India, undoubtedly, has been a leader in tablets and other kinds of pills and diverse pharmaceutical products. Pharmaceutical development and manufacturing has been one domain of manufacturing that has brought out a Made in India advantage onto the global arena. Of late, however, Indian manufacture has been demonstrating early shoots of manufacture and global challenge in another kind of tablets - the electronic tablet computers that were hitherto considered the preserve of the likes of Apples and Samsungs! In fact, the launch of an indigenous 5” tablet by an indigenous manufacturer at almost half the price of a ruling imported tablet product has led Samsung to announce posthaste a new tablet model at a dramatically reduced price. This development points to the possibility that with some concerted government-industry action electronics manufacture could be a new wave of growth for India.
Electronics need not be seen as the only early shoot of industrial manufacture. There are several other industrial manufacturing segments, some near the maturing state and some in the emerging and growth stages. These include aeronautics, space vehicles, automobiles, heavy engineering, electrical products, white goods and consumer items, to name a few. There is, of course, the caveat that in each of these certain critical internals are based either on overseas technical designs or imported into the country from the collaborators. Examples could be engines, compressors and the like. Yet, even in these areas capability exists to build indigenously capable systems, for example cryogenic engines or ejection systems in space equipment. It is instructive that the development of Indian industry occurred when phased manufacturing programs as in the case of automobiles and national policy missions as in the case of space engineering were put in place.
Singular drive, plural participation
There are two main considerations that drive indigenous manufacture. Firstly, the Original Equipment Manufacturer (OEM) must feel and demonstrate the passion for developing a completely indigenous product as a long term goal (say of 5 years). Secondly, the OEM should be willing to spread the same passion to multiple industries to participate and support the indigenous OEM product. The national space mission, for example, became an icon of indigenous success because of its efforts to draw in as many as two hundred industries in the development of indigenous space systems and equipment. Maruti Suzuki became the most indigenized car by bringing along all of the Japanese component makers to India. There is, however, only a limited indigenization that an individual firm can prompt. An automobile OEM typically can influence its component makers to come to India but not necessarily the raw material makers, for example steel.
OEMs require more than normal procurement or vendor development activities to develop high quality, low cost indigenous activities. A complete supply chain, cascading the Bill of Materials (BOM) down to the basic materials would need to be drawn up to establish, first the plurality of participation that is required and next the suitability of the available component and materials infrastructure. A detailed gap analysis would then establish the task of development at hand. While it would be impractical and inefficient to try to develop the entire new BOM of an OEM product to new standards, a judicious mix of indigenous development and import access should be examined on a case by case basis. The strategic plan for total indigenous development has several imponderables to consider, essentially related to the technological and investment considerations.
To establish a complete indigenous industrial infrastructure that enables an OEM product with 100 percent indigenous content, there exist two approaches. The first approach is the cascade approach discussed briefly above. In the cascade approach, the drawback or limitation is that what works at the OEM level does not necessarily apply to the steel sheet level. In a typical automobile weight of 1400 kg, approximately 75 percent is metal weight (iron, steel and aluminum). Steel by itself constitutes 60 percent at 800 kg. Considering that most cars in India are small cars, the average weight of a car could be 1100 kg and the average weight of steel per car could be lower at 600 kg. India produces 3 million cars which is an economical volume of production. The three million per annum car output requires a steel tonnage of 1.8 million per annum. This level of steel tonnage is, however, less economical for steel plants. Moreover, the lead time for a new steel plant could be as high as 10 years and for modernization 5 years. On the other hand, changes in steel technology as a subset of automotive technology could be occurring every 5 years. The investment in a steel plant’s technological modernization could be three times that of an automobile plant’s modernization. Such imbalances in technological, lead time and investment considerations in OEM and basic material industries make a coordinated cascade approach that seeks complete indigenization across the entire industrial spectrum more of an aspiration than a practical proposition.
In the cluster approach, several indigenous industrial infrastructural capabilities are created regardless of any coordinated pull from the OEM sector. This could be infrastructure in all kinds of metals, machine tools and plastics, for example. Early industrialization in India followed this approach. There are again two fundamental considerations in the cluster approach. The first consideration is that of creation of islands of excellence in various industrial segments which like bubbles would grow and coalesce into larger clusters. The second is that individual industries, if developed well, provide their own push effect to overall industrialization. The cluster approach of indigenous industrialization works well in the short and medium term but does not provide spread or competitiveness in the long term. In India, for example, steel and machine tools were developed as the first islands of indigenous industrialization without giving any fillip or support of any sort to the automobile industry which is one of the most important users of these two segments, and which also sets the higher standards of technology (in terms of machining and material tolerances). As a result, not only the automobile industry lagged behind domestic needs for decades (until Maruti Suzuki came on the scene in the 1980s) and international capabilities but also the enabling industries of steel and machine tools remained uncompetitive in both quantity and quality.
Integrated development of a spectrum of industries with a simultaneous approach of cascade and cluster strategies is well merited. The success of the Indian National Space Mission in accomplishing its mission with largely indigenous clusters is a great example of combining the cascade and cluster approaches. Whatever be the past considerations in not applying such a combined approach in indigenous industrial development, the move forward requires such an approach, particularly because India has achieved globally critical mass in a number of industries. India, for example, is the sixth largest producer in the world of all four wheeler automobiles with an annual output of 4 million units (nearly 6 percent, out of a global output of 70 million units). India is also the fifth largest producer of steel with an annual output of around 80 million tonnes (5 percent, out of a global output of 1600 million tonnes). In terms of cellular phone usage, India is the second highest user in the world with cell phones in use of 1.2 billion (20 percent, out of the world’s use of cell phones being 6 billion). There are, however, a few industries like machine tools where India has the potential but is just 3 percent of the global output in dollar terms, and just 10 percent of even the Chinese machine tool output.
India can catapult into global industrial output if it adopts an integrated strategy of cascade and cluster. For the cascade component of the integrated strategy to be successful, India must choose industries which would move in alignment with India’s population and the country’s changing demographic, employment and income profiles, all of which are a clear positive for maximizing industrial output. Electrical, electronic, computing and telecommunication devices and equipment, automobile, rolling stock, aircraft and machine tool products, and chemical, oil and gas and pharmaceutical products, for example, can define and pull the cascade. Semiconductor, chip, steel and other metal and non-metal, forging, casting, tooling, mold and die industries could be the clusters that support the cascades. The combination of cascades and clusters could together boost indigenous industrial production where consumption and usage has already reached (or will reach) critical scale. The implementation of the cascade and cluster strategy requires active collaboration between various industries on one hand, and the industry in the aggregate and the governments, central and state, on the other.
However good the concept of cascade and cluster industrial paradigm is, it cannot be proactively initiated and effectively implemented without a prescriptive approach. The prescriptive approach requires industry associations to develop strategic plans by which industries can be effective in triggering cascades and clusters. It also requires the governments to provide material support and regulatory direction to participate in the cascade and cluster strategy. If Japan could become a global industrial power by inter-industry and industry-government collaboration facilitated by the government agencies (for example, MITI), there is no reason why India cannot excel in the same manner. The fundamental transformation sought to be achieved by the Indian tablet devices could be indicative of the right prescription for the future health and vigor of Indian indigenization.
Posted by Dr CB Rao on March 3, 2013