Transcript Challenge to India: A Manufacturing Strategy To

To Outpace China’s
Exports
*Dr. Manika Singla - Project Fellow
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Across developing nations there is an ongoing debate and emerging
concern about the:
Threat and opportunity in relation to the rise of China
And the consequent intensification of competition in labour intensive
manufactures
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The debate is even more pertinent in case of India, as China and India are
not just similar in population size but also with respect to factor
endowments.
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It is important therefore,
To explore the structure of comparative advantage of India and China
And the extent to which the two economies compete with each other in the
global market for exports in manufacturing/value added sector
This paper makes an attempt to develop some insights on the subject.
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*Dr. Manika Singla - Project Fellow
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The dynamics of Chinese comparative advantage has been
analyzed in several studies, prominent among these are:
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Hinloopen and Marrewijk (2004) study & Albaladejo
(2003):
Aspect of threat/ opportunity in the context of China's
economic relations with South East and East Asia
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Lall and Weiss (2004):
Chinese competitive threat to the Latin American economies
No Attempt: Competitiveness that Chinese exports may pose
for Indian manufacturers and
exporters in the global
economy.
*Dr. Manika Singla - Project Fellow
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a.
What is the
development?
fastest
route
to
b.
Why India lagged in performance from China?
c.
Can India surpass China?
*Dr. Manika Singla - Project Fellow
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Assumption:
 SME(Small and Medium Enterprises) is a primary indicator
of country’s future economic expansion

As it can effectively disseminate economic benefits to larger
section of society by engaging even low skill laborers
Limitation:
 Non-economic factors such as:
a)
Human Rights
b)
Democratic Empowerment
*Dr. Manika Singla - Project Fellow
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Highlights:
 Comparative Advantage (China):
a)
b)
Production specific
Macroeconomic factor’s
SWOT Analysis (India)
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Methodology:
 Time Series Line Graphs & BAR Diagrams (2000-2010)
a)
b)
India's & China's export intensity in international markets
India’s potential to capture manufacturing export segment
Research Instrument:
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Secondary Data Collection: Newspapers, Journals, Working
Papers, Web Data
*Dr. Manika Singla - Project Fellow
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Part One: Comparative Contributions To GDP of India &
China (Comparative Analysis)
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Part Two: Factors for China’s Growth Model
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Part Three: Emerging Business Avenues For Indian
Exporters & India’s Forecast
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Part Four: Policy Implications & Manufacturing Strategy
for India (SWOT Analysis)
*Dr. Manika Singla - Project Fellow
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To GDP of India &
China
*Dr. Manika Singla - Project Fellow
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India
China
100%
0
90%
Goods Exports
(BillionUSD)
80%
70% 25003300
5900980014300
60%
50%
250
390 325
30%
450 590
620 980 1420
20%
900 1490
12001400
10%
1900
26004320
40%
5870
(BillionUSD)
42
52
78
0
124 188
120
179
80%
440 500
138
780
70%
170
90%
(BillionUSD)
Merchandise
60%
50%
40%
Manufacturing
30%
Value Added
20%
(BillionUSD)
10%
68
72
Goods Exports
exports
1730
102
480 510
700
910 1160
(BillionUSD)
Manufacturing
Value Added
(BillionUSD)
GDP
0%
(BillionUSD)
2010
2008
2006
2004
2002
exports
GDP (BillionUSD)
0%
2000
Merchandise
100%
Figure 1
Figure 2
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As per World Bank data indicated in figures 1 & 2:
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GDP for China was reported at 5870 USD and for India at
1730 USD in 2010 indicating an almost 70.5% increase for
which:
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Exports including merchandise exports and goods exports as
well as manufacturing value addition plays a major role.
Meaning:
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Demand for domestic production of China is highly driven
by merchandise and value added exports
*Dr. Manika Singla - Project Fellow
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China (% of total merchandise
exports)
81.784
High-Income…
Economies Within…
Economies…
5.318
Latin America &…
12.888
Latin America & the…
3.368
Middle East &…
1.612
Europe & Central…
3.892
0
Average
3.642
2.862
Europe & Central Asia
Fig 1.1
Average
5.422
Middle East &…
100
2.62
10.254
East Asia & Pacific
Sub-Saharan Africa
50
24.822
5.082
South Asia
1.812
Sub-Saharan Africa
5.078
Economies Outside…
5.308
East Asia & Pacific
68.604
High-Income…
Economies Within…
2.114
South Asia
India (% of total merchandise exports)
0
20
40
60
80
Fig 1.2
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Since 2000, India’s market for merchandise exports in high
income economies and Europe and Central Asia remained
unexplored in comparison to China.
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Hence, India can think of exploring the markets for its
merchandise exports in Latin America & the Caribbean,
Europe & Central Asia, Developing Economies within Region
and High-Income Economies in the coming future.
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% of Merchandise Exports of
% of Merchandise Exports of India
China
Fuel Exports
Fuel Exports
2.438
Food Exports
Food Exports
3.822
Ores and Metals
Agricultural Raw
average
0.664
Materials…
Manufactures
0
5.24
Agricultural Raw Materials
1.388
Exports
Manufactures Exports
90.918
Exports
10.91
Ores and Metals Exports
1.886
Exports
9.642
50
Fig 2.1
71.036
0
100
20
40
60
80
average
Fig 2.2
*Dr. Manika Singla - Project Fellow
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The world bank statistics indicates that India has succeeded in
competing with China in other segments of merchandise
exports except the segment of manufactured exports.
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In other words, China has gained comparative advantage in
manufacturers exports in comparison to India.
