India's Manufacturing Strategy: Global Perspective

S. Das*

ABSTRACT
The Indian manufacturing sector has shown remarkable results in the recent past. Manufacturing is the logical engine to provide employment growth in India, because the work force in the organized sector - a core engine for growth - is currently only eight percent. The challenges are significant. There are numerous constraints to growth, and India has its work cut out as it makes the transition from being an attractive labor pool to a global manufacturing power. While focusing on operational efficiency, innovation, high-tech research and development, India needs to reform its fiscal policy, labor laws, regulatory system, foreign investment policy etc. in order to attract all the top manufacturing giants of the world by offering them world class facilities.
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INTRODUCTION The resurgence of India's manufacturing sector has been seemingly magical. Currently, the manufacturing sector which accounts for 12 percent of the gross domestic product (GDP) is growing at a rate of 9.5 percent to 10 percent annually. The aim is to accelerate the growth to 12 percent to 14 percent. India has set a target of a minimum of 12 per cent growth in manufacturing, as it seeks to boost gross domestic product (GDP) growth to 10 per cent in the coming years, from 8.4 per cent in 2005-2006. India's manufacturing sector will need massive investment of $135 billion over the next five years if it is to support economic growth of more than 8 percent per year. And given that the government has targeted 12 percent growth in manufacturing, in support of a 10 percent growth target for gross domestic product (GDP), even this amount may be insufficient. Recently, a government-appointed panel had projected that India required $1.5 trillion including $72 billion in Foreign Direct Investment (FDI) of investment in all sectors over a similar period. FDI, apart from bringing in capital, also brings with it modern technology and business practices, and *Associate Professor, Lai Bahadur Shastri Institute of Management, Delhi

helps in increasing the competitiveness of domestic industry. The Indian manufacturing sector has shown remarkable results in the recent past. It grew by about 10 percent in the year 2005, and in a recent study was identified as the second most competitive destination. In the last decade, Indian manufacturers have shown they can perform on par with the best of companies and compete strongly in the global marketplace. Examples abound in terms of market shares, costs, awards and certifications demonstrating high standards of quality, global scale, adopting contemporary manufacturing practices, etc. Much of this change has come about in a very short time of about 10-15 years after the liberalization of the Indian economy. It is also true that there are large sections of the Indian manufacturing industry that suffer from underutilization of technology, inappropriate scales, poor infrastructure, overstaffed operations, expensive financing and bureaucracy. While companies from around the world are looking at India as a partner in their supply chains, is Indian manufacturing ready to integrate with the networked economy? Achieving global competitiveness in manufacturing is highly essential to the Indian economy: this sector offers the highest employment potential. The globalization of supply chains offers tremendous opportunities to the Indian manufacturing sector. India cannot afford to miss this time and opportunity. Few months ago the Indian government asked key Ministries to coin policies to help investors fund the country's infrastructure projects. Apart from allowing FDI up to 100 percent in most industries, the government has initiated a slew of measures to boost manufacturing, such as improving infrastructure and developing growth centers. India needs to ensure that the foreign direct investment in the country goes up to $84 billion by 2010-2011 from $47 billion at present. This calls for a total investment of $331 billion in the country's infrastructure over the next five years, according to a study on infrastructure done by the Confederation of Indian Industry's (CII) infrastructure council. According to another study by the Ratan Tata-led Investment Commission, there is a

