The Indian Manufacturing Excellence Awards launched by The Economic Times in partnership with global growth consulting firm Frost & Sullivan is expected to serve as an important mechanism for companies to measure their own processes against global standards. This benchmarking is critical keeping in mind the fact that the toughest competition for the Indian manufacturing sector comes from the manufacturing powerhouse that is China.
Slowly and steadily two different core competencies seem to be emerging in the competitive environment between China and India. While China has become a world class manufacturing hub, characterised by economies of scale, India is climbing the value chain in quality at a rapid pace. After all, we harbour world's second largest forging company, world's second largest optical storage media company and the world's largest two-wheeler manufacturers. All three defined by cutting-edge quality. China produces toys, apparels, footwear in millions and billions. The debate, however, is can India edge its way into scaling up its production to Chinese level and can China move to the highest trajectory of quality in the midst of mass production?
It is rarely recognised that Chinese economy ticks because of massive foreign direct investments over a sustained period crafted by multinational corporations (MNCs) of the world while Indian economy to a very large extent is driven by entrepreneurs, at times joint ventures with MNCs. It is also clear to discerning observers that India has not given China market economy status just as the USA, EU and Japan because of its non-transparent pricing mechanism, very high non-performing assets in Chinese banks resulting in massive capital subsidies and opaque public sector institutions.
Contrast this with India, where pricing mechanisms are market driven and subsidies if any are absolutely transparent. Unfortunately, Chinese products have taken a massive hit in quality over the last few years while Indian products still stand out as a seeker of six-sigma black belt standard let alone meeting every ISO specification.
You will recall the fiasco over quality of Chinese batteries in Indian market selling at Rs.2 when its inputs cost alone would be twice that price. Even bigger fiascos on the quality of Chinese goods were toxic toys and contaminated baby milk. Also, the mass production and exports from China have occasionally got them into a major international spat.
Remember the famous case which is now given to be called the 'bra war' between China and EU when China's mass production engine landed 80 million clothing items into European ports, many of which were women
undergarments, in a span of just one month, as EU struggled to stop the unloading through WTO.
In contrast, Indian entrepreneurs have focused more and more on innovation and quality on their own. Tata's Nano, Moser Baer's storage media and Ranbaxy's generic drugs are only part of this unfolding story. As many as 14 Indian auto makers have received the prestigious Deming Award, the highest number outside of Japan for any country in the world.
In their rush to create massive manufacturing units, without too much regard for a price which gives a clear margin of profit, the Chinese have fallen into a trap of horrendous nonperforming assets (NPAs) on bank loans – the average NPA in China could be as high as 25% - in other words, a big capital subsidy. In contrast, NPAs in India are between 1.5% and 3%. They have, undoubtedly, made major strides in high technology absorption, particularly in export items. But what is not known is that 88% of China's high technology exports take place from MNCs located in China. Furthermore, 56% of China's total exports originate from MNCs.
