capital equipment and refurbish it in house. • Peak import duty has been increased to cut imports while excise duty has been cut to reduce cost of raw materials • The government has envisaged the Automotive Mission Plan 2016 to promote growth in the sector
Electronics industry:
?The industry is characterized by rapid innovation and speed to market, short product life cycle, high volume production, continuous improvement in capabilities for reducing costs and profit accrual through volumes
?China
?Although many Chinese local firms do not possess the same technology capabilities as those of foreign affiliated firms, they have huge economies of scale as a result, they have expanded their market shares against the foreign affiliated firms ?Size: $120bn
?India
?By contrast, in India, only a few major local firms have topped the list during the 1990s and the stable market structure has been kept, therefore the property is in inequality ?Size: $20bn (0.7% of the global electronic industry)
Our outlook:
There are several advantages that India offers that can be effectively leveraged to achieve higher growth ? Manpower: India's cost of skilled labor is among the lowest in the world ? Market Demand: India has been experiencing a strong growth in the demand of consumer products and durables in recent years, driven by consumer demographic trends. ? Policy and regulatory support: Foreign investment up to 100 per cent is allowed in Indian electronics industry set up exclusively for exports. ? The growth will be assisted by trends such as increase in contract manufacturing and increase in EMS and ODM.
Chemical
• Global Chemical industry at US$ 2.4 trillion; 265 pharma and 35-40% petrochemical • Developing countries currently hold 25% of the specialty chemicals industry • China is the leading supplier of petrochemicals and commodity chemicals in Asia pacific • India’s share is around $35bn ; 3% of the GDP • Through innovations in plant design, Indian companies of performance chemicals have reduced its changeover times to 2-3 days, from the typical international standard of 8-9 days
• In commodity-grade fine chemicals, where reliable Indian producers are now emerging, multinationals can establish arm's-length sourcing relationships with one or more local producers
• • • •
Our Outlook High Quality Standards : Jubilant Biosys (BioInformatics), holds an ISO 14001 certification. Cost effective: The cost of developing a drug master file in India is 26 per cent that of the US. India is also emerging as an important base for active pharmaceutical ingredients or API (low volume high margin products) India churns out six times the number of chemists every year in the US, and it costs 1/10 the amount in US to hire these workers.
Energy Sector:
• Neither India or china have abundant Oil & Gas(proven) reserves and are largely dependent on imports • Although unlike China India is Refining hub boasting of the 3rd largest refinery in the world • India 10% of proven recoverable coal reserves while china has 12%.
•
•
• •
Our Outlook: Government has allowed 100 % FDI in private refineries through automatic route and 26 % in government-owned refineries Indian coal is of higher quality (low ash and water content) 100 % FDI is also allowed in petroleum products, exploration, gas pipelines and marketing/retail GOI aims to attract investment avenues worth US$ 120 billion-US$ 150 billion through NELP implementation
India –China : a different view on manufacturing
From the above graphs we can see that India Manufacturing growth has been more stable than China during the last period.
Head to Head
Aspects India China
Political
World’s largest democracy
one of the most brutal totalitarian regimes Aging population
Demographic
Half the population under 25
Social
Much more freedom to speak and act than China
Stronger rule of law
Much bigger wealth gap than India
Weak judiciary and ignored rights
Legal
Why India will be manufacturing hub
Cheap labour More English speaking professionals
• Takes lesser time for foreign companies to develop Human resource needed
Influence of Japanese manufacturing principles
• Leads to improved quality and higher customer satisfaction
Leader in software & allied services
• Helps optimize the supply chain and reduces the overheads. • The cost of establishing an ERP system in Indian company is much cheaper
Why India
Increased Vertical Integration by companies
• Reduces the manufacturing cost and ensure competitiveness.
Element of cost consciousness in product design
• Indian customer is cost conscious and hence we have innovative and economical products like Tata Nano
Big market with a great market potential
• India has a huge domestic market while China is largely dependant on exports
Why China’s model is unsustainable?
• China used top-bottom model where govt. invested heavily in infrastructure. • Unlike India, lack of Entrepreneurship and less developed domestic market
• While India is one huge version of the Silicon Valley where government has merely enabled the transition to capitalism
Other issues
• China’s legal system that does little to protect intellectual and physical property rights
– International Property Rights Index ranks China with Nigeria
• Poor quality
– 2007 pet food recalls, Toys recall by Hasbro and Mattel ,2008 Chinese milk scandal
• India is a consistent performer at Deming awards: High quality is the USP • China’s manufacturing is based more on economies of scale so companies going for low volume production prefer India.
Multifold problems with China
Less environment sensitivity
• China's carbon emissions are soaring past those of the US
Lack of innovation
• A full 57 per cent of exports are from foreign-invested factories, and China underachieves in software,"
Quality of education
• 5 of Asia’s top 10 science and technical schools are in India. None in China
Hugely wasteful
• Its 9.5 per cent growth rate in 2004 is less impressive when you consider that 850 billion - half of GDP -- was plowed into already-glutted sectors like crude steel, vehicles, and office buildings
Multifold problems with China
Too much government intervention
• Inefficient capital markets • Restricts entrepreneurship and growth of SSEs and MSEs • Many hard asset companies in China exist because the government funnels money to them. • Two-thirds of China's 1,300 listed companies don't earn back their true cost of capital • This also kills competition, which is the main compelling force behind productivity and long term economic growth (Investment as % gdp is very high as compared to India but growth is not that great)
• Trade unions in china are not as strong as in India.As a result statutory minimum wage rates are not followed strictly in China than India. Ex: Chinese workers in the Pearl River Delta; Wal-Mart child labour abuse
• India also has Western legal institutions, a modern stock market, and private banks and corporations. As a result, it is far more capital-efficient. • India is a "natural ally" of the US, while America's "relationship with China will at best be wary and tense."
Thank You
doc_283566258.pptx