Indian Manufacturers

Indian manufacturing sector has the potential to elevate much of the Indian population above poverty by shifting the workforce out of low income agriculture sector. Manufacturing fuels growth, employment, and also strengthens agriculture and service sectors. Enormous growth in worldwide distribution systems and opening of trade barriers, has led to astonishing growth of global manufacturing networks, designed to take advantage of low-cost yet efficient work force of India. Apart from low cost advantage, Indian manufacturing sector must focus on areas like improving the urban infrastructure, ensuring fair competition, reduction of import duties, quality improvements in education and increase investment in R&D to gain global foot print. There was widespread expectation that the Indian manufacturing sector would be the world's hub for components. A low cost base, liberalization and capital equipment would do the trick. But it didn't happen. Indian manufacturing did not make an impact on the international manufacturing and it's nowhere near to that of Korea, Taiwan or China. Even domestic manufacturing companies are turning to China for components sourcing. As a result, manufacturing sector contribution to India's GDP has fallen to 15% in 2008 from 17% in 1991. Except commercial vehicles and pharmaceuticals almost all other categories of manufacturing are procuring components from China. When we consider a ten-year horizon, there is a good chance that products which require world class design, complex manufacturing skills and large investments will be in the MNC sector. It means pretty much every product. At the lower end, there is a likelihood of Indian manufacturers wresting market leadership, mainly on cost considerations. Extensive subcontracting and contract manufacturing are the order of the day. Traditionally MNCs avoid increasing the number of employees in the main plants. Wherever production can be performed by contract workmen, even inside the main plants, it will be done through such an arrangement. As a result we can see a lop-sided employment pattern in manufacturing sector. While this may be good news from a cost point, it can severely limit the process of building technical skills in this sector and attracting the right manpower to it. The WTO pressures, surplus foreign exchange and lack of domestic alternatives will ensure a large presence of Chinese and Korean products in Indian market. The key challenge now we have is to internationalize indian manufacturers in a way it utilizes our human potential while protecting national interests. Getting it right, learning the lessons from the recent past and removal of the policy hurdles blocking the way, we can still become the leaders in engineering and manufacturing supplies to the world

Manufacturing sector contracts for second consecutive month in September: HSBC

India's manufacturing sector activity contracted for the second consecutive month in September as both output and new orders witnessed a decline, an HSBC survey said on Tuesday. The overall rate of contraction was, however, marginal and eased since August, when it had slipped sub 50.0 reading (below which it indicates contraction) for the first time since March 2009. The HSBC India Manufacturing Purchasing Managers' Index (PMI) for the manufacturing industry stood at 49.6 in September, higher from 48.5 in August, but remained below the crucial 50 mark (below which it indicates contraction) for the second consecutive month. Manufacturing activity continued to shrink in September, albeit at a slower pace. Order flows remained weak, especially export orders, and employment fell," HSBC chief economist for India and Asean Leif Eskesen said. Faced with fewer projects, companies reduced their workforce numbers for the first time since February 2012. indian suppliers "Reflective of a further reduction in new order levels, Indian manufacturers cut their staffing levels in September," HSBC said adding that "the latest fall ended a period of job creation that had lasted for one-and-a-half years". Although new orders fell at a slower and marginal pace, the contraction of export business was very significant. According to HSBC, a depreciation of the rupee versus the US dollar had resulted in higher prices paid for inputs and limited firms' ability to price "competitively". The findings of the survey comes at a time when the country is battling slower growth rate, wider current account deficit and a battered currency. free business listing According to official data, high imports of gold and oil pushed current account deficit (CAD) to 4.9 per cent of GDP at $21.8 billion in the April-June quarter of the current fiscal. "Despite the weak growth readings, the build-up in underlying inflation pressures suggests that the RBI has to keep its inflation guards up," Eskesen said. The Reserve Bank of India, in its September 20 policy review, had unexpectedly raised the policy rate by 0.25 per cent as it kept its focus on controlling inflation. Driven by costlier food items, wholesale price inflation rose to a six-month high of 6.1 per cent in August. Although new orders fell at a slower and marginal pace, the contraction of export business was very significant. According to HSBC, a depreciation of the rupee versus the US dollar had resulted in higher prices paid for inputs and limited firms' ability to price "competitively". The findings of the survey comes at a time when the country is battling slower growth rate, wider current account deficit and a battered currency.

