Manufacturing in India to grow at China's cost

CHENNAI: A decade ago, when companies thought of low cost they invariably thought about China. However, companies are now looking at multiple alternatives and that's why India could be more attractive than before.

What triggered the change in boardroom mindset were the two big natural disasters last year - the tsunami and the floods in Thailand. "They caused major ripples around the boardrooms on risk management," says Robert M Tevelson, senior partner and managing director of The Boston Consulting Group's Philadelphia office. "Companies are not looking only at the low price point of view, but also at the total cost by averting risk on their supply procurement," he added.

The decision making on manufacturing destinations are more nuanced now and takes into account everything from the supply chain starting and end points to how low or high will the value addition be. That's going to help India.

India can differentiate from China on a couple of counts. "While China is about mass production and volumes, India is about customisation and quality, using its intellectual work force," says Raghavendra Rao, vice-president, manufacturing & process consulting at Frost & Sullivan.

He added that due to the economic slowdown and other concerns in China production might move back to US in the short run, while India need not have such concern. "However, India should take cues from China on how to firm up the infrastructure sector."

Boston Consulting Group analysts Harold L Sirkin, Michael Zinser and Douglas Hohner wrote in an August 2012 report that rising Chinese wages, higher US productivity and a weaker dollar will virtually close the cost gap between the US and China for many goods in North America.

Tevelson also extends the argument to India. He says, "Our prediction is that China will see increase in labour rates and we also are going to see appreciation of the Renminbi. In comparison, in India, there is depreciation of the currency and inflation is half the rate of China, which makes India more attractive." He says, "We don't know what is going to happen in 2016, but we do know that currency is going to fluctuate."

Indian manufacturing hasn't had the best of times of late. It contributes just over 16% of the total GDP in an economy that's increasingly overwhelmingly reliant on services growth. The industry often points out how infrastructural issues, antiquated labour and factory laws aren't helping matters.

("The India Manufacturing Excellence Awards will be unveiled this Friday at the Hyatt Regency, Mumbai.")