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56 need for over $269 billion in funds in the next five years. So far, the manufacturing sector has attracted $2 billion as FDI in 2005-2006, a 75 percent rise over $671 million in 2003-2004. As announced by the industry minister recently, manufacturing investment regions will be set up for automotive components, leather, footwear, telecom and hardware. LITERATURE REVIEW Manufacturing strategy process, content and implementation determine how manufacturing resources and capabilities are deployed (Hayes and Wheelwright, 1984) to complement the business strategy (Swamidass and Newell, 1987) and if properly utilized provide a 'competitive weapon' in the firm's strategic planning (Skinner, 1969). Manufacturing strategy hence influences the success of strategic initiatives including new process technologies (Beach et al., 2000; Gagnon, 1999; Honeycutt et al., 1993; Schroeder et al., 1995;Wathen, 1995), new products (Spring and Dalrymple, 2000; Voss et al., 1996), and humanresources (Bates et al., 1995; Youndt et al., 1996). Manufacturing strategy contributes substantially not only to manufacturing performance (Anderson et al., 1991; Meredith and Vineyard, 1993) but also to business strategy, as measured by business unit performance on market share, growth, and profits (Ramanujam and Venkatraman, 1 9 8 7 ) . Manufacturing strategy frameworks have identified key manufacturing decisions and highlighted the need for consistency among decisions that affect business-level strategy, competitive priorities and manufacturing strategy and infrastructure (Fine and Hax, 1985; Hayes and Wheelwright, 1984; Hill, 1985,1995; Schroeder etal., 1986; Skinner, 1969), as well as manufacturing strategy, manufacturing capabilities, marketing-manufacturing congruence, and their effects on manufacturing performance (Bozarth and Edwards, 1997). Recently, however, concerns have been raised about the current manufacturing strategy paradigm. Inevitably, core manufacturing strategy concepts such as manufacturing capabilities, market requirements, and tradeoffs between competitive priorities have

LBS Journal of Management & Research been criticized. For example, Spring and Boaden (1997) have argued that the firm wins orders in the marketplace as a result of a number of factors, and not just via the firm's products per se, as had been indicated in some of the manufacturing literature (e.g. Hill, 1985). Similarly, the tradeoff view has been c h a ll e n g e d b y J a p a ne s e a p p r o a c h e s to manufacturing, world-class manufacturing (Schonberger, 1990), and empirical findings (e.g. Meredith et al., 1994). More fundamentally, however, whether the existing manufacturing strategy paradigm is still useful has been questioned (e.g. Drucker, 1990). Leongetal. (1990) suggest that the current manufacturing strategy paradigm lacks: (1) a cohesive theory-based effort by manufacturing strategy researchers; (2) sufficient survey based empirical work; and (3) proper integration with concepts and theories developed in other disciplines. The lack of consensus about manufacturing strategy's content has been especially identified as a barrier to advancement (e.g. Hayes and Pisano, 1994; Kim and Arnold, 1996; Mills et al., 1995) as it creates "Competition between alternate manufacturing strategy paradigms (Voss, 1995). Thus, manufacturing strategy still needs a coherent theory (SwinkandWay, 1995). Is manufacturing strategy passe (Clark, 1996) or does its importance need to be regained (Pilkington, 1998)? Despite providing Skinner's (1969) missing link between business-level strategy and manufacturing, manufacturing has increasingly lost touch with the mainstream corporate and business strategy literature (Ward et al., 1996). Environmental and other changes have caused manufacturing strategy to drift away from the strategy mainstream, particularly the market-led and resource-driven approaches to strategy. However, manufacturing must be aligned with corporate strategy in order to contribute to performance (Skinner, 1969). As can be seen from Table-1, the route of manufacturing has tracked a unique path starting with mass production; product oriented philosophy during 1980s to mass customization and value proposition in the present day situation.

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India's Manufacturing Strategy: Global Perspective Table-1. CHANGING FACE OF MANUFACTURING 1980s Philosophy People Finance Materials Overall Posture Mass production; Product oriented Individuals; Self oriented Labor allocation Adversarial suppliers Just-in-Case 1990s Just-in-Time; Customer Service Teams; Company oriented Activity based Supply Chain Lean 2000+ Mass customization; Customer Value Strategic leadership; process oriented Integrated Performance mm Value Chain Strategic Manufacturing Initiative

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To be successful in today's increasingly timesensitive and competitive markets, businesses need manufacturing processes that are fast, flexible, and adapt quickly to change. Achieving this objective requires integrated solutions that connect supply chains to factory processes, production equipment, and factory systems in a seamless, customer-centric network. THE EMERGING SCENARIO Just as Japan appears to be emerging from more than a decade of economic difficulty, the emergence of China and India is rapidly undermining Tokyo's longterm game plan for staying competitive. The Chinese challenge has, of course, been recognized for some time and Japanese companies have responded by redoubling efforts to penetrate Chinese markets while at the same time keeping proprietary, high tech production at home. But just as it seemed like these efforts might be paying off, India has entered the picture with a high tech strategy of its own that, when paired with China's manufacturing thrust, makes the entire Japanese economy more vulnerable than ever. Ironically, this is, at least in part, the result of the success of Japan's original export led growth policy. It worked so well that it was studied and widely imitated by other Asian countries seeking "miracles" of their own. First Korea, then Taiwan, Hong Kong, Singapore, Malaysia, and Thailand adopted their own versions of the Japanese game plan. It worked for them too and turned them from scrawny alley cats into Tigers. Of course, there was another important factor that contributed powerfully to the success. The United States adopted a complementary domestic consumption led growth plan. This created the

