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Creating a Globally Competitive Manufacturing Hub


2005 Summit on Indian Manufacturing Competitiveness: Setting the Agenda for Growth August 18 & 19, 2005 Creating a Globally Competitive Manufacturing Hub – PowerPoint PPT presentation

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Title: Creating a Globally Competitive Manufacturing Hub

Creating a Globally Competitive Manufacturing Hub
2005 Summit on Indian Manufacturing
Competitiveness Setting the Agenda for
Growth August 18 19, 2005
  • N. Viswanadham
  • Executive Director,
  • Global Logistics Manufacturing Strategies
  • August 19 2005

  • Lot of debate about competitiveness of Indian
  • Services Vs Manufacturing
  • Competitiveness at various levels at the
    individual corporate firms' level, at the
    industry level and at the national level
  • The nations economic and import and export
    policies such as tariffs, customs regulations,
    free trade agreements and the logistics
    infrastructure highly influence the growth of the
    firm and the industry vertical.
  • Competitiveness of an industry or a nation would
    be partly explained by the initiatives and
    innovations of individual firms
  • Competitiveness of industries
  • Export competitiveness
  • Domestic competitiveness.

Firm Industry and Environment
Supply Chain Network
Industry Verticals
Industry Verticals
Global Value Chains offer new opportunities ...
  • Global Telecomm Logistics networks along with
    WTO facilitate Global Value Chains
  • Global Value Chains offer unprecedented economic
    opportunities to developing countries

Our Aim here
  • Identify Manufacturing sectors for domestic and
    export for Competitiveness and Employment
  • Agriculture and Food processing
  • Organized Retail
  • Manufacturing related services
  • Suggestions to enhance the logistics
    infrastructure through innovative use of IT
  • Automating the customs and trade documentation
  • Use of Knowledge based service providers
  • Top it up with smart economic policies
  • The number of free trade agreements has grown in
    recent years and by 2001 there were 170 regional
    trade agreements accounting for 40 of global
    trade (WTO).

  • Benchmarking current state of Indian
  • Why is manufacruting competitiveness important ?
  • Global logistics
  • Where can Indian Manufacturing go from here ?
  • Defining a strategy for enhancing manufacturing
  • Conclusions

Benchmarking the Current State of Indian
India - Economic Sectors Snapshot
  • GDP US 692 billion PPP 3.1 Trillion
  • 10th largest economy and 4th in PPP terms
  • Logistics costs are 10-20 of GDP
  • In US it has come down from 15 - 9.8
  • Very high in developing countries (20 in China)

Indias share of industry is low ...
Growth Mandate
  • It is essential for India to increase its
    proportion of Global GDP through growth in all
    the three sectors of the economy
  • Planned or Wild, growth is essential and
    important. This could be through attracting MNCs
    to India or through Indian companies becoming
    MNCs and raising funds through NASDAQ or large
    number of small companies raising capital from
    international venture sources

Why does Indian Mfg Competitiveness matter ??
  • 75 of India s working population (600m) has
    education middle school or below
  • Only Labor intensive manufacturing and Organized
    Retailing can generate employment in adequate
  • Experience of Europe, America, Japan, the Tiger
    economies, and now China shows that Wealth
    creation is possible only through International
    trade oriented manufacturing
  • In China manufacturing sector, constitutes nearly
    40 of the GDP and Retailing is growing at 30
    per year.

Indian manufacturing not supporting economic
development ...
Mckinsey Study
Mfg competitiveness is partly hampered by
inefficient logistics...
Rated 54th among the 59 countries Road 56/59,
Rail 25/59, Seaport 51/59, Airport 40/59
Resulting in increased costs and reduced
competitiveness ...
  • Potential Savings with Improved Logistics 10
    of GDP
  • This requires growth of 3PLs and 4PLs and use of

Where can Indian Manufacturing go from here ??
Manufacturing Strategy
  • Mass produce locally Food, Textile, Auto,
    Pharma, etc
  • Mass customize for export Pharma, Food, Textiles
  • Unleash the potential in
  • Retail
  • After sales service domestic as well as Global
  • Contract manufacturing

