The Hindu Business Line : Re-designing India's manufacturing

As consumers across product segments favour more variety — just look at the profusion of mobile phone models — India's manufacturing sector will have to make a paradigm shift in its approach. Exploiting its large pool of IT resources, producers must become more flexible, capable of smaller, cost-effective production runs, says V. Sumantran.

CHINA'S ADVANCE in manufacturing has been the subject of much analysis. The magnitude of its industries is matched by the potential size of its domestic market, and the country's aspirations for global market share. This has led China down the path of large scale. It has effectively acquired a combination of the American manufacturing scale and the Japanese penchant for highly ordered, repetitive applications of processes.

The predictable, yet necessary, comparison with China shows that while manufacturing accounts for 35 per cent of that country's GDP, it is only 16 per cent in the case of India. Since over 70 per cent of the international trade relates to manufactured products, it is no surprise that China's share of global exports is over six times India's.

Even as India's economy grows, we must anticipate that only a smaller population fraction can, and needs to, be engaged in agriculture (as farm productivity must improve) and hence it must create jobs elsewhere for those displaced as a consequence. So, while we celebrate and build on our success in the service sector, growth in manufacturing (and perhaps pharmaceuticals) must kick in to contribute more vigorously towards job creation and economic development.

The challenge may indeed appear quite daunting. The much acclaimed advantage in labour costs, which has seen India make impressive strides in IT and IT-enabled services, simply does not exist when it comes to competing with China in the manufacturing sector. The National Manufacturing Competitiveness Council, under the chairmanship of Dr V. Krishnamurthy, has committed itself to the task of improving overall the country's competitiveness and the draft report highlights several areas of infrastructure, policy and human development that the country would need to address quickly. As these get worked upon, it is useful to peer ahead and visualise the markets of the future and study how this might afford India additional opportunity to leapfrog to competitiveness. A new course suggests itself for India from a paradigm shift in customer behaviour and producers' response to this emerging trend.

It is clear that consumers across product segments will favour more variety. One needs to only look at the profusion of new mobile telephone models to realise this. New product categories get created with rapidity as hybrid products (camera in a phone, for example) chase consumer segments that fragment more frequently.

Furthermore, both as a consequence of accelerated obsolescence and regulations (aimed at addressing societal concerns on safety and environmental responsibility) that evolve faster, products remain relevant for shorter periods. The charmed 50-year life of India's trusted Ambassador is a thing of the past. Car models that used to be planned for six-eight-year lifespan are now planned for four-five years of market life chasing evolving consumer preferences. Taken together, this implies smaller product runs.

In the 1970s, the best selling Oldsmobile Cutlass from GM was sold at annual volumes in excess of 600,000 units over a seven-year period. Today's best selling sedans are planned for volumes of 250,000-300,000 and seldom last longer than five years. Production runs have almost halved in this period. During the same period, GM's range of distinct models on offer has more than doubled. At the same time, the opening of markets, the presence of more competition and the greater transparency in all transactions (just think of the Internet and product pricing) will give industries little opportunity to pad the pricing for such novelty.

Industries will need to direct themselves to this future. And this future will demand that organisations, and their processes become nimbler, flexible and yet more cost efficient. This will be an age of more customisation and personalisation to woo the increasingly discriminating customer who has even more choice.

By implication, this future will see less emphasis on large, automated, standardised production runs.

Indeed, the emphasis will have to shift to products that are re-configurable, manifest themselves differently to different consumers and will be replaced more quickly. The corresponding manufacturing system will need to be equally agile to accommodate a larger variety of products, and will see more re-tooling and change through its life than ever before.

All this points to a far larger quantum of re-design, re-work and re-configuration over what would have been, previously, a single product cycle. This future will, therefore, require a far greater quantum of human intervention compared to the high volume manufacturing factories of the past.

Further, every activity implied in this change will increasingly employ IT-enabled operations to facilitate this flexibility. Every `hard-wired' asset will be seen, increasingly, as a liability. On the factory floor, special purpose machines (SPMs) configured for specific, dedicated tasks are giving way to, sometimes, more expensive programmable flexible machining centres which demonstrate lower cost over multiple product cycles. Looking further ahead, a range of new advanced manufacturing technologies can support revolutionary changes in manufacturing philosophy.

Given the relative states of India's and China's economic development, the size of the domestic market and the manufacturing investment, India would do well to address its manufacturing to be more flexible, capable of smaller cost-effective production runs and exploit its large pool of IT resources in doing so. And with this, we may finally find the advantage to make up for some of China's lead in manufacturing.

Look at it this way. In many service sectors (hotels, airlines), Indian companies have garnered plaudits, in face of global competition, for excellence in customised and personalised service. This is possible partly because more people resources may be harnessed economically to offer such customised care. The markets of the future will reward this ability to affordably amplify customisation. India's manufacturing roadmap would do well to chart such a course.

India's emerging role in the comity of nations is cause for pride. The last decade of sustained economic development, the rise in foreign investments, the global recognition of a growing middle-class and an attendant market, and stirrings of political clout, whether in the World Trade Organisation or indeed even at the UN are all manifestations of a nation that is beginning to demonstrate some of the potential its well wishers have always believed it possessed. Yet, in too many quarters, these signals are not being perceived as merely the beginning of a new chapter, but rather as signs of having arrived. The reality is that our work has just begun. It cannot be deemed as complete unless we are able to demonstrate cost and product leadership in manufacturing as well.

(The author was Executive Director at Tata Motors and before that a Director at General Motors Corp.)