India’s manufacturing sector

indian manufacturers have a golden chance to emerge from the shadow of the country’s services sector and seize more of the global market. McKinsey analysis finds that rising demand in India, together with the multinationals’ desire to diversify their production to include low-cost plants in countries other than China, could together help India’s manufacturing sector to grow sixfold by 2025, to $1 trillion, while creating up to 90 million domestic jobs. Capturing this opportunity will require India’s manufacturers to improve their productivity dramatically—in some cases, by up to five times current levels.1 The country’s central and state governments can help by dismantling barriers in markets for land, labor, infrastructure, and some products (see sidebar, “Four imperatives for India’s government”). But the lion’s share of the improvement must come from indian manufacturer themselves. Recognizing this, a few leading ones are upgrading their competitiveness by bolstering their operations to improve the productivity of labor and capital, while launching targeted programs to train the plant operators, managers, maintenance engineers, and other professionals the country needs to reach its manufacturing potential. A closer look at the experiences of these companies offers lessons for other Indian manufacturers and for global product makers considering opportunities in India. Made in India? indian manufacturers have long performed below their potential. Although the country’s manufacturing exports are growing (particularly in skill-intensive sectors such as auto components, engineered goods, generic pharmaceuticals, and small cars) its manufacturing sector generates just 16 percent of India’s GDP—much less than the 55 percent from services.2 Moreover, a majority of India’s largest manufacturers don’t return their cost of capital (Exhibit 1), a factor that dampens investment in the sector and makes it less attractive than its counterparts in competing economies, such as China and Thailand. Indeed, China’s manufacturers captured nearly 45 percent of the global growth in manufacturing exports from low-cost countries between 2001 and 2010, whereas India accounted for a paltry 5 percent. However, the FICCI (Federation of Indian Chambers of Commerce & Industry) survey has predicted the growth of manufacturing sector in the quarter of April to June this year. The demands of the manufacturing goods have risen in the global market. But the survey also states the Chinese manufacturing units like leather, textile and chemicals are having an edge over the Indian goods. The largest employment generating sector in India has bleak chances of continuing the exports and hence, many units are withdrawing themselves from the export market. Therefore, FICCI warns about the inconsistency in the growth of manufacturing units and calls for an immediate policy action.

Indian Manufacturers

Indian manufacturers Indian manufacturers sector makes up only 16 percent of its GDP. This needs this to increase if the country is to find jobs for its huge population. Yet on the back of strong domestic demand, global car indian manufacturers have flocked to India and are helping to make the sector globally competitive -- particularly in small cars. Capacity is expected to increase from 4.8 million units in 2010 to 12 million in 2018 according to Rothschild. India is set to become the third-largest auto maker in the world and could become a major exporter.Small cars make up 70 percent of the domestic market. And although Tata and Mahindra provide strong local competition, foreigners are dominant. ForeignIndian manufacturers direct investment (FDI) into the automotive industry increased by 48 percent to $7.4 billion in 2011, according to Ernst & Young. Suzuki alone has a 45 percent share.
With no caps on FDI, new entrants are spurring competition. And in contrast to recent policies on retail, state governments have been welcoming. Clusters are being created in the south and west of India where states such as Tamil Nadu and Gujarat offer cheap land toIndian manufacturers attract investment.But it's not just the domestic market that is fuelling growth. Exports already make up 15 percent of output, and many firms have ambitions to develop the international angles. Hyundai uses India as the global source point of all their small cars. Last year it exported 247,000 cars from India -- almost double the 2007 figure. Ford is stepping up export of Indian cars toIndian manufacturers over 50 countries. And Toyota's says it plans to export cars to South Africa in March 2012, the first time it will ship Indian-made cars overseas.
Infrastructure bottlenecks, skills shortages and slow-moving bureaucracy pose big challenges to Indian Manufacturers development. But as labour cost in China rise, India has an opportunity to win market share. In autos, it may have found a formula that can be replicated.
Overseas investment in India rose for the first time in three years in 2011, Ernst & Young reported on January 29.Foreign direct investment rose 13 percent to $50.81 billion in the first 11 months of 2011 from a year earlier, according to the EY report. The total number of projects rose 25 percent to 864. Automakers led the way, increasing spending by 46 percent. India is set to become the third largest automotive maker in the world by 2015 according to a report by Rothschild, the investment bank, in December 2011. Ford plans to invest $142 million in its 200,000 vehicles-a-year plant in Chennai the company announced this month.