demand necessary to absorb the exports of the export led growth countries by making America into the greatest consuming country the world had ever seen. Over the past thirty years, the convergence of these two strategies has led to creation of a global economic structure that is highly complementary and unbalanced. The strong dollar, while good for American consumers, has tended to move manufacturing out of the United States to offshore locations in Asia. The result is a large and rapidly growing U.S. trade deficit that acts as the primary engine of growth of the global economy. However, this deficit has to be financed, and is currently funded primarily by lending from Japan and China. They provide a kind of vendor financing that keeps their exports and those of most of the rest of the world growing while enabling Americans to enjoy living beyond their means by consuming more than they produce. For a long time, it has been argued that this situation is nothing to worry about because the United States will move to higher ground by creating primarily services and a high tech based economy that will eventually replace manufactured exports with exports of high value added services and technology. As it has become a high cost country in recent years, Japan has also begun to move manufacturing offshore while focusing more attention on services and high technology as the keys to future growth and competitiveness. Perhaps even more significant, however, is the impact of India on the global economy. Like China, its large population is mostly poor and unskilled, but ten percent is over 100 million people who are highly skilled and fluent in English with many educated in elite U.S. and U.K. universities with extensive experience in Silicon Valley, the U.S. Center for

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58 Disease Control, and other leading institutions and companies around the world. These people can do anything that can be done in Japan, North America, and Europe. Indeed, they can often do it better, and they can do it for twenty percent of the cost. In particular, because of the Internet, they can do highly sophisticated services as well as high tech. Intel and Texas Instruments, for example, have teams in India doing design of cutting edge semiconductors. GE has one of its main R&D centers in India. Brain scans and radiology of all types are read on-line in India. Indian hospitals are flying patients from all over the world for high quality-low cost treatment in Indian facilities. On top of this, India has an entrepreneurial culture and experience that is second only to that of Silicon Valley and far ahead of Japan's. India may well outdo Japan and even the United States at inventing the next generation of technology and bringing it to market. Thus, the comforting neo-classical paradigm in which developed countries do R&D and high tech invention along with sophisticated services while developing countries specialize in agriculture and low end, simple manufacturing is being stood on its head. China and India will excel at both the high end and the low end and in services as well as manufacturing. This means Japan's ability to compete in the future will be severely challenged and America's even more so. Indeed, it means acceleration of the likely collapse of the current global economic structure. The U.S. trade deficit cannot grow indefinitely. The ability of Japan to help finance this deficit will be dramatically reduced by Japan's increasing inability to retain high tech manufacturing as China more and more produces its own components and equipment and as India takes more and more of the sophisticated service work. Japan's trade surplus and level of savings will drop significantly. Likewise, the United States will not be able to expand its exports because China and India will be more competitive in both high tech and services. In light of this, experts like former Federal Reserve Chairman Paul Volcker are predicting a 75 percent chance of a global financial crisis in the few years. This would entail a dramatic devaluation of the dollar, spiking global interest rates, and recession if not depression on a world wide scale with China and India emerging as the new arbiters of the direction of the global economy.

