Made In China

Discussion in 'Economy & Infrastructure' started by Srinivas_K, Feb 12, 2014.

  1. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    Made In China
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    Not far from the hustle and bustle of the Hindu pilgrimage hotspot of Haridwar in Uttarakhand is an industrial zone where scores of factories make everything from soaps to motorcycles. The zone, developed by the state government, at first appears far quieter than the temple town. Noise levels rise, however, as one enters the factory of electrical-equipment maker Havells. Machines hum, while women and men in blue tunics and white caps make coils and assemble motors, switches, stands and fan blades. The factory churns out one table fan every 25 seconds.
    None of this existed two years ago, although Havells has been selling fans for a decade. Havells previously sourced table fans from Chinese company Midea, one of the world's largest fan producers. Midea didn't ask Havells for a price increase for many years until 2010 when it cited rising labour costs and electricity shortages, and jacked up rates 20 per cent over three years. "A time came when we said this was enough and we should look at manufacturing in India," says Sunil Sikka, President at Havells. The company started making table fans at Haridwar, where it was already producing ceiling fans, with an installed capacity of 100,000 a month. It no longer imports table fans, but is making them at a cost 10 per cent lower than what the Chinese had offered. "My margins are up and working capital costs are down," adds Sikka.

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    Havells is one of several Indian companies to have shifted production or sourcing from China, as costs climb in the Middle Kingdom. Consumer appliances company Godrej, mobile-phone maker Micromax, auto-parts maker Bosch and stationery manufacturer ITC have all started expanding or exploring manufacturing operations in India. Chinese companies, too, are forming joint ventures with Indian partners to set up production bases in the country. Business Today spoke to 16 companies that have already shifted part of their production from China to India and a few more which said they were considering a similar move to take advantage of lower Indian labour costs and favourable currency movements.
    "Chinese costs are going up. This is a great time to move production from China to India," says Adi Godrej, Chairman of the Godrej Group, which has shifted air conditioner and washing machine production to India. He thinks the trend will continue for 20 years. "The earlier India leverages this trend, the better off we will be. If we don't leverage it soon, other countries will do it better."
    Other countries, in fact, are already benefiting as China begins to lose the competitive advantage that lured companies from across the world. An estimated 100 million jobs will move out of China over the next few years in labour-intensive sectors, says Ajay Shankar, Member Secretary of India's National Manufacturing Competitiveness Council. Many US, European and Japanese companies are shifting production from China to lower-cost locations such as Southeast Asia. A boom in shale gas output in the US has prompted many companies to move production back to America. The trend in India is on a much smaller scale and doesn't yet reflect in the country's manufacturing output.

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    In fact, growth in India's manufacturing sector has plunged in the past couple of years as demand for products from air conditioners to automobiles remains tepid in an economy crawling at its slowest pace in a decade. After expanding at a compound annual pace of 10 per cent between 2005 and 2011, manufacturing output grew 2.7 per cent in 2011/12 and one per cent the next year. The share of manufacturing in India's gross domestic product slipped two years in a row, from a high of 16.2 per cent in 2010/11 to 15.1 per cent in 2012/13, and is now the lowest in 10 years.
    And the Chinese still dominate our lives with every conceivable product we need, from wallpapers and toilet ware to furniture, electronics and industrial equipment.

