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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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
B2BmessageBlaster
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