LBS Journal of Management & Research THE SITUATION IN INDIA The resurgence of India's manufacturing sector has been quite magical. Not only are profits soaring, the sector is fast spreading its roots abroad as many Indian manufacturing firms inch close to becoming true blue multinationals. Indian government statistics released in June held a pleasant surprise for those with a stake in the Indian economy. India's Gross Domestic Product (GDP) for the January through March 2006 quarter grew by 9.3 percent, beating market expectations. That growth compared to 8.6 percent in the year-ago period, and came mainly on the back of a healthy 5.5 percent growth in the agriculture sector. Full-year GDP growth for fiscal year 2005/06, ending March 31, 2006, was revised to 8.4 per cent from a previous estimate of 8.1 percent. The better-than-expected performance in the economy was also due to healthy growth in manufacturing and services. (a) Scope for Improvement "The Indian manufacturing sector has to grow much more before its full potential is realized, particularly when the share of manufacturing in gross domestic product has remained between 16 percent and 17 per cent during the last two decades. Indian industrial sector has shown signs of strength in recent years. Traditionally, the country has been strong in laborintensive industries such as apparel, footwear, jewelry, leather and textiles. But of late, it has emerged as a key player in skill-intensive industries such as auto components, hardware, generic drugs and specialty chemicals. The Indian manufacturing sector has by and large withstood the "competitive pressures" from imports, even as tariffs on industrial goods have been cut from the levels of more than 100 percent to a peak of 15 percent. Domestic manufacturers have demonstrated their global competitiveness by notching up export growth by 20 percent or more during the last three years. "With a growing middle class and their increasing purchasing power, domestic demand is likely to be a more powerful engine of growth than external demand. The realization that India is not just a provider of services but a huge market in itself is pushing companies across the world to rethink their strategy toward India. The effect of this can be seen across the manufacturing spectrum, from small to

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India's Manufacturing Strategy: Global Perspective mid-sized to very large companies. They are all looking at India as a sourcing and manufacturing location. (b) India Discovered As global multi-national companies (MNCs) move their manufacturing bases to India, several of them have realized that they need to create products for India locally. The primary reason for this is to achieve success not only in India, but globally as well. A silent but stirring revolution is under way among many eminent global high-end technology companies. After having established themselves firmly in the Indian sub-continent, utilizing local talent to work on essentially western problems, India has come a full circle now. Information technology (IT) majors are now seeking out help when it comes to producing products in the country itself. This phenomenon has already sparked a lot of activity in companies including Cisco, Ericsson, Nokia, LG and Samsung.. India's dream of becoming a global manufacturing hub now seems to be moving in the right direction. So much so, that even high-end semiconductor chip manufacturing companies such as AMD and Intel are not far behind when it comes to committing themselves toward establishing their manufacturing bases in this region. The most recent technology major that plans to set its base in this part of south Asia is Dell. Having done so, it aspires to increase its workforce by 50 percent within two years. (c) Strong Vision U.S. conglomerate General Electric says it is considering India as a manufacturing hub. Indicating that the company was looking at enhancing its investment in India, Chief Executive Officer and Chairman of GE Worldwide Jeffrey Immelt said recently that "this is the right time to invest in India, and we will be bold on the market here." India Finance Minister P. Chidambaram is also unflinching regarding India's manufacturing future. "We will become a global manufacturing hub for small cars in the next three to five years," Chidambaram declared recently, adding, "we will emulate this success story in other sectors to become one of the world's top three manufacturing centers." India has displaced the United States to become the

59 second-most attractive destination for foreign direct investment (FDI) among manufacturing investors, according to consultant A. T. Kearney's latest FDI Confidence Index rankings. Will the manufacturing industry in India emerge as the major contributor in the overall growth of the country? "Despite the recent rapid growth, there is no evidence of overheating in the Indian economy", as stated by Mr. Montek Singh Ahluwalia, deputy chairman of the Indian Planning Commission. There is scope for further expansion in the manufacturing sector, he said. In fact, the highgrowth rate can't be 'sustained' on the basis of services alone, he added. "Manufacturing sector must be given greater thrust." The domestic manufacturing sector reported impressive growth for the April-September period of 2005-2006 compared to the corresponding period in the previous year says an ASCON-CII survey. Of the total 140 manufacturing sectors in the country reporting production, 27 recorded a growth rate of more than 20 per cent, according to the survey. Fortythree sectors recorded a growth rate of 10-20 per cent and 50 sectors registered growth of up to 10 per cent. These figures have a story to tell of tightened belts and focus on innovation. Energy expenses are being monitored, says an Economic Times study. Between FY00 and FY05, sales have grown at a CAGR of 11.5 per cent, while power and fuel expenses have grown at 7.3 per cent only. This despite a hike in fuel prices during this period. Chemicals and steel, for which fuel costs form a significant part of the total cost of production, have brought down the fuel/sales ratio by 4.2 and 2.8 percentage points respectively. Indian manufacturing is also leveraging innovation like never before, using it to push the envelope on operational efficiencies. Faster product development, smart supply chains and deployment of lean manufacturing for dynamic production have become the order of the day. Lead time for new product development has come down by as much as 50 per cent in the past three years. Inventories are being reduced too by about 20 to 30 per cent in the last four years, added to which is the reduction in defects from about 20,000 parts per million (ppm) to below 100 ppm. On a scale of 1-10, Indian manufactured goods quality could be 7, against Germany's 9. The Indian economy has been made more and more