    Forex Kicks

    One of the major factors tilting the scales in favour of manufacturing in India is favourable movements in the foreign-exchange market. The yuan has climbed 7.2 per cent against the US dollar in the past three years and 35.3 per cent in the past decade, making China's exports costlier. The rupee, meanwhile, has dropped 26.7 per cent in the past three years, making imports more expensive.
    Sunil Sikka, President, Havells, at a company factory in Haridwar
    Havells has shifted production of table fans to India from China. It now makes table fans at a lower cost than what the Chinese could offer: Sunil Sikka, President, Havells. Photo: Shekhar Ghosh/www.indiatodayimages.com
    Suresh B.R., Senior Vice President of Manufacturing and Quality at Bosch Diesel Systems India, says the auto component maker had been importing electronic controlled units for diesel engines from China but shifted production to India about three years ago to reduce the risk of currency fluctuations as well as cut costs and better manage its inventory. Power and automation technology company ABB says Chinese firms are quoting 10 to 15 per cent more than before for transformers and sub-stations. "Two years ago we could not win a single tender of Power Grid Corporation," says N. Venu, President of Power Systems at ABB India. "Today, we are able to compete with the Chinese on prices."
    Many manufacturers think India's currency competitiveness will stay for some time. In a recent survey of manufacturing companies by lobby group Confederation of Indian Industry and The Boston Consulting Group, 59 per cent respondents said a weaker rupee will improve India's export competitiveness in the long run. Harihar Krishnamoorthy, Treasurer at the India arm of South African lender FirstRand Bank, says the yuan will continue to rise against the dollar. "China can afford to let the yuan strengthen a little bit more," he says. "Will the yuan breach 6 [to a dollar]? Yes. Will it be a dramatic strengthening? No. It will be slow and steady so that exporters have enough time to adjust their manufacturing policies." The yuan currently trades around 6.11 to a dollar.
    On the other hand, Krishnamoorthy expects the rupee to remain stable. He says that so long as India's trade deficit is under control, software exports and remittances by non-residents remain steady, and foreign investors feel that economic growth has bottomed out, the rupee will trade in the 61-63 range versus the greenback. This implies that India will remain currency competitive even in the future and more manufacturers are likely to explore setting up shop in the country.

    The Shrinking Labour Arbitrage

    Rising wage costs in China are playing an equally important role in Indian companies' decisions to shift manufacturing back home. This is particularly true in the case of labour-intensive industries such as textiles and toy making. Wages in China, particularly in coastal areas where most factories are located, are already higher than in India and growing more than 10 per cent a year.
    Vinod Sharma, Managing Director of Noida-based capacitor maker Deki Electronics, says a new factory worker in Noida comes in at Rs 7,000 a month and the cost to company may total Rs 8,000-10,000, or about $130-$160. "In China's coastal areas, the salary is at least $300 for eight hours. Is labour going to get cheaper in China? No. The differential will only increase," he says, sitting in his Noida factory. Sharma recalls that when Deki, which started in 1984, wanted to expand in India six years ago, some government officials demanded a bribe to allocate land. Deki then moved to China's Guangdong province and invested in a company called Sungen that could make one million capacitors a day. Last year, he reduced the Guangdong factory's capacity by half and moved it to India after hiring about 100 workers.