About the Author

Keshav Dussal is the author of article. He has been demonstrating his writing skills by writing the articles for Indian manufacturers from last two years. He also has a keen interest in writing stuff for Indian manufacturers directoryrelated topics. He has written various articles on manufacturers directory.

indian manufacturer hike and strike

Surat: Even as the leaders of the diamond industry were successful in resolving the wage issue of the diamond cutters employed with around five manufacturing units — these workers took to streets on Tuesday after the factory owners refused to implement the 20 per cent hike announced by the Surat Diamond Association (SDA) —fresh incident of stone pelting by rampaging diamond workers were reported from the Katargam area on the second consecutive day on Wednesday. Around 400 diamond cutters and polishers targeted some 25 manufacturing units located in the Gotalawadi area in Katargam and forced the owners to down the shutters after they refused to implement the wage hike. Some of the agitating workers indulged in stone pelting at two manufacturing units in Katargam. KS Patel, police inspector, Katargam police station, said, “Two units in Katargam were targeted by the diamond cutters. Adequate police bandobast has been deployed in the Katargam area where the units are located.” It seems the decision taken by the SDA to implement 20 per cent hike in the wages of the diamond workers has come as a major disappointment for the small and medium manufacturers in the industry. Most of the small and medium manufacturers have refused to implement the 20 per cent hike announced by the SDA. Sources said around 35 per cent of the small and medium units — facing tough competition due to the dwindling profit margins and shortage of rough — are not in a position to implement 20 per cent hike.indian suppliers “We are not in a position to hike the wages by 20 per cent. Most of the small and medium factory owners are operating on wafer thin margins due to the shortage of raw material and the increasing prices of rough,” said Valjibhai Dhamelia, a small indian manufacturers operating 10 ghantis (emery wheels). Another indian manufacturer said, “Many small manufacturers have shifted to Bhavnagar in the last few months following problems in the industry. If the problems continue for another few months then more people in the industry are likely to shift to their native places.” On the other hand, the leaders of the industry believe the 20 per cent hike in the wage is not going to affect the business of the small and medium manufacturers. “The cost of the raw material is 80 per cent and the labour charge is 20 per cent. However, if the 20 per cent hike in the wages is calculated then the manufacturers have to to implement only two per cent hike in the wages. If the industry wants to retain the workforce then each one of the manufacturers have to comply with the hike in the wages,” said Praveen Nanavati, former president, SDA. Dinesh Navadia, vice-president, SDA said “There are some unscrupulous elements in the industry behind the labour unrest. But the industry leaders are making all possible efforts to convince each and every manufacturer in the industry to comply with the 20 per cent hike in the wages.”