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60 open. This is reflected through the following points: Foreign equity up to 100% is encouraged in several sectors. Single market-determined exchange rate for the rupee is prevalent. Use of foreign brand names and trademarks for sale of goods in India is allowed. Foreign companies are permitted to open branch offices in India. The entry of multinational companies has increased the level of competition; for example, since 1991 Daewoo, LG, Santro, Samsung, and so on have started plants in India. There is a favorable attitude of government and other funding agencies. Facilities for automatic and single-window clearance are available with respect to proposals for 100% export-oriented units. The Reserve Bank of India gives automatic permission for foreign technology agreements in high-priority industries. The Indian manufacturing sector has to grow much more before its full potential is realized, particularly when the share of manufacturing in gross domestic product has remained between 16 percent and 17 per cent during the last two decades. In order to accelerate its ongoing growth, India needs a robust manufacturing sector. This is because: 1. Contribution of the manufacturing sector to

LBS Journal of Management & Research India's GDP has remained stable at around 17% while in China the manufacturing sector accounted for around 35% of the GDP and in the case of Korea it was 31% 2. In order to achieve an overall growth of 8% per annum, it is essential that both manufacturing and services grow at more than 11% even when agriculture growth picks up to close to 4%. 3. Only a sharp increase in the manufacturing sector workforce would take the pressure off the agriculture sector and increase income levels. Agriculture, supporting about 65% of the working population, contributes only 22% of its gross domestic product. A large shift of workforce from agriculture to manufacturing will help improve rural incomes and reduce poverty levels. 4.1f we compare India's performance with that of other major Asian countries we can see that the size of the value added in the Indian manufacturing sector ($ 66 billion in 2000) was less th an on e f if th of the Ch in es e manufacturing sector ($ 373 billion) and even less than half of the Korean manufacturing sector ($ 144 billion).

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Table-2: MANUFACTURING SECTOR IN INDIA AND OTHER MAJOR ASIAN COUNTRIES Value added in manufacturing in 2000($billion) India China South Korea Indonesia Thailand Malaysia 66 373 144 40 39 30 Share of Food, beverages & tobacco (%) 13 16 8 20 26 8 Share of Textile & Clothing(%) 11 11 8 20 17 4 Share of Share of Machinery & Chemicals equipment (%) (%) 22 29 45 17 10 47 25 12 9 11 8 7

Source: World Bank Report :2001 -02 on Status of Manufacturing in India and other Asian countries pp:3-5 of the web page

India's Manufacturing Strategy: Global Perspective SHARP SLOWDOWN IN MANU1 ACTUREVG SECTOR GROWTH The manufacturing sector grew at an average annual rate of 6% in the 14 years between 1990-91 and 2003-04. This was higher than the 5.8% growth in Industry and the 5.7% GDP growth during this period. However, manufacturing sector growth has fallen

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sharply in the last seven years as compared to the first seven years of the reforms period. It has slumped from 7.4% to just4.7% later. Manufacturingsectorgrowthinthelatterperiodwas lower than the 5.1% growth clocked by industry and the 5.7% growth of GDP during the period.