India should concentrate on its inherent
strengths while developing select sectors...
Serve Global Markets
Invest/Prepare for Global Competition
India Sectoral Competitiveness
Industrial Mfg
Invest for Domestic Market
Serve Domestic Market
Inter-national sectoral competition for FDI
Note Size of bubble denotes employment creation
State of Indian Food Sector
Strengths 1.Vast natural resources (cultivable
land, water, seasons) 2.Established farming
system 3.Growing economy 4.Supporting government
policies (FDI, SEZ, subsidies) 5. Vital
outsourcing hub
Weaknesses 1.Small scale conventional farming
2.Primitive post-harvest methods 3.Many
intermediaries farmers to consumers 4. Hardly
any Food processing industry 5. Inadequate Cold
chain infrastructure
Potential to become a leading food supplier for
the whole world
Opportunities for 1.Cold chain infrastructure
builders 2.Processed food manufacturers 3.Food
logistics providers 4.Food retailers and
exporters 5.IT and data analysts 6.Packaging
Consequences 1.Surplus food wasted away 2.Low
incomes to farmers 3.Inefficient supply
chain 4.No channel master 5.Changing consumer
preferences (processed hygienic food)
  • 180 Bn opportunity _at_ 10 annual growth rate
  • Food processing and retail 50Bn
  • Not Considered an Industry

Retail The Indian advantage
  • There is a huge opportunity in this space
  • 5 M retail outlets employing 21 M ( 7 of total
    work force) people
  • 100 FDI is not allowed for foreign companies.
  • Least saturated of global markets with small
    organized retail.
  • The least competitive of all global markets
  • Lower barriers of entry for global players
  • Tremendous market size in both Urban, and Rural
  • Growth potential of 20-40 as in China
  • When 100 FDI is allowed, retail will go
    turbulent with entry of international retailers

Manufacturing Related Services
  • After sales is a big market much more profitable
    and less developed market
  • Aircrafts, Server Farms, Medical equipment, .
  • Service innovations and Service Science are much
  • India has an advantage
  • Components hub
  • R D hub
  • After sales hub is a step away but needs high
    speed logistics

Special Economic Zones (SEZ s)
  • SEZ is a geographical region that has economic
    laws different from the countrys typical
    economic laws.
  • The purpose of SEZs in a country is to boost its
    foreign investments.
  • SEZs have been established in many countries
    China, India, Jordan, Poland, Kazakhastan,
    Philippines, Russia, and, North Korea.
  • Indian SEZs are not as effective as those in
    China probably because they are not as focused

SEZs Need To be Architected Synergistically
Defining a Strategy for Enhancing the
competitiveness of Indian Manufacturing
Efficient Global Logistics is more than Brick and
Mortar Infrastructure
  • Most developing nations have a single-minded
    devotion to expanding their hard infrastructure
    such as airports, highways, and shipping ports
  • They Overlook other network components such as
    efficient customs clearance and quality trucking
    services that can have a strong impact on GDP.
  • There is a tremendous need to understand the
    balance between brick-and-mortar projects and
    policies, regulations, and enforcement measures.
  • Speeding up customs clearance, automating the
    trade documentation process and making processing
    times more consistent, would allow companies to
    reduce inventory levels
  • Singapore saves 1 Billion dollars a year by use
    of Trade net

Indirect and Direct Costs
  • In any economy, the logistics industry bears
    substantial direct and indirect costs.
  • Direct costs such as transportation,
    warehousing, and handling, are more transparent.
  • Indirect costs such as stock-outs, unnecessary
    high inventories, and obsolescence, are much less
  • Efficient logistics can increase the cost
    competitiveness of nations

Some Suggestions on Manufacturing Strategies ...
  • Overcome Infrastructure Barrier
  • In short-term employ smart process IT solutions
  • Employ IT prowess in logistics and Trade
  • Deploy 4PL model
  • Electronic Trade Documentation Processing Systems

Electronic Trade Documentation Systems ...
Integrated Trading Blocs
Until Infrastructure catches up smart solutions
will have to substitute ...
  • Public Infrastructure Roads, Transport, Sea and
    Air Ports, Power, Water, IT connectivity and
    their reliability and availability impacts
    competitive performance.
  • Outsourcing to China and India tells a different
  • Businesses are doing well despite poor
  • Businesses move out of Singapore which has
    excellent infrastructure
  • Smart firms cope with poor infrastructure
  • OEMs force suppliers to locate nearby or they
    locate the assembly plant near supplier parks
    Maruti, Ford, Hero Honda
  • This will enable the assembler to follow lean
  • Two autoclusters Chennai and Delhi
  • Have Captive Power Plants
  • Outsource to Third party logistics providers
  • Substitute Information for Inventory

Leverage IT In Logistics software Development
  • Indian companies can exploit this strength to
    develop specific capabilities in IT-enabled
  • development and management of logistics planning
    and coordination systems.
  • develop in to 4PL s for global manufacturing and
    service industries with logistics domain
  • develop automated trade systems such as Trade Net
    and Digital Trade Transportation Network for
    trade documentation and customs permit
  • Develop Real-time control Event Management
    using Radio Frequency Identification Tags (RFID)
    and Web-Services

Employ 4PL strategies to enhance service quality
and efficiency...
  • Indian manufacturing is poised for a big take off
  • Emphasize local and export markets
  • Capitalize on strengths such as food, auto,
    Pharma and retail
  • Opportunity to innovate bricks and IT based
    strategies for trade growth
  • There is a huge opportunity in health care,
    Infrastructure supply chains
  • E-commerce is raising from the ashes and there is
    a huge opportunity in this area.