Small is big: SMEs on overseas drive

Move over Tatas and Birlas. A new wave of small and midsized ‘indian manufacturer’ is creating ripples on the global M&A stage. Even as inorganic growth opportunities within India become scarce, the economic downturn of Europe and North America has thrown up attractive opportunities for acquisitions. An increasing number of Indian companies is making bids — at times audacious — to gobble up overseas firms. So even though it’s the big ticket acquisitions that capture our imagination, the small and medium companies are increasingly riding the M&A wave abroad. As a result, the trend has brought into spotlight budding multinationals from India. “We are definitely witnessing an increase in outbound transactions by Indian companies over the last couple of months. These companies are from newer segments such as industrial products, chemicals, and even some consumer products brands that are growing steadily within India,” says Ajay Arora, partner, transactions advisory services, Ernst & Young. Companies are increasingly expanding their markets beyond the Indian borders - either to access new cuttingedge technologies or in search of natural resources. Since January 2010, there have been around 35 overseas deals struck by Indian companies. The figure is comparatively large as against the over 40 deals sealed in entire 2009. Apart from larger deals, such as Bharti Airtel’s acquisition of Zain Africa ($10.7 billion), Hindustan Zinc’s acquisition of Anglo-American Zinc ($1.3 billion) in Namibia and Jindal Steel & Power’s acquisition of Shadeed Iron & Steel in Oman ($464 million), the landscape is dotted with many small to mid-sized deals like Banco Products’ acquisition of Nederlandse Radiateuren Fabriek of Netherlands ($24 million), Inox India’s majority stake buy in Cryogenic Vessel Alternatives (CVA) of US ($140 million), Crompton Greaves’ acquisition of Power Technology Solutions in the UK ($45 million), Hindustan Construction Company’s acquisition of a 66% stake in Karl Steiner AG ($33 million), among a host of others. There are many opportunities for Indian companies to globalise across sectors, including the mid-IT space. Africa has witnessed many deals in the consumer products and telecom space. Distressed assets in Europe are now also prime targets for acquisitions. “Six months ago, such an endeavour was not possible for Indian companies due to financing constraints. Today, balance sheets are much stronger and companies are on a better footing to acquire companies overseas,” says Sanjeev Krishan, executive director/partner, transactions group, PricewaterhouseCooper (PwC). Clearly, high interest burden and liquidity crunch are no longer the stumbling blocks in India Inc’s endeavour to make overseas acquisitions. “In 2007, total offshore investment by Indian corporates was to the tune of approximately $32.9 billion. It is fair to say that the transformation of Indian SMEs into Indian MNCs is well underway,” says Bharat Anand, partner, Khaitan & Co, the New Delhi-based firm which helped Suzlon in its acquisition of Hansen Transmission and Inox’s purchase of CVA. indian suppliers With CVA being the world’s largest manufacturer of cryogenic transportation equipment, Inox India has secured its position as a global player in the short span, offering total solutions in cryogenic storage, transportation and distribution engineering across nearly 100 countries with exports accounting for almost 60% of its turnover. There are some companies which belong to larger groups and, by virtue of that, have a global presence. Some of the lesser known or smaller Tata companies too have hit the M&A trail. For instance, TRF, in April, acquired UK’s Hewitt Robins International. Says Rajesh R Jumani, chief marketing officer, Tata Interactive Systems, “In an increasingly flat world, it is often more advantageous to collaborate rather than compete. We can synergise our mutual strengths, reach out to untapped markets or strengthen our positions in a geography, and meet local needs more effectively.” A few years ago, Tata Interactive Systems, a pioneer in e-learning, acquired Tertia Edusoft’s Germany and Switzerland business. The acquisitions have acted as a force-multiplier for the company, helping it ramp up the scale of its operations in Europe. “On the other hand, it has also helped us take formerly localised products to a wider, global audience. So it’s mutually beneficial. After all, ultimately all initiatives need to make business sense,” says Jumani. There is no doubt that the Tatas’ acquisitions of Corus and Jaguar Land Rover, followed by Reliance’s audacious bid for Lyondell Basell and Bharti’s Zain buy, have made small and mid-size Indian companies (SMEs) to venture offshore. Godrej Consumer Products, part of the Godrej group, has made four outbound deals so far this year. The company has said it continues to look out for target companies in overseas markets. In the pharma space, Avantha Group acquired Pyramid Healthcare Solutions ($20 million) in the US and Aegis acquired Sallie Mae (customer service centre) in Texas. Cheap dollar, foreign loans make global buy attractive Avantha Group has an established presence in the IT & ITeS space in the US. This strategic acquisition further strengthens its global presence in the niche healthcare solutions sector. On the other hand, BK Birla group set foot in a new continent with Jay Shree Tea & Industries acquiring tea gardens in East Africa. According to Bala Balachandran, professor of accounting and information management, JL Kellogg, M&A activities will flourish for at least five more years where India will be a global player. “There will be more M&A activity and people will find the best fit strategically. Value migration will take over value proposition,” Balachandran says. The rationale An acquisition is an easy way for small and mid-sized Indian companies, particularly specialising in products like cryogenic vessels, graphite plates, gerkins, etc., to establish a foothold abroad, given that they would have to compete with other MNCs. In some cases, an acquisition ensures an offshore presence along with a competitive supply chain. Some like the Godrej group have gained leadership position in the hair colour space in 19 countries across the globe through the inorganic growth route. With deflated valuations of potential target companies, the global recession has thrown up enough opportunities for Indian companies to make outbound deals. “With the American economy gradually limping out of recession, several businesses set up some time ago are up for sale. Timingwise, this has helped Indian SMEs, which have benefitted from India’s liberalisation in the past 20 years, to acquire these businesses,” says Anand of Khaitan & Co. The appreciation of the rupee against the dollar, along with the availability of foreign currency-denominated loans has assisted these companies by making foreign acquisitions cheaper for Indian SMEs. Difficulties faced In the face of it, everything seems hunky dory at the pace indian manufacturers at which Indian companies are striking deals. However, the road may be riddled with challenges in matters related to corporate governance, competition law, legal risks and cultural fits. Indian SMEs may be accustomed to a cosy relationship between promoters and non-executive directors. But such issues are treated with much more seriousness in the West. “Indian companies will have to transform their thinking over such issues if they want to be regarded as blue chip investors from emerging markets,” says Anand. indian manufacturers Moreover, Indian companies are not accustomed to operating in an environment where there is a strong competition regulator. Indian companies are often prepared to take a high degree of legal risk since the judiciary takes a lot of time to address and resolve issues. However, in the West, the judiciary is much more efficient, and courts award actual costs as well as substantial damages on time. Anand feels managers of Indian companies will require training to deal with such issues. Another big challenge is HR. According to Ashutosh Maheshvari, CEO, Motilal Oswal Investment Advisors, “The biggest impediment remains to be able to adapt to the cultural business conditions to operate in the target company’s country.” “We have seen integration challenges where human resource policies or the processes or systems are different in the two countries and companies find it difficult to integrate them,” says Arora of Ernst & Young. indian manufacturers Certain legislations and regulations, especially on environment issues, are also much stricter in the western countries as are closure regulations. New companies heading out may also find it difficult to deal with these issues. The quicker they adapt, the better. Avantha Group has an established presence in the IT & ITeS space in the US. This strategic acquisition further strengthens its global presence in the niche healthcare solutions sector. On the other hand, BK Birla group set foot in a new continent with Jay Shree Tea & Industries acquiring tea gardens in East Africa. According to Bala Balachandran, professor of accounting and information management, JL Kellogg, M&A activities will flourish for at least five more years where India will be a global player. “There will be more M&A activity and people will find the best fit strategically. Value migration will take over value proposition,” Balachandran says.

