MANUFACTURING - THE THREAT FROM CHINA

The onslaught of cheap Chinese goods is sounding the death knell for Indian manufacturers, as they can hardly compete on the economies of scale managed by the Chinese. At the All India Management Association's 28th National Management Convention, Sudarshan Sampathkumar, Partner, Accenture, spoke about the china factor, specially with reference to the manufacturing sector.

According to the Accenture study, China has evolved in a unique way. The Chinese Government is committed to reforms and they have been able to multiply their GDP by four times in the past decade. They have concentrated on low- tech labour-intensive products. They encourage export promotion by offering 33 per cent subsidies for export production. Power and labour costs are very cheap. Labourers are highly regimented. Production costs are reduced through economies of scale.

This seemed to be the vital question that kept popping up every now and then. Globalisation is here to stay, Indian manufacturing cannot wish it away. The major constraint seems to be the high cost of finance. The complex sales and excise tax structure, poor infrastructure and lack of economies of scale are certain things that the Indian entrepreneur finds very tiresome, when it comes to conducting business in India.

Many Indian entrepreneurs have in recent times admitted the temptation to set up shop in China than get wiped out. Some have actually gone ahead and done it. What are the reasons for that. Starting from the huge amount of investment required to set up a factory to availability of raw materials, spare parts and components, from poor inventory management to bad supply schedules, from complicated bureaucratic procedures, from horrendous tax structures to high tariffs of electricity, from a bad work culture to low productivity, Indian manufacturing seems to have got everything wrong.

On the other hand, it requires very less investment to set up a manufacturing unit in China. Raw materials, spare parts and components are readily and cheaply available, as they have set up numerous small outfits that manufacture these products, which are typically labour intensive and require low level skills. Production cost is low as the level of managerial staff is also kept low. Each entrepreneur is required to concentrate only on his plant and his products. The Chinese do not get into complicated things like unviable forward and backward integration, which unless you are a company like Reliance or Tata, still looks good only in management books.

Most companies in China have zero inventory, this is because of their disciplined supply schedules. In India, factory owners need to stock three months' material, thereby increasing their investment and adding to the cost. In China, suppliers rarely fail manufacturers. Indian manufacturers often cite tedious customs, excise and sales tax procedures as reasons for piling up stock. Productivity is another factor that we have to take a close look at. Indians have the dubious distinction of being the least productive in the world. "We rank only next to the Arabs, when it comes to productivity", quipped one CEO of a pump manufacturing company.

There are a number of lessons that can be learnt from the Chinese economy. Firstly Indian manufacturing has to recognise export orientation as an imperative. Looking inwards cannot achieve growth. The products need not be really hi-tech, India has to look at developing its village hand enterprise and other arts and crafts. To contain the Chinese factor, there is a need to improve our labour laws. We need to cut down further on bureaucracy. Improve the tax structure and power supply.

There is an urgent need for permanent cures. We have to set an agenda for reforms. Merely setting up agendas will not suffice, we have to seriously enforce these agendas.

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