India’s renewed manufacturing policy focus and market entry channels for foreign MNCs – An interview with Mr.Alok Verma, Partner and Vice-President, Tecnova India Pvt. Ltd

India's manufacturing sector, which accounts for around 16 per cent of the country's gross domestic product (GDP), is a very vital component of the development model while ensuring sustainability of the entire economy as it facilitates adequate employment. India's share in the global manufacturing pie is around 1.8 per cent. The Global Manufacturing Competitiveness Index, 2013, based on a survey of CEOs, executives and other officials of 550 global manufacturing companies, has positioned India as second five years down the line, next only to China.

TECNOVA is a management consulting firm, specialized in designing 'India entry strategy' for international players and have worked with some of the leading brands from across the globe across 60 industries. In an exclusive interview with TradeBriefs, Mr.Alok Verma, Partner and Vice- President, Tecnova India Pvt. Ltd talks about market entry challenges from an Indian perspective and how foreign firms can take advantage of India's renewed manufacturing policy focus. Mr. Verma currently serves as a Partner, Tecnova India and is responsible for Industrial & Automotive verticals across US/ Europe/ Latam.

Manufacturing is seen as the old boy of the business world. How do you see this industry growing?

Manufacturing industry is critical to the overall Indian growth story given that India is moving from an agrarian economy to a more industrial society and thus the imperative is to keep this growing at a healthy growth rate. According to the Deloitte competitiveness survey, India's manufacturing jobs grew faster than other countries surveyed (China, US etc). Anecdotally, several of my clients and prospects are looking at India given that they have seen large inflation in wages out of their China ventures.

According to ILO projections, India which currently has 50% of its population less than 25 years of age will have the maximum working age population among all countries by 2020 and will account for 64% of the increase in G-20 working age population. To ensure that India reaps its demographic dividend India will need to make implement its national manufacturing policy which intends to move the share of manufacturing sector from the current 18% to 25% by 2022. Both numbers as well as quality of job creation is key as India will need to attract/ create 100 Million jobs over the next 10 years through better infra creation in terms of Power, Highways, Railways, Ports etc and also building National Investment and Manufacturing Zones. Recent policy push by Govt. in encouraging electronics industry is a step to avoid the scenario where Electronics import bill for India becomes roughly $300 Bn annual impact by 2020.

India which has come out with great policy frameworks has often lacked the implementation rigor which presents India's main challenge. India is experiencing some tailwinds like higher wages and a more expensive currency in China which will become important instruments in this transition for India.. There are some signs that the process has already begun, and India should take advantage of the opportunity to build domestic manufacturing capacity in key Industries.

Manpower is a major hurdle for most industries to expand. Is manufacturing still a preferred option in the minds of fresh graduates given that services sector is aggressive in luring professionals?

Service Sector cannot provide the opportunities for the diverse skills that are present in the Indian workforce. Majority of the Indian workforce have less than a high school education that makes them less acceptable to the services sector, which requires a higher level of education and skills than agriculture or repetitive labor intensive manufacturing. Though the skills gap affects both sectors, India needs to grow in both sectors to be able to gainfully employ its working age population (15-64 age group) which is 64% of its total population.

What, in your opinion are the major roadblocks for a foreign manufacturing entity to set up shop in India? Given our sloppy legal system, do you think foreign players have become vary of south Asia?

Major Roadblocks will be ensuring best in Class Physical infrastructure requirements for certain industries which have demanding needs of either uninterrupted power supply, flexible workforce, logistics, infrastructure etc. India is still perceived as a state where there is a better rule of law when it comes to IP protection but will need to move the needle by its stated new manufacturing policy envisioned for better infra as well as flexible labor laws. India's climbing ranking on Global Manufacturing Competitiveness Index from #4 in the world to #2 in the world is basis the expectation that India will deliver on its comprehensive national manufacturing strategy, democratic governance and infrastructure development over the next 5 years.

Can you tell us more about The Global Manufacturing Competitiveness Index, 2013 and how well India poised to take on the world in the manufacturing sector?

India's climbing ranking on Global Manufacturing Competitiveness Index from #4 in the world to #2 in the world is basis the CEO's expectation that India will deliver on its comprehensive national manufacturing strategy, democratic governance and infrastructure development over the next 5 years.

However, India will need to move its performance in both leading input indicators of competitiveness like labor productivity, R&D spend apart from just being the lowest in Labor costs. Also on the output indicators, India will need to have a greater part of the world manufacturing output (current share of 1.8% vs Chinas share of 20%), demonstrate Innovation etc. that will justify the expectation of Global CEO's for India's #2 ranking globally.

There are certain sectors like Pharmaceutical and Automotive that show this promise and ready to take on a bigger share of global manufacturing output in terms of both share as well as Innovation. Furthermore, Indian auto companies have got the distinction of winning the highest no of Deming awards outside of Japan- testament of India's strength in high end mfg./ processes.

Apart from outsourcing, Infra and retail, what would be the next big wave in foreign investment in India? Which part of the world would be the next big investor in India?

Next big wave of foreign investment could come from the current Emerging economies/ leaders of tomorrow like China, Korea etc. and not from our usual FDI sources like US, Europe etc. and thus makes credible efforts on our "Look East Policy".

How challenging is it to work in a country like India with its lax policy making?. Does that deter your clients motive to invest in India?. How do you tackle such challenges?

India has no dearth of positives, which are low labor costs, talented workforce, large pool of engineering/professional talent, democratic governance and rule of law. I am surprised that India as a brand has not been able to translate this into a bigger advantage in terms of attracting investment into India. My clients and prospects echo this sentiment and are very keen to invest in India for a variety of reasons like IP protection, having a robust manufacturing base, counter to China's escalating cost spiral, R&D/ Technology center etc.

Growth of certain industry clusters in different states is helping implement forward looking policies in states like Gujarat, MP, Maharashtra, Bihar etc. Development is increasingly becoming the political mantra of being voted back to power at a state level which bodes well for India although this sentiment needs to be echoed at a national level as well which will become a game changer for India. Implementing the vision on new manufacturing policy, electronics policy will be key to attracting a greater share of FDI as well as domestic investment into manufacturing.

 

Can you enlighten us on perceived threats from China to our manufacturing sector? Do you see china as an ally in the long run? How best can both nations work together for mutual benefit?

India's challenge is more in low-end manufacturing and it has had an edge in high-end manufacturing traditionally. This might change given global dynamics: China for example might cede low margin manufacturing as it is becoming less competitive which might impact areas like garments, toys, pharmaceutical etc.

There are more opportunities that India experiences:

  1. India can take on greater load of worlds manufacturing output and benefit from China ceding ground given inflationary pressures
  2. Robust economy growing at upwards of 6% CAGR and trending towards the 8% equilibrium
  3. Demographic Advantage: Large Engineering/ Professional pool English speaking business population
  4. R&D/ Innovation: Several global players are leveraging India for its talent pool needed to drive innovation in organizations.

You can check out Tecnova website here - http://www.tecnovaglobal.com/