telecommunication products

Aone hundred year survey on inflation published by The Economist two years ago contained one stunning fact. The only item of cost to have gone down in a hundred year time span was the cost of a transatlantic telephone call. The telecom sector, nonetheless, attracts the highest level of investment globally, despite the fact that telecommunication products pricing has fallen, thanks to technological innovation. The simple explanation for this apparent inconsistency is that the lowering of prices has spread telephony use by benefiting the customer and thus growing the industry. In this the telecom equipment regulator must work together with the consumer, for they are co-drivers of the industry, with the regulator controlling the wheel and the consumer the accelerator/brake pedals. Thus far the regulator has managed, hopefully, to remove vexatious issues by introducing a unified licensing regime. His next move, following similar progress in the US, would be to have number portability. This means that the consumer is able to retain his number even whilst switching carriers. At present he is loath to switch carriers, and suffers all the poor quality of service which all carriers invariably inflict, for fear of losing his number and having to inform all his contacts. The US Supreme Court has directed adoption of number portability and India should also follow. It is then that there would be true competition and it will be the consumer who will drive efficiency and grow the industry. Already, the falling rates for SMS, roaming and long distance charges are an indication that competition is working and driving the industry; the jigsaw would be complete with number portability. There are several technologies that are emerging, and which will once again throw challenges, for the technologies would cut across regulatory boundaries. The Techonology Quarterly review in The Economist (December 6) mentions ‘software designed radios’ which are radios that are reconfigurable using software. “A mobile phone based on smart radio technology might, for example, be able to switch between cellular standards used in different parts of the world,” says the report. One company has already demonstrated a chip, called the Sandblaster, capable of switching, through software, between CDMA and GSM, (and, in future, Wi-fi) and telephone instruments based on smart radio technology, would make this possible. The ensuing competition would be immensely beneficial to consumers, but would need number portability to make it effective. In macro economy news, the outlook remains positive. Forex reserves have hit $97.5 billion and would hit a century faster than most of the Indian batsmen. The CEO of Crisil expects several rating upgrades, and a doubling of debt issuances, to Rs 500 billion in the fiscal year to March 05. Interest rates, however, appear to have bottomed out, according to several CEOs. Foreign investment continues to pour in and drive the stock market, with the BSE Sensex gaining 184 points to end the week at 5,315. In corporate news of interest, Ranbaxy has announced a deal to acquire RPG Aventis, telecom products manufacturers. The company has a pipeline of 52 molecules which include 18 of the top 20 best selling molecules. The market continues to be in an up run and buying on dips, even small ones (buying fundamentally good shares in honestly managed companies at around 8 - 10 per cent below peak price is as good a strategy as any). The government has promised to drive economic reforms forward after recent electoral victories and if they live up to that promise (though that does not constitute a strong point for a politician) the market can only boom.