Thank you
Sectoral Case StudiesRetailAgri-Supply
ChainsAutomotive ManufacturingPharma
Sectoral Case Studies
  • Retail
  • Agri-Supply Chains
  • Automotive Manufacturing
  • Pharma Healthcare

Retail Supply Chain
No Bn players as in China
Agricultural Supply Chain
(No Transcript)
The Agri Supply Chain
  • Agriculture provides 21
  • of GDP and 60 of employment
  • The chain is long and slow
  • A supply chain study for rice would involve
    farmers, seed producers, fertilizer factories,
    financial institutions, millers, government,
    warehouses, fair price shops, retail shops,
    railways, truck transport companies, etc.
  • Orders of magnitude gains are possible if you
    apply the Industry supply chain ideas here

Food Supply Chain Cluster
Problems with the Agribusiness
  • No Supply Chain View
  • Fragmented capacities at every level
  • Large information gaps poor farmer processor
  • Limited contract farming
  • Limited private interest
  • Regulatory obstacles Land holding,
    Agrimarketing, Retail sector, Price controls
  • Underdeveloped markets distribution bottlenecks
    and limited reach
  • Unclear security for traditional banking
  • Missing infrastructure
  • Limited irrigation reach
  • Storage and transport underdeveloped

Food Manufacturing
  • The Government of India allows 100 FDI in this
  • There are incentives for setting up processing
    plants either in Agri Export Zones or outside of
  • Sourcing of raw materials (fruits or vegetables
    or flowers or meat) is easier with an AEZ since
    the participants have industry standards
  • The Opportunity to create
  • Halal hub (Export to South-East Asia, Middle
    East, ..)
  • Vegetarian hub (20 of Indian population
  • Organic food hub (Europe and USA)
  • Sea food hub
  • Negatives on Food manufacturing in India
  • Food Packaging is expensive,
  • High import duties on Processing and Packaging
  • High sales tax on packaged foods.

Automotive Supply Chain
Auto Logistics and Supply Chain
  • Components
  • Improve Supply chain efficiency using IT and AI
  • After sales

Indian Automotive Industry
  • US 8 billion (1 of Global Automotive industry)
  • Almost 50 (US 4 billion) as Aftermarket, one of
    largest proportion in the world
  • Contributes substantial 5 of Indias exports
  • Employs nearly 300,000 people (directly
  • 8 volume passenger car manufacturers - 5 CV
    manufacturers, producing 0.3 million passenger
    cars and 200,000 CVs per year, on a steadily
    rising trend
  • Component sector has 600 first/second tier and
    almost 10,000 3rd tier manufacturers, employs
    150,000 people and is worth 3.5 billion
  • World's top 20 first-tier suppliers present
    through collaborations
  • Aftermarket Logistics is a big opportunity

Integrated manufacturing service networks
Pharm Healthcare
Indian Pharmaceutical Industry
  • Size of industry (2002)
  • US 4.5 billion with over
  • 20,000 registered manufacturers
  • Provides employment to 2.9 million people
  • Meets almost 95 of the countrys pharma needs
  • McKinsey projects US 25 billion by 2010
  • Recent advances in biotech and IT not exploited
  • Efficient distribution systems not in place
  • Industry Consolidation expected through M A

Pharma Supply Chain Cluster
Health Care Logistics
  • Healthcare services involve coordination between
    multiple parties of doctors, hospitals,
    pharmacists, medical equipment manufacturers,
  • These interactions and processes are
  • For example, In clinical trials, drugs and
    patient samples are exchanged between multiple
    patients and research institutes.

Coordinate Disease Management
  • Networking and Coordination of different players
  • Multi-lingual Call Centers
  • Counseling
  • Information
  • Diagnosis and Monitoring of Patients
  • RFID tags, Internet
  • IT support
  • Clinical Trials

Where are the Logistics Players ?
AIDS Management
Service Chains ProvideImmense Opportunities
  • Arise in different contexts
  • Health Care
  • Construction
  • Finance
  • Defense
  • Manufacturing
  • Returns handling
  • Spare parts and MRO
  • Reverse Logistics
  • Transportation
  • Containers