    hand Das, Chief Executive of ITC's education and stationery products business, says he has started sourcing locally in India as Chinese labour costs in his sector have been growing 15 per cent annually. "It has become unviable to source from China any longer," he says. ITC began purchasing pencils, geometry boxes and art stationery products from China in 2008. But in the past 18 months, it has helped Indian vendors set up manufacturing operations in Chennai, Jammu and near Delhi, resulting in the creation of 1,200 jobs.
    Companies in labour-intensive industries are moving to India also because of a growing shortage of workers in China. Years of strong economic growth have not just increased salaries but also raised aspirations of workers. Many Chinese no longer want to do menial jobs 'instead of making toys or sewing clothes, they would rather work in a chip fabrication unit. John Baby, CEO of Funskool, says production shifts in the toy industry started about two years ago. Funskool has started getting orders for plastic moulded toys and expects to boost its export volume by 25 to 40 per cent in 2014/15, he says.
    Pals Plush, a Chinese soft-toy maker with $10 million in annual revenue, is expanding faster in India than in its home country. Its India factory, 60 km from the Chennai port, started a year-and-a-half ago with an investment of $2 million. It already has 250 sewing machines there compared with 120 in China. India has 400 employees while China has 200. Seema Nehra, Director at Pals Plush, says the company has shipped products from the India factory to US and European toy firms such as Disney, Argos Home Retail and The Petting Zoo. This year, Pals Plush will ship products to US toy company Hasbro. "We will expand to 500-600 sewing machines in India by the end of 2014," she says.
    Praveen Gupta, Director, NTL Electronics
    European LED lamp maker Lemnis Lighting shifted sourcing to India from China and formed a joint venture with NTL Electronics: Praveen Gupta, Director, NTL Electronics Photo: Aditya Kapoor/www.indiatodayimages.com
    Nehra says Pals Plush had considered Bangladesh and Southeast Asian countries when it was looking for an alternative to China. But it chose India because it has a huge domestic market and to save on freight costs. For instance, freight costs to the UK from Shanghai are five to seven per cent higher than from Chennai. "Overall, customers can save 10 to 15 per cent by outsourcing to India now with the major factor being the labour cost," she adds.
    Investments have started flowing into the textiles sector as well. The Brandix India Apparel City in Visakhapatnam is emerging as a hub for apparel companies, particularly underwear. Spread over 1,000 acre, the industrial park is managed by Sri Lankan apparel exporter Brandix Lanka Ltd. Feroz Omar, Director at Brandix Lanka, says some western retailers want to shift production to India because of rising costs in China and to avoid single-country risk. While Brandix runs its own factory in the industrial park, it has also formed a four-way joint venture called Seeds Intimate Apparel with US companies Brandot and Mast Industries and China's Clover Group to make bras and bralettes for American lingerie brand Victoria's Secret. The joint-venture plant employs 2,400 employees and has a production capacity of 750,000 pieces a month. S&S Industries, a US company which makes underwires for bras, has a factory in the park with a capacity of 106 million units a year. The company thus far manufactured only in the US, Honduras and China. A company spokesperson said via email that India offers a huge potential in terms of manufacturing capabilities and the expanding local market.
    Many Indian tile makers, who were thus far happy sourcing from China, are also setting up local manufacturing. Asian Granito India, among the top five ceramic tile makers in India, has started making glossy floor tiles in Gujarat. It can make 2,000 square metres of tiles a day. The cost of India-made tiles is Rs 20-30 per square feet less than in China, says Bhavesh Patel, Director at Asian Granito. "It is not viable doing it in China right now," he says, adding that the company has also stopped importing other types of tiles from China.

    The Comeback of Appliances

    It's not just labour-intensive, low value-added industries that are moving manufacturing to India. Companies in electrical goods and home appliances are doing so, too.
    About an hour's drive from Haridwar is Dehradun, Uttarakhand's capital. Somewhere between dense forests with huge sal trees and mustard fields is a factory run by Dixon, an Indian electronics manufacturing services provider. In the past eight months, the factory has received some high-profile visitors from multinational companies as well as Japanese government bodies wanting to assess whether India can be an alternative to China for hardware manufacturing. Political tensions with China are making the Japanese edgy ' Japan's direct investment in China fell 4.3 per cent to $7.1 billion in 2013. This is fertile ground for India to exploit. Dixon already makes flat-panel TVs for Japanese firms Panasonic and Toshiba. If the current trend is any indication, it may be in for a windfall.
    Sunil Vachani, Chairman and Managing Director, suggests India's cork-popping moment in appliances may be around the corner. He says productivity at some of the company's factories is higher than China's. He cites the example of one of its assembly lines that can make 7,000 DVD players a day with just 45 people. "That's more productive than China," he says, seated in his factory where a blue poster on a wall has the catch line: "Action speaks louder than words."
    Besides TVs and DVD players, the company makes compact fluorescent bulbs and light-emitting diodes. It also makes washing machines for Godrej and Chinese company Haier ' both have shifted part of their production to India from China and plan to do more in the future. Dixon's business has expanded rapidly in the past couple of years and headcount doubled to 4,000. Two years ago, it assembled 45,000 TVs and 10,000 washing machines a month. Now, it makes almost 100,000 TVs and 25,000 washing machines. "A lot of it is because of import substitution," says Vachani.
    The story of home appliances is one of sweet revenge. Manufacturing of certain products such as refrigerators never moved to China because India required a different model ' the Chinese eat a lot more meat than Indians and have larger freezers. But it was easy to import washing machines. Godrej set up a factory in India in 1996 to make both semi- and fully-automatic washing machines. The semi-automatic models came with metal bodies but gradually, the trend shifted to fibre bodies. That meant new investments, which it made in China instead of India, recalls Kamal Nandi, Executive Vice President for sales and marketing and new product development at Godrej Appliances.

