China has been the world’s production hub for several years now with a robust manufacturing and supply chain network built over three decades. While tax incentives, land, and ease of doing business are critical elements to bring foreign companies to establish manufacturing units in India, we also need to bolster our manufacturing capability to world-class standards.
According to a recent SBI Ecowrap report, India has a very small production base as compared to China and the manufacturing sector needs a major push to be able to offer competitive services to global companies.
The report also says that India can target export growth anywhere between $20 billion to $193 billion over the next five years, depending upon its capacity to successfully build its manufacturing capability in terms of both quality and quantity.
As we know, MSMEs in our country hold a 48 percent share in India’s exports. This sector will be central to our efforts to cash in on this drift.
While the government needs to work towards improving infrastructure, ease of doing business, logistics, regulatory frameworks and strategic relations, the MSME sector itself must work with an aggressive mindset towards this target.
An opportunity to reinvent
The MSME sector in India has faced huge losses over the past two months. However, entrepreneurs need to reinvent their businesses to stay viable in a post-COVID-19 world without wasting time.
The MSME businesses and entrepreneurs must use the COVID-19 crisis as an opportunity to reinvent their processes, business models, and outlook to stay attractive to global manufacturing.
Businesses that are operating effectively with requisite social distancing and contact-free processes will be the ones that will attract the foreign manufacturing business.
Indian entrepreneurs must also adopt a global outlook, study in-depth the best business practices across the world, and learn from what the Chinese did right over the last three decades. They need to develop processes that are globally competitive.
The UN Statistics Division predicts that China accounted for 28 percent of global manufacturing output in 2018. It is by no means an easy task to replace China as a chosen manufacturing centre. Apart from India, global manufacturers looking to shift base from China are looking at Bangladesh, Vietnam, Taiwan, and South Korea as possible alternative manufacturing centres.
While Vietnam and Bangladesh offer low-cost efficient manufacturing in low-skill, low-tech segments such as textiles, clothing, and electronics, countries like South Korea and Taiwan figure as favourable centres for the high technology spectrum of manufacturing.
MSMEs from India need to accelerate the adoption of technology and the expertise to manufacture high-end technological products in India. This requires work on multiple fronts including studying global manufacturing models, particularly in countries at the higher end of the technology spectrum.
The government must actively work to help the sector in this process by using its strategic relations to establish joint ventures with foreign companies. Innovation and skill upgradation are other areas that need to be focussed on.
Technology adoption is not only critical to bringing in high-end product manufacturing to India but is also useful in improving process capabilities and a higher degree of regularity of products and services.
Technology helps MSMEs to be competitive, more productive and efficient in a global environment. Centering on research and innovation is another crucial component of achieving technological upgradation.
Moving up the value chain
As a country that wishes to become a manufacturing hub, India must work to support its capabilities in all kinds of production ends. This includes low-end manufacturing such as textiles, clothing, footwear, animal and food products as well as high-end manufacturing such as electronic equipment, pharmaceuticals, and chemical products.
Promoting innovation is crucial to achieve skill upgradation and developing indigenous technological know-how. Moving up the value chain of production is very important for India if it wants to present itself as the next manufacturing centre.
Given the fact that India churns out a large number of engineers and technology graduates every year, we already have a pool of skill and talent. Yet, there is lack of a high-end manufacturing ecosystem in the country. We need to change this by developing a set-up that can cater to the entire lifecycle of products from inception to development to manufacturing.
MSMEs must work towards increasing their Gross Value Added in manufacturing. A capability to produce value addition in products is crucial for creating an attractive manufacturing base.