Indian manufacturing firms must invest in product & process R&D

Jishnu Hazra, Professor IIM Bangalore, feels that Indian companies must take inspiration from the rise of South Korean and Chinese companies in the mobile handset space on their quest to be globally competitive in manufacturing. It is important to move from the traditional mindsets of buying and selling to creating product and process technologies.

IBT: How is the global manufacturing ecosystem distributed in the present day, and how do you view the potential for developing countries?   

Prof. Jishnu Hazra: There are two aspects to manufacturing: component fabrication and final product assembly. While component assembly, for example, in electronics industry, are concentrated in few advanced countries and East Asia, assembly is more spread out across the globe. The investment required in fabrication is quite high and the process technology used is also quite advanced.

For example, India is the second largest mobile phone assembler; we now need to attract the component manufacturing companies to India. This will also lead to diffusion of knowledge of process technology and will have positive spillover effects across multiple industries. Degree of automation is much higher in component manufacturing.

However, assembly also plays an important role in the manufacturing ecosystem as they provide employment to large segment of non-college graduates.

IBT: How has the competitive landscape between countries transformed in your view, especially considering the rise in prominence of new destinations like Vietnam and Philippines? What factors have driven the choice of destination for investing companies?

Prof. Jishnu Hazra: The basics of business have not changed and countries across the globe. Governments are providing several incentives, especially in South East Asian nations. These include land, water, cheap energy, logistical infrastructure and consistent policies. These are known to everyone and there is nothing new about it. However, what is important to note is that the moment a few companies from specific industries move into a country, there is a domino effect.

More and more companies will join the bandwagon to set up manufacturing plants in the country. There is another positive outcome: productivity of workers will also start going up which in turn will attract more companies. This is a virtuous cycle. That is what has happened in places such Thailand and Vietnam. India, however, has an added advantage: a large consumer market. The size of market is another factor that can attract manufacturing investments.

IBT: What are the major positives for India over this decade in terms of evolving as a global manufacturing hub? What are the key areas for improvement?

Prof. Jishnu Hazra: For me, a big positive has been the fact that India has come from behind and became a major assembler of mobile phones globally and we have also attracted the two premium players in this industry: Samsung and Apple (actually Apple’s vendors). When companies in other industries observe these global giants bringing assembly to India, they tend to follow. I hope this will be a positive impetus to other industries as well.

IBT: In what ways has COVID-19 disrupted the manufacturing landscape globally? How are companies responding, and what impact is this expected to have in the near term?

Prof. Jishnu Hazra: COVID-19 is likely to change the global manufacturing supply chain. From a highly scale intensive cost-efficient manufacturing, we may move to more redundant manufacturing networks. By this, we will have higher capacity cushions, which are globally spread out. Governments will compel manufacturers to set plants in their countries. Atmanirbhar Bharat will not be unique to India. Countries/blocs such US and European Union are already questioning their dependencies within the pharma supply chain, which is primarily based in China (API) and India (formulation).

IBT: How are the dynamics of global manufacturing expected to change in the coming decade, especially with the rise of Industry 4.0, automation, technologies like AI, IoT, etc and the disruptive impact of COVID-19?

Prof. Jishnu Hazra: Government and industry bodies should incentivize companies to adopt digital technologies. Adoption of such technologies will also create Indian start-ups, which can lead to the transformation of traditional manufacturing companies to a digital enterprise. As mentioned earlier, productivity of Indian workers is critical to attract manufacturing investments. I believe this is one of the factors that can impact our competitiveness.

IBT: How is this shift expected to pan out for SME firms in particular, and how would they need to adapt?

Prof. Jishnu Hazra: SMEs must adopt new process technologies. Most SMEs are Tier 3, Tier 4 companies in the supply chain. It is imperative for Tiers 1 and 2 to help in the transformation of the SMEs. At the same time, SMEs must not be reluctant in investing in process technologies and adoption of digital manufacturing tools.

For example, 3D printing is no longer simply used for very low volume manufacturing such as for prototypes. Instead, many mid-volumes outputs are now churned out through 3D printing. With multiple software hubs in the country, such as Bangalore, Hyderabad, Pune, etc, the synergy between SMES in the digital manufacturing space and Indian software companies can create new business models.

IBT: How well placed is India for this shift? What major steps are needed to capture a greater share in global manufacturing (production and trade) in the post-COVID era?

Prof. Jishnu Hazra: I will only say one thing on this issue. It is time for Indian companies to invest in both product and process R&D. Today, four out of the top 5 companies in the mobile space are Chinese. What happened to the Indian companies? We must move away from the mentality of simply buying and selling to creating process and product technologies.

Just check where Samsung was in 2007 when the first Apple iPhone came out and where Samsung is today. Many Chinese companies have undergone the same evolution as Samsung. Over the next two decades how can we create a global dependency on Indian companies in a few select industries? This is the question we need to ask.

Jishnu Hazra is a Professor in Production & Operations Management at the Indian Institute of Management Bangalore. He received his B. Tech in Mechanical Engineering from IIT Delhi and MTech in Industrial Engineering & Operations Research from IIT Bombay and a Ph.D. in Operations Management from the University of Rochester, USA.

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