What is the significance behind following recent
announcements ?
# Indian company
, Apollo Tyres will invest 475 million Euros , to set up a
tyres
manufacturing plant in Hungary ?
# Chinese
company , Foxconn will invest $ 20 billion , to set up 10-12
factories in
India , in next 5 years ?
My guess :
# For manufacture of tyres , Apollo finds that
labour-costs in Hungary are
lower than the
same in India .
Also , that
it has a huge export-market for its tyres in Europe , so it
makes sense to
set up a plant nearby in order to reduce transport costs
# Same reasons
for Foxconn , for its electronic products , sold world-wide
Conclusion :
# Each country
enjoys certain " Competitive Advantage " ( over other
countries )
, at a given point of time , for a given product or service
In present cases , that could be , "
Labour Costs "
But " Competitive Advantages " are
transient ! Never permanent !
And these may not be the same for ALL products or
services , at ALL times !
Eg:
For a highly automated product like a " Integrated
Computer Chip " , labour costs are an insignificant percentage of total
manufacturing costs , whereas Capital Costs ( plant / machinery ) are a major
element
For this reason , for manufacture of such chips ,
countries having low labour costs , cannot claim that as an advantage
Again , capital intensive manufacturing needs huge
amount of finance, where India is at a " disadvantage " , vis-a-vis
developed countries , due to its very high rate of interest on borrowing
So , each country , has to remain on constant look-out
for its own competitive advantages , at each point of time (- and before it ceases
to be an advantage )
In case of Foxconn , its Chairman Gou , even went to
the extent of saying :
" In our Maharashtra-based factory , we will
employ labour-intensive manufacturing processes "
What he meant ( but did not say ) :
" Only till such time , Indian labour-costs rise
and catch up with the labour costs in our Chinese factories - where , we have
started installing robots "
That reminds me of the incidence ( reported in book
" Steve Jobs " ) where President Obama , asked Steve Jobs to stop
outsourcing Apple products to Foxconn and move their manufacture to USA , in
order to create jobs in USA
Steve's answer ( - since , he never minced his words !
) :
Over my dead body !
[ And Obama dare not ask this question to current Apple
CEO , Tim Cook , who continues with the same " Competing Policy " for
last 4 years ! ]
Obviously , Steve had no love lost for jobs of his
fellow citizens !
It is no different with Foxconn Chairman Gou , whose
only concern is to keep Foxconn , globally competitive , no matter , where it
manufactures its products - any exhortation from President Jin Ping ,
notwithstanding !
And , I get a feeling , that if PM Narendra Modiji ,
were to try and persuade Apollo Chairman , Shri Kanwar , not to put up that plant
in Hungary but set it up in India to create jobs in India , he might get a
somewhat similar - but of course , a vastly polite - answer !
Within past 12 months , India's trade imbalance with
China has gone up from $ 36 billion to approx $ 48 billion
With yesterday's devaluation of Chinese Currency by 2 %
, this may get worse
Of course , this devaluation , will not lower the labour
costs in China , which will still keep rising
So , devaluation can only be a " Transient
Competitive Advantage " for the Chinese Manufacturers !
On the other hand , of the final cost of a "
Manufactured Product " :
> labour costs = 10 % -
20%
> material
costs ( including bought-out components ) = 50% - 60%
> overhead
costs ( selling / admin / advt / interest etc ) = 20 % - 40 %
So , how much of " Final Cost " can be
reduced by a 10 % increase in :
> Labour
Productivity ( thru mechanization /
automation ? )
> Materials
Productivity ( thru Vendor Development for better quality ? )
> Overhead
Productivity ( thru Computerization of Manual Systems ? )
It would seem to me that , as far as increasing our
"Competitive Advantage " in Manufactured Products is concerned , the
same lies in increasing our " Materials Productivity "
Our top most priority should be upgrade the
capabilities of our 40-50 Million MSME ,from whom the organized large companies
, purchase components / sub-assemblies
Large companies should focus on R&D / Design /
Buying / Final Assembly and Quality Control , leaving manufacture of components
/ sub-assembly to MSME units
Only this can help us to continuously increase our
Competitive Advantage , even as labour costs keep rising in the large exporting
companies
----------------------------------------------------------------------------------
hemen parekh
12 August 2015
B2BmessageBlaster
-----------------------------------------------------------------------------------
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