    All this has changed with China fast losing its competitiveness. Godrej started production of air conditioners (ACs) in 2012 and moved manufacturing of fibre-body washing machines from China the next year. It added an incremental capacity of 500,000 units in ACs and semi-automatic washing machines overall. Besides Godrej, appliance maker Blue Star is also shifting production to India while China's Shanghai Highly Group Co. and Hitachi Appliances have set up a joint venture factory in Gujarat for AC compressors. Haier, which already makes some models of washing machines and ACs in India, plans to start producing water heaters this year. It sells 85,000 water heaters a year in India, all imported from China.
    An important reason why many appliance makers are opting for manufacturing in India is that they are wary of keeping inventory they can't sell ' sourcing from China requires them to book capacities six months in advance. A volatile local economy can hurt consumer spending and the cost of inventory can easily wipe out the profits for appliance makers, says a manufacturing expert who did not want to be named.
    It is not just the Japanese who want to hedge their country risks. Indian companies that depend heavily on China are rethinking strategies. In consumer electronics devices such as mobile phones, China enjoys huge economies of scale and manufacturing in India is still more expensive. But mobile phone maker Micromax has started rolling out 100,000 devices from a new factory at Rudrapur, Uttarakhand. The plant can produce 600,000 units a month, or about 20 per cent of its sales. Vikas Jain, Co-founder of Micromax, says the cost of making phones in India is 2.5 to three per cent higher than China's but the company is working to reduce the difference to less than two per cent. He says the move to start making phones in India is aimed at managing risks that may arise from producing in a single country. "As we talk of a huge trade deficit with China, we foresee that in the times to come there could be some trade embargo or an anti-dumping duty. From that perspective we thought it would be prudent for the brand to have local manufacturing," he adds.

    The Caveats

    Companies like Micromax, however, are still in a minority. And even such companies continue to import many parts from China, as India lacks a robust supply chain of component manufacturers. Having to import components curtails appliance makers' capacity to take the full advantage of rising costs in China or the weak rupee.
    Will the manufacturing trickle ever turn into a flood?

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    The government, say manufacturers, needs to encourage component suppliers. It must also fix the country's creaky infrastructure by building highways, power plants and ports. A simpler tax structure, implementation of a uniform goods and services tax, and lower cost of finance will help, too.
    Economist and Nobel laureate Joseph Stiglitz is unsure if India can take the lead in manufacturing. "Clearly, the cost advantages in China are diminishing. However, it is not clear where the manufacturing jobs will go," he told Business Today. Stiglitz notes that one of the disadvantages India faces is its lack of infrastructure. "If you don't have electricity or have high cost of electricity, it will not help manufacturing even if labour is cheap. There are some countries, like Mexico, that seem to be gaining. I do worry that there are certain things like lack of infrastructure that are impediments for some kinds of manufacturing that would have otherwise come to India," he says.
    Ravi Ramamurti, who teaches international business and strategy at Boston's Northeastern University, thinks that emerging economies can compete with China in "simpler" industries such as footwear, textiles or low-technology consumer products. He says companies shifting production from China to India are probably betting that India's growth will pick up once the new government which comes to power after general elections due by May puts economic reforms on the fast track. "With growth slowing in India, the pull of the domestic market is weakening," he says. "It is a pity that India is not taking greater advantage of China's declining competitiveness."

    With inputs from K.R. Balasubramanyam

    India benefits as China begins to lose manufacturing edge - Business Today
     
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  3. Ray

    Ray The Chairman Defence Professionals Moderator

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    Brand-conscious, but faking it

    Sumati Yengkhom & Rohit Khanna,

    KOLKATA: Sambit Chatterjee was wondering what to gift his girlfriend this Valentine's Day. The second-year college student wanted to impress her with a gift that looked classy but suited his pocket. Sambit's quest ended on Esplanade pavements when he found a Tommy Hilfiger watch for Rs 1,500!