Table-3: SHARP SLOWDOWN IN MANUFACTURING SECTOR GROWTH (% First seven years (1990-91 to 1996-97) Manufacturing Industry GDP
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Last seven years (1997-98 to 2003-04) 4.7 5.1 5.7

Overall period (199091 to 2003-04) 6.0 5.8 5.7

7.4 6.5 7.8

Source: Reserve Bank of India Report: 2005-06 pp36 of the chapter on manufacturing. COST DISABILITY FACTORS FACED BY INDIAN MANUFACTURING SECTOR Higher input costs for the Indian manufacturing sector can be attributed to: 1. Cascading effect of indirect taxes on selling prices of commodities, 2. Higher cost of utilities like power, railway transport, water; 3. Higher cost of finance and 4. High transactions costs. FICCI has estimated that additional costs imposed on the manufacturing sector on account of multiplicity and high level of taxes, high cost of capital and poor quality and excessive user charges of support infrastructure services add up-to 12.2% of the cost of production. 1. Cascading effect of indirect taxes on selling prices of commodities A FICCI study showed that the average total incidence of indirect taxes on the selling price of all commodity groups works out to 36.25%. Whereas custom duties have been brought down over the years (peak customs duty on manufactured items stands at 20%) the government has been increasing the excise duty burden on the manufacturing sector. 2. Higher cost of utilities High cost of power - Total electricity costs as a proportion of total manufacturing cost is 10.4%.

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Table-4: COST OF POWER SUPPLIED TO INDUSTRY: AN INTERNATIONAL COMPARISON (2001) Country India Korea Malaysia Thailand Singapore China USA UK Source: The World Competitiveness Yearbook, 2002 pp 237 US $ kilo watt per hour 0.074 0.062 0.056 0.061 0.079 0.032 0.040 0.055

62 Inefficiencies at Indian ports - High turnaround time, few containers handled per hour, and high charges impose 30% higher working capital requirement in India.

LBS Journal of Management & Research At present, the capacity of 43 million tonnes at all Indian ports is being fully utilized, and this requirement will increase up-to 120-150 million tones by 2015.

Table-5: PRODUCTIVITY IN CONTAINER HANDLING AT MAJOR PORTS: AN INTERNATIONAL COMPARISON Ports Throughput Per Day Handling Productivity (moves per ship hour) Chennai Jawahar Lai Nehru Bangkok Laom Chabang Colombo 15 35 38 310 800 1300 1400

Source: Fairplay Report on Productivity in container handling at major ports: An international comparison pp : 105.
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Poor road conditions - Losses due to congestion and poor condition of roads estimated at more than Rs 120 billion (WorldBank). Railway freight prices- It is well know that the railways cross subsidize passengers at the expense of | freight. This cross subsidization has eroded the cost | advantages of rail transport and negatively impacted

on costs to industry. 3. High cost of finance to industry The lending rates of banks are still much higher in India as compared to the other countries that compete with India in global markets and also much higher than the developed countries.

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Table-6: CROSS SECTION DATA ON LENDING RATES (% FOR THE YEAR 2003) Country Lending Rate Real Interest Rate India Thailand Malaysia Singapore China Korea USA UK 11.46 5.94 6.39 5.37 5.31 6.24 4.12 3.69 7.66 6.00 5.2 5.76 4.11 3.14 1.82 0.79

Source: International Financial Statistics, pp-45 of the International Monetary Fund Report for the year 2005

Major financial issues that hinder the manufacturing sectorwould include: (i) Demise of development financial institutions 73% of respondents to a FICCI survey point out that DFIs have not been very active during the last five years and

(ii) The risk-averse attitude of the financial sector on account of Asset Liability Mismanagement (ALM) and the large size of the Non-Performing Assets (totaling Rs 62436 crores in September 2004) has led to a dearth of low cost long-term capital for the manufacturing industry.

India's Manufacturing Strategy: Global Perspective 4. High Transactions costs and a prosecution oriented regulatory environment One survey conducted by FICCI points out that a maximum of 91 inspectors could visit an industrial establishment with 20 of them under 5 regulatory

63 areas having the power of sending the owner behind bars. Moreover, the multiplicity of procedures and compliance measures adding to transactions costs and time thwarts efficiency.

Table-7: THE BUSINESS ENVIRONMENT (AS ON JANUARY 2003) India China Days to start a business Cost to register business (as % of GNI per capita) Days to enforce contract
Source: World Development Indicators, 2004 Report pp 6-9 of the web page.