Window of Opportunity
Logistics for Large Infrastructure and
Engineering Projects
  • India is focusing on infrastructure
  • a wave of projects such as the construction of
    airports, seaports, industrial parks and national
  • These can be completed in time and budget through
    proper logistics management and coordination of
    various activities.
  • Business strategy to develop infrastructure and
    Industry simultaneously

Construction SCM Headlines
In the case studies we observed
Intel Cuts Fab Construction from 36 to 18
months Conservative approach indicates 30MM
inventory savings
Mapping Helps Uncover SC Inefficiencies Mapping
across organizational boundaries for pipe
supports, contractor discovers 96 of elapsed
time is wait time, only 4 is value add time
Supply Chain Efforts Cut Lead Time 70 Owner
enters long-lead supply chain, holds inventory
(No Transcript)
The Three CirclesShares of World GDP, 2004
Asia Pacific 28.9 (PPP 34.7)
Western Europe 28.7 (PPP 21.9)

Reverse Supply Chain
Repair Center Resource management
We assume a four stage repair process
Repair Equipment Mechanics
Spare Parts
Diagnostic Equipment Mechanics
Incoming Jobs
Final touchup
Delivery to customer
Final touchup crew
The Indian Logistics Infrastructure
The State of Indian International Logistics
Standardization, Integration of Trade Flows
  • Trade flows are facilitated by harmonization of
    information, material financial flows.
  • Need to define standards for each of these flows
    to ensure hand-off from one country to another
  • Trading Blocs achieve this harmonization
    enhancing intra-Bloc trade
  • Forrester says that countries e-ready countries
    will benefit from enhanced trading activity
    between themselves.

International Trade
  • International logistics flows are substantially
    more complex, with as many as 25-30 hands-off
    points within a complex global move.
  • Lead times are substantially longer (measured in
    weeks, unless expensive air freight is used)
    total transit times of 21-35 days from Asia are
  • There is substantially more documentation
    required (commercial invoices, customs paperwork,
  • There are as many as 7 times the number of cost
    elements to consider, including duties, tariffs,
    freight forwarding costs, etc.
  • Security issues in the global sourcing process
    require a new level of intelligent logistics
    software capable or higher levels of tracking and

Customs plays a key role in International Trade.
  • The liberalization and globalization of trade in
    the 21st Century, has brought about a paradigm
    shift, where the conventional and traditional
    role of customs as a regulatory and revenue
    collecting agency, has been complemented with
    that of trade facilitation.
  • The Every international trade transaction
    involves at least two Customs intervention one
    at the import level and the other is at the
    export level. Customs has substantial impact on
    the movement of goods across international
  • Trade document automation is common in south east
    asean countries and Singapore saves 1bn USD a
    year on use of Trade net

Future Trends in Manufacturing Industry
  • Indian component manufacturers will move up the
    value chain as contract manufacturers
  • Frost Sullivan has estimated that the revenue
    of the logistics industry from the manufacturing
    sector alone was 13.46 billion in 2003, and the
    market is likely to grow at a rate of 6.2 during
    the next five years
  • Strategic location of industries and B2B
    connectivity to marketplaces
  • The increasing online sales will force
    e-companies to forge strategic alliance with
    logistics service providers
  • India can expect a shift in the retail logistics,
    B2B procurement practices and the way the
    distributions are handled
  • Adoption of new technologies such as GPS and RFID
    will take place rapidly

Frequently mentioned advantages India
  • One quarter of the worlds youth live in India
  • 54 of the Indian population is less than 25 yrs
    of age
  • 2nd Largest English speaking workforce
  • Second largest pool of technically qualified
    knowledge workers
  • IPR laws in place
  • Cheap labor force and a preferred BPO destination
  • RD centres General Electric, Microsoft, IBM,
    Cisco, Intel, General Motors, Astra Zeneca,
    Motorola , Texas Instruments
  • Biotechnology is a new hot spot.

The Real Advantage India
  • 52 cultivable land as against 11 in the world.
  • Existence of 15 major climates snow bound
    Himalayas to hot humid southern peninsula Thar
    Desert to heavy rain areas
  • Nearly 46 out of 60 soil types.
  • Sunshine hours and day length are ideally suited
    for round the year cultivation
  • Centre for biodiversity in plants, animals,
    insects, micro-organism and accounts for 17
    animal, 12 plants and 10 fish genetic resources
    of the globe.
  • In the live stock sector, India has 16 of
    cattle, 57 of buffalo, 17 of goats and 5 of
    sheep population of the world.
  • Fragmented unorganized retail worth 200 bn
  • Rising percentage of cash rich young people

A majority of the sectors need to overcome the
Infrastructure Barrier...
Current Sector Competitiveness in Global Markets
Industrial Mfg
Current Infrastructure Competitiveness
Note Size of bubble denotes employment creation
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