How to Improve Manufacturing Competitiveness?

Having emerged as one of the fastest growing economies in the world, India is transforming its manufacturing sector with a clear objective to become a global leader in the foreseeable future. As several demographers underlined, India is sitting on a demographic dividend. It is expected to become the world’s youngest country by 2020. To absorb much of this labour force, India plans to create millions of jobs by focusing primarily on manufacturing.

Presenting theUnion Budget 2017-18, the Union Finance Minister said, “The International Monetary Fund has hailed India as a ‘bright spot’ amidst a slowing global economy. The World Economic Forum has said that India’s growth is ‘extraordinarily high’.” The Union Budget provides renewed impetus to manufacturing and Make in India.

In this backdrop, India has become the 6th largest manufacturing country in the world. In order to maintain such momentum, India needs a vibrant manufacturing sector.

Before delving into the detail, there is a need to understand about manufacturing competitiveness and what makes a nation more competitive than other?

In communication with eQuest, Debashis Sarkar , author, columnist and one of Asia’s leading quality thought leader put various things related to in a perspective. Sarkar defined, “Manufacturing competitiveness refers to the ability of a nation to produce world class contextually relevant products at lowest cost and becoming an attractive destination for global companies. Manufacturing competitiveness is an outcome and gets built through leadership, talent, nation’s infrastructure, supplier network, modern technology, friendly policies, skill building engine, relevant consumers and so on”

The World Economic Forum (WEF) defined competitiveness as, “The set of institutions, policies and factors that determine the level of productivity of a country”.  Since the 1970s, the WEF is measuring competitiveness at the global level. Basically, rising competitiveness means rising prosperity.  Experts emphasised that competition breed productivity.  Policy markers, experts stressed upon it for major …

As name suggests, manufacturing competitiveness deals with a set of practices in the manufacturing sector. They play an instrumental role in intensifying manufacturing. It is evident that this sector creates immense opportunities across values chain and it has a multiplier effect on job creation.

In order to map manufacturing competitiveness at the global level, the Deloitte Global and the Council on Competitiveness release the Global Manufacturing Competitiveness Index.  The 2016 Global Manufacturing Competitiveness Index  ranked India at the 11th slot. Consistent with earlier trends, China retained the top slot. The index showed that manufacturers continue to rank talent as the most critical driver of global manufacturing competitiveness.
The index stated that containing costs and increasing productivity to boost profits remains critical for manufacturers. Other important reasons are building a strong network and ecosystem of suppliers. The 2016 study includes more than 500 survey responses from senior manufacturing executives around the world

2016 Global Manufacturing Competitiveness Index
(Rankings by Country)

Country                                                  Index 

China                                                        100

United States                                            99.5

Germany                                                   93.9

Japan                                                       80.4

South Korea                                            76.7

United Kingdom                                     75.8

Taiwan                                                   72.9

Mexico                                                    69.5

Canada                                                   68.7

Singapore                                                 68.4

India                                                        67.2

Switzerland                                              63.6

Sweden                                                   62.1

Thailand                                                                 60.4

Poland                                                    59.1

Source: The 2016 Global Manufacturing Competitiveness Index (GMCI) by Deloitte Global & the Council on Competitiveness.

 

Indian Manufacturing Sector in Nutshell

Ø  India is the 6th largest manufacturing country in the world

Ø  India contributes ~2.2 per cent of the global manufacturing output.

Ø  Indian Manufacturing sector currently contributes about 16 to GDP

Ø  Manufacturing sector employs about 12 per cent of India’s workforce

Ø  India is one of the largest tractor manufacturer

Ø  2nd largest bus manufacturer

Ø  2nd largest two-wheeler manufacturer

Ø  5th largest heavy truck manufacturer

Ø  6th largest car manufacturer

Ø  8th largest commercial vehicle manufacturer

Source: Compiled from various publically available data

 

Essential Elements to Ensure Manufacturing Competitiveness:

Debashis Sarkar shed light on how to improve manufacturing competitiveness and productivity in India. These are: demographic dividend, talent, infrastructure, policy changes, innovation, research & development (R&D), regulatory mechanism, MSMEs as engine of growth. These determinants create the ecosystem in which companies enable us to be competitive in the manufacturing sector.

Bridge the skill gap as soon as possible: According to the 6th Economic Census, Manufacturing sector was the largest employer providing employment to 30.3 million (23.1%) persons. This was followed by retail trade employing 27.19 million persons (20.7%) and livestock sector employing 19.4 million persons (14.8 %). To maximise the potential, a number of fundamental steps can improve contribution of manufacturing sector. Recently, the Government of India underlined the important of skill development in the Union Budget 2017-18. The Union Government mentioned SANKALP scheme to provide market relevant training to 3.5 crore youth. STRIVE scheme to improve the quality and market relevance of vocational training. Such skill development initiatives will give essential support for the Make in India.

Achieve manufacturing excellence: In order to improve productivity, companies should inculcate quality practices since the beginning. These are Total Quality Management (TQM), Total Productive Maintenance (TPM), 5S and Kaizen.With adoption of these standard quality practices, companies will get tangible as well as intangible business results.It is evident that several companies tweaked such quality approaches according to their local needs.

Simplification of Regulatory Environments: India has undertaken various steps to become the top destination for ease of doing business. One of them is Insolvency and Bankruptcy Code, 2016. This step is reported as a vital reform that will make it much easier to do business in India. Currently, India is ranked 130 in the World Bank’s the Ease of Doing Business Index. India has improved its position on three counts. These are starting a business, getting construction permits and accessing electricity. India was ranked 134 in 2015.

Innovation, Research & Development (R&D): India is presently ranked 66th among a total of 128 economies, as per the Global Innovation Index (GII).  The GII aims to capture the multi-dimensional facets of innovation. It provides the tools that can assist in tailoring policies to promote long-term growth, improve productivity, and create jobs.  
According to the official figures, India’s Gross Expenditure on Research and Development (GERD) as percentage of GDP has remained so far less than 1per cent as compared to the developed and emerging economies despite increase in absolute terms.
It is a cause of concern for many.
Recently, the India Brand Equity Foundation (IBEF) estimated, “India is fast emerging as a global R&D hub. Around 30 per cent of the top 1,000 global R&D spending organisations have centres in India. India’s R&D investment growth is likely to outpace overall Gross Domestic Product (GDP) growth.” In India, there is no dearth of initiatives to spur innovation.  The government and private players are embracing advanced technologies to improve productivity. Manufacturing competitiveness India is expected to intensify in the coming years.

The Global Competitiveness Report, the Doing Business Report and the UNCTAD World Investment Report showed that India has improved its policies, practices and economic profile in the recent past. In the wake of the Make in India, expectation from manufacturing sector is very high. To succeed in the rapidly evolving global manufacturing landscape, companies will need to embrace key elements of manufacturing competitiveness. These are talent, maintaining costs, strengthening the ecosystem of suppliers and increasing productivity to boost profits.

We welcome your thoughts and comments on manufacturing competitiveness.

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