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Wednesday, September 24, 2003

India's Manufacturing Sector on the Move?

Rajesh Jain has picked up an interesting piece from the WSJ on Indian car manufacturing. The article is optimistic, and I would like to believe the optimism is justified, but progress in manufacturing is likely to be, as we have already seen, slower than in areas like IT services. Still, the Bharat Forge project appears to be working.

Can India become a hot spot for auto-parts manufacturing? Until recently that idea seemed far-fetched. After all, the country isn't known for either world-class manufacturing know-how or cost competitiveness. But one company, Bharat Forge Ltd., is starting to change that. The auto-parts maker is jump-starting its operations -- and the country's auto-parts industry -- with a novel approach for India: applying the brainpower and skill of the country's more than two million engineers to the manufacturing sector.

By improving the quality of its parts through better design while restructuring its finances to keep labor costs in check, Bharat Forge is able to go after global customers who would not have taken it seriously just a few years ago. It's fast becoming a supplier to auto makers like Ford Motor Co., General Motors Corp. and Toyota Motor Corp., which have to cut their own expenses amid an increasingly competitive market by obtaining cheaper parts abroad.' Bharat Forge "stands out as an example of restructuring," says Ashish Gupta, an analyst with CLSA Asia-Pacific Markets in Bombay. "They are simultaneously improving the range and the quality of their products and cutting costs to improve the economics of their business." With a focus back on auto parts, Bharat Forge has set out to modernize the way it does business, which has, in turn, allowed it to venture into markets abroad. Key to this approach has been making better use of India's abundance of skilled but low-cost engineers to improve products. "It was all based on leveraging the high-quality human capital that is India's main competitive advantage," says Mr. Kalyani. Bharat Forge has merged "blue-collar workers and our white-collar workers and [has] everyone working on the floor of the plant," says Mr. Kalyani. "We also put more high-quality [workers] on the shop floor." Having designers and production people work together has allowed the company to improve both the speed and the quality of production, he adds.

Meantime sales of PC's in India are on the rise, a 26% increase year on year:

On the back of buoyant consumption by industry verticals and corporates, personal computer sales during the first quarter ended June 30, 2003 crossed 640,000 units, a growth of 26 per cent over the year-ago period, according to the Manufacturing Association of Information Technology. The improved business sentiment in the market has also led to the upward revision of the hardware association's first-half sales projections to over 14.2 lakh (1.42 million) units from 12.1 lakh (1.21 million) units estimated earlier. However, the share of assembled PCs comprising the lesser-known regional brands and unbranded systems rose to 65 per cent of the PC sales during the April-June quarter, with the MNC brands accounting for 19 per cent, while the Indian brands cornered the remaining 16 per cent.

According to MAIT's quarterly review, the buoyant IT consumption witnessed in 2002-03 continued undiminished in the first quarter of this year as the PC sales crossed 640,000 units."With robust growth prospects, the IT market is expected to grow at 18 per cent in 2003-04 over the previous year to cross 27 lakh (2.7 million) units," it said. MAIT attributed the strong growth of PC sales in Q1 to increased IT consumption by industry verticals and corporate sectors like telecom, banking and financial services, manufacturing and IT enabled services.

During the quarter, Notebooks and Laptops posted 8 per cent growth over the corresponding quarter as sales touched 14,784 units, MAIT said, adding servers registered 25 per cent increase year on year at 28,046 units. Smaller towns accounted for 37 per cent of the total PC sales, while the top four cities accounted for 46 per cent of the total sales.Commenting on the performance, Vinnie Mehta, executive director, MAIT, said, "The growing proportion of assembled and unorganised PC market is of immense concern to us and to ensure that IT reaches the grass root levels in India, there is a pressing need to bring down the prices of IT products."
Source: Rediff.com

This last point is one which I am sure Rajesh, with his 50 dollar thin client terminal idea, would strongly endorse. In fact just today he has posted on ICT3 Quarterly's 'wheel of increasing Indian IT penetration'. According to roundtable participant DB Phatak:

Here is a 'teacher's dream' - that the next 500 million users hopefully in next five years are to come from these (the developing) countries. The Indian population figure suggests that we should have a share of at least 100 million users, which means that penetration should be 20 million desktops per year over the next five years. Last two years published figures by various agencies including Skoch, suggests that we are in the ballpark of 2 million desktops per year being sold. So clearly, we need a big drive...In my opinion drivers could be of two types, one is a price driver, so if somehow industry can come together, solution developers, system integrators and make the total cost of ownership of any acceptable solution to one-fourth of what it is today, then I get 4 x advantages. Simultaneously, if the end-user - government, industry, banks, financial sector, educations institutions - quadruples their investment in IT, remember, in developed world the level of IT investment is 3.5% of their overall budgets is on IT. In India the percentage is very small. So four times is an essential investment, if you do that you get a 16x advantage, what we desire is a 10x advantage.

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