88 50 365

46 14 180

It has taken much too long for units to declared sick or revived, which blocks productive use of capital.. It takes on average, 11.3 years in India to resolve insolvency as compared to 1 in China.
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Structure of the Indian Manufacturing Sector and the Cost Advantages and Disadvantages in International Perspective
In 2002-03 there were 1.28 lakh registered production units employing 78.9 lakh workers. The total output of the manufacturing sector was Rs 10,87,865 crore and the gross value added Rs 2,15,006 crore. 1. Size and distribution of production units in the manufacturing sector The manufacturing segments with the largest number of units were food and beverage with 23,941 units (18.7%), followed by textiles with 12792 units (10%), non-metallic mineral products with 11,508 units (9%), chemicals with 10,435 units (8.1%), machinery and equipment with 8,657 units (6.8%) and fabricated metal products with 8,137 units (6.4%). These six industries accounted for 59% of the total registered production units in 2002-03. 2. Size and distribution of manufacturing sector employment The registered units with the largest share of employment were in the food products and beverage with 12.9 lakh workers (16.4%) followed by 12.2 lakh in textiles (15.4%), chemicals with 7.5 lakh workers (9.5%), basic metals with 5.6 lakh workers (7.1%), non metallic mineral products with 5.1 lakh workers (6.5%), and tobacco products with 4.5 lakh workers (5.7%). These six industries together accounted for 61% of the total employment in the registered manufacturing sector in 2002-03. 3. Size and distribution of manufacturing sector output The registered manufacturing sector output was the highest in food products with Rs 1,68,565 crore (15.5%), followed by chemicals with Rs 1,59,081 crore (14.6%), coal, coke and refined petroleum products with Rs 1,48,029 crore (13.6%), basic metals with Rs 1,17,818 crore (10.8%), textiles with Rs 84,271 crore (7.7%) and motor vehicles with Rs 57,732 crore (5.3%) Together these six industries accounted for 68% of the total output in the registered manufacturing sector in2002-03.

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LBS Journal of Management & Research Table-8: SHARE OF DIFFERENT SEGMENTS IN THE REGISTERED MANUFACTURING SECTOR IN INDIA: 2002-03 I Units Employment Output Gross value added 9.4 18.8 10.3 10.5 7.7 4.8 5.5 3.7 4.4 3.2 2.9 2.2 2.4 2.0 1.6 1.4 2.6 1.6 0.8 1.9 0.9 0.7 0.2 100

Food products and beverages Chemicals and chemical products Coke, refined petroleum products and nuclear fuel Basic metals Textiles Motor vehicles, trailers and semi-trailers Machinery and equipment
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18.7 8.1 0.7 5.1 10.0 2.2 6.8 5.4 9.0 3.0 1.5 0.8 6.4 2.6 2.7 1.6 2.0 2.4 1.8 3.6 0.8 0.1 2.3 100

16.4 9.5 0.9 7.1 15.4 3.4 5.0 3.5 6.5 2.8 2.2 1.4 3.6 4.4 2.3 1.7 5.7 1.6 1.9 1.6 0.9 0.2 0.7 100

15.5 14.6 13.6 10.8 7.7 5.3 4.4 3.3 3.3 2.9 2.6 2.3 2.2 1.8 1.7 1.6 1.4 1.0 0.9 0.9 0.7 0.4 0.2 100.0

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Rubber and plastic products Other non-metallic mineral products Electrical machinery and apparatus. Transport equipment Radio, television and communication equipment and apparatus Fabricated metal products, except machinery and equipments Wearing apparel; dressing and dyeing of fur Paper and paper product Furniture manufacturing Tobacco products Publishing, printing and reproduction of recorded media Tanning and dressing of leather; luggage, handbags saddlery, harness and footwear Others Medical, precision and optical instruments, watches and clocks Office, accounting and computing machinery Wood and of products of wood and cork All industries
Source: The World Competitiveness Yearbook, 2002 pp-169-172.

