Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do. There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

Now as I approach my 90th birthday ( 27 June 2023 ) , I invite you to visit my Digital Avatar ( www.hemenparekh.ai ) – and continue chatting with me , even when I am no more here physically

Wednesday 12 August 2015

COMPETITIVE ADVANTAGE


Dear Amitabh ,


Of course , even as , devaluation of Chinese Currency by 2 % would be a cause for worry to all of us , we must not lose our focus on :

How to increase our Competitive Advantage in Manufacturing ? "

My today's blog is debating this issue

regards,

hemen

0 - 98,67,55,08,08

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COMPETITIVE   ADVANTAGES   ARE   TRANSIENT 



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

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