    Of course Sambit knew it was fake. But the vendor at the Grand Arcade insisted all watches were 'original' and the price was low because they were smuggled into Kidderpore dock. "The only difference is you will not get a warranty certificate," the vendor explained. The vendor quoted Rs 2,500 but settled for Rs 1,500 after a bout of bargaining.

    Fakes, replicas or copies of branded goods like watches, perfumes, bags, apparel, electronic items and even cosmetics are a rage with the brand conscious middle-class Kolkatans. Be it the pavements along Park Street, Esplanade, Gariahat or Hatibagan, the picture is same across the city: Hawkers selling illegal items, that too occupying a chunk of pavements illegally. And why only hawkers? These fake products have steadily but surely made an entry into shoppers' hotspots like Vardaan Market, Gariahat AC Market or Kidderpore Fancy Market.

    "What is the harm if I get this Puma bag for Rs 800 when the original one costs more than twice the amount. I can bet that no one can tell the difference," laughed off marketing executive Sudha Agarwal who purchased one such bag from AC Market.

    Despite the huge price difference, shopkeepers at these markets vehemently deny that the goods they retail are fake. "Some products may be copies of originals. The quality is as good. They aren't cheap stuff. Perfumes are directly imported from Dubai while apparel, watches and accessories come from Thailand or China," a shop-keeper said.

    "This Burberry perfume will cost about Rs 4,000 in a showroom. We sell it here at a price 40% lower. It is a great bargain for those who want 'branded' scent at an affordable price," said a shopkeeper in Vardaan Market.

    Stores selling top brands, however, rue that such stores are eating into their sales. Take the example of 'Reebok' and 'Adidas' tees that sell like hot cake at the Grand Arcade at a price as low as Rs 200 right in front of the company outlets.

    A 'Samsung Galaxzee' mobile, a lookalike of Samsung Galaxy Mega 6.3, is in stalls in BBD Bag for Rs 3,000. It can be bargained to half the price. "Ye China product hai. Naseeb mein hua to do saal tak service dega (This is a China-made. It can last up to two years if luck favours)," said Mukhtar who sells 'fake original' phones in Dalhousie.

    "We get complaints on counterfeit electronic goods like laptops and cell phones. There are cases where counterfeit electronic products were sold from branded shops with cash memo. We can pursue such cases," said Sadhan Pande, consumer affairs minister of the state.

    "Apart from luxury or aspiration products we also get complains regarding fake goods like tea or cosmetics that are consumed on a day-to-day basis," Pande added.

    Psychiatrist Shiladitya Ray says the media, especially audio visual through which these brands are promoted, play an important influencing factor. And then there is the craze among the young to be part of the latest trend as a peer pressure drives them to be brand conscious. "These products have huge logos that is easily visible and can fool many for the original one," said Ray.

    IIM-Calcutta professor Anindya Sen, said those who bought fake brands thought others would not detect it. "It is entirely about impressing others. Primarily, they want others to know that they are aware of the brand and want to flaunt it," he said.

    Though there is no Kolkata-specific data, an Assocham-YES Bank report pegs the counterfeit luxury industry in the country at 5% of the luxury industry market valued at $8 billion. A Fistudy d the annual tax loss at Rs 26, 190 crore in 2012.

    According to Anil Rajput, chairman of Ficci Cascade, an industry body created to generate awareness regarding counterfeit, contraband and smuggled products, there are people who buy fake brands knowingly because they desire to these products but can't afford them. There is another section who is hoodwinked by the traders."Over 80% of the entire imitation luxury products in India come from China," D S Rawat, secretary general of ASSOCHAM, said.

    Brand-conscious, but faking it - The Times of India

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    It is true that the manufacturing sector is moving out of China, but then the Chinese are compensating with what they are best at - fakes!
     
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