India's Manufacturing Strategy: Global Perspective HIGH COSTS OF INPUT MATERIALS AND UTILITIES IN INDIA: A MAJOR DISADVANTAGE IN THE GLOBAL MARKETS The raw material and infrastructure (utilities) input costs in the Indian manufacturing sector are much higher in India as compared to other major Asian players. A comparison of costs of input materials and utilities in India, China, Malaysia and Korea across

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15 important manufacturing segments showed that on the average, share of input materials and utilities costs in total output value was as high as 81.3% in India as against 75.5% in China, 68.7% in Malaysia and only 58.5% in Korea.

Table-9: SHARE OF COST OF INPUT MATERIALS AND UTILITIES IN TOTAL OUTPUT OF DIFFERENT INDUSTRIES IN THE MANUFACTURING SECTOR (%) India Food Products Leather & Fur products Textiles Wood products
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China 78.7 77.1 76.8 77.1 76.6 79.6 76.3 74.4 76.5 73.7 74.7 73.0 66.4 75.5

Malaysia 87.0 66.4 63.6 67.8 68.6 68.4 76.0 61.6 66.0 73.0 75.9 73.6 81.8 53.5 47.4 68.7

Korea 62.4 69.5 58.1 59.5 54.9 62.4 74.9 57.8 53.1 59.1 51.8 61.6 66.0 44.2 41.5 58.5

88.8 85.8 85.4 83.5 83.2 82.8 82.4 82.4 80.2 78.9 78.7 78.5 77.9 76.0 75.1 81.3

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Metal products Industrial chemicals Non ferrous metals Plastic products Rubber products Transport equipment Electrical machinery Non-Electrical machinery Iron & Steel Glass Printing & publishing Average

Source: UNIDO Report on Share of cost of input materials and utilities in total output of different industries in the manufacturing sector, pp99-102

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LBS Journal of Management & Research

ADVANTAGE INDIA: THE LOW LABOR COSTS IN THE MANUFACTURING SECTOR No comparison can be made with the share of labor costs in manufacturing in China because of nonavailability of data. Available figures show that labor costs of manufacturing are much lower in India as compared to Malaysia and Korea. However, the share of labor cost in manufacturing in Indonesia is much lower than that India. Estimates show that the average share of labor costs in manufacturing across 15 major industries was 6.9% in India as compared to 8.7% in Malaysia, 10.7% in Korea and5.5% in Indonesia.

Table-10: SHARE OF COST OF LABOR IN TOTAL OUTPUT OF DIFFERENT INDUSTRIES IN THE MANUFACTURING SECTOR (%) India Food Products Leather & Fur products Industrial chemicals Plastic products
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Indonesia 4.2 7.7 4.9 6.0 2.2 4.8 3.4 4.6 4.7 6.1 5.9 7.5 6.3 3.9 10.1 5.5

Malaysia 3.2 16.7 2.9 12.9 5.0 10.0 5.1 6.4 8.8 10.7 10.9 8.1 6.6 6.0 16.7 8.7

Korea 7.7 8.1 5.5 12.0 5.9 13.8 5.8 9.1 13.4 13.7 12.6 14.0 11.2 10.7 16.6 10.7

3.7 4.4 4.6 4.9 4.9 5.3 6.1 7.1 7.2 7.4 7.6 7.9 8.4 10.2 13.9 6.9

Iron & Steel Rubber products Non ferrous metals Electrical machinery Textiles Metal products Wood products Glass Non-Electrical machinery Transport equipment Printing & publishing Average

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Source: UNIDO Report on Share of cost of labor in total output of different industries in the manufacturing sector, pp 72-75

CONCLUSION Over the last decade, India's manufacturing sector has changed dramatically and emerged as the key to meeting the ambitious nine percent growth target in the Tenth Five Year Plan. Manufacturing is the logical engine to provide employment growth in India, because the work force in the organized sector core engine for grow this currently only eight percent. The challenges are significant. There are numerous constraints to growth, and India has its work cut out as it makes the transition from being an attractive

labor pool to a global manufacturing power. While focusing on operational efficiency, innovation, hightech research and development, India needs to reform its fiscal policy, labor laws, regulatory system, foreign investment policy etc. in order to attract all the top manufacturing giants of the world by offering them world class facilities. Based on the speed at which India is growing and the kind of role it is playing in the field of global manufacturing, it can be safely predicted that India is going to be universally accepted as the "Global Manufacturing Hub".

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