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This demonstrates that India needs to find its potential in
labour intensive manufacturing in order to compete in global
markets.
*Dr. Manika Singla - Project Fellow
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% of Value Added in Manufacturing in
China
17.68333
Chemicals
92.425
Manufacturing
Machinery &
2.5
Transport…
Food; Beverages
average
667
Other Manufacturing
41.6
Machinery & Transport
19.82666
Equipment
667
Food; Beverages and
10.9
Tobacco
4.05
and Tobacco
17.66666
Chemicals
333
Other
% of value added in Manufacturing in
India
9.736666
Textiles and Clothing
Textiles and
2.24
Clothing
0
667
0
50
Fig 3.1
100
10
20
30
40
50
average
Fig 3.2
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Value added contribution of China in GDP beats India
towards industries belonging to other manufacturing
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Leaving other industries belonging to chemicals,
machinery, food and textiles in which India has attained a
much better position.
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That means there’s an opportunity for Indians to explore
new areas of manufacturing such as value added segments
(food processing), indigenous production (handicrafts),
engineering goods, biotechnology, organic farming, auto
parts etc.
*Dr. Manika Singla - Project Fellow
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China’s Growth Model
*Dr. Manika Singla - Project Fellow
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The GDP per capita; PPP (US
dollar) in China was last reported at
7535.50 in 2010, released in 2011.
GDP Per Capita, PPP (US $)
8000
7535
7000
6000
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In 2008, the same was reported at
5970.81 in China in comparison to
India at 2946 USD
5970
5000
4700
China
4000
India
3500
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This indicates China’s growth of 60
percent which was almost the
double of India’s growth rate at 30
percent.
3000
2000
2800
2300
2946
2500
2000
1670
1500
1000
0
1995
2000
2005
*Dr. Manika Singla - Project Fellow
2010
2015
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Macro Economic Factors:
1.
2.
3.
4.
5.
6.
7.
8.
Political Influence of China.
Liberalization of the Market.
Foreign Direct Investment.
Export Competitiveness.
Cross- Currency Valuation.
Logistics Performance Index.
Manipulation of Intellectual
Property rights.
Special Economic Zones (SEZs).
7.
8.
9.
10.
11.
12.
13.
Infrastructure Development.
Technological Developments.
Govt. Incentives to
Manufacturing Sectors.
Capital Markets.
Special Support to State
Owned Enterprises.
Industrial Production.
Strategic Locations.
*Dr. Manika Singla - Project Fellow
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Production Specific Factors:
1.
2.
Vendor Base Development.
Low Cost Business Environment: Labor Productivity & Input Costs.
 Capital & Borrowing Cost.
3. Company Management Capabilities.
*Dr. Manika Singla - Project Fellow
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For Indian Exports
*Dr. Manika Singla - Project Fellow
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1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Indian Jewelry.
Textiles Industry.
Tourism.
Automobile.
Social Ventures
Software.
Engineering goods.
Franchising.
Education & Training.
Food Processing.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Corporate Demands.
Ayurveda & Traditional
Medicine.
Organic Farming.
Media.
Floriculture.
Toys.
Healthcare Sector.
Biotechnology.
Energy Solutions.
Recycling Business.
*Dr. Manika Singla - Project Fellow
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June 2010 Deloitte's study ranked top five countries in
manufacturing competitiveness as: China, India, Korea, the
U.S. and Brazil
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BRIC concept: Russia and Brazil will be the major exporter
of raw materials while China and India with their low costs
and other numerous advantages will export the manufactured
goods and services.
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The drive behind India’s higher growth rates will be three
things called as DRG factors:
1) Demographics.
2) Reforms.
3) Globalization.
*Dr. Manika Singla - Project Fellow
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1.
2.
3.
4.
Global trend to manufacture and source products in low-cost countries
(LCCs).
India can — and should — aspire to become one of the three largest
exporters of manufactured goods among LCCs by 2015.
For this, India has to increase its share in world manufacturing trade from
0.8% to 3.5% by 2015 in order to increase its :
GDP growth rate.
Jobs in different segments of manufacturing sector such as:
Apparel.
Auto components.
Specialty chemicals.
Electrical and electronic products etc.
*Dr. Manika Singla - Project Fellow
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To
outpace
Chinese
exports from domestic
and global markets
*Dr. Manika Singla - Project Fellow
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STRENGTHS
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English Proficiency
Government Support
Cost Advantages
Strong Tertiary Education
Process Quality Focus
Skilled Workforce / Demography
Entrepreneurship
Reasonable Technical Innovations
Reverse Brain Drain
Existing Long Term Relationship
WEAKNESSES
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Positioning & Brand Management
Infrastructure
Cultural Differences
Sales & Marketing
Legal System Bureaucracy
Poor Globalization Skill
*Dr. Manika Singla - Project Fellow
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OPPURTUNITIES
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Creation of global brands
Resource Based Sectors
Chinese domestic & export
market
Leverage relationship in
Middle East markets
Indian Domestic Market
Growth
Exploring New Segments of
Manufacturing
THREATS
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Internal Competition for
Resources
Over promise / Under
Delivery
Regional Geo-Political
Uncertainty
Rising Labor Cost
Competition from Other
Countries
Corruption / Piracy / Trust
*Dr. Manika Singla - Project Fellow
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1.
2.
3.
4.
5.
Infrastructure development.
Increase in domestic savings & investments.
Prioritizing labor law reforms.
Overcome from internal security threat.
Focus on primary & secondary education.
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THE GOVERNMENT NEEDS TO REMOVE FOUR BARRIERS
TO EXPORT-LED GROWTH:
1.
Stimulate domestic demand by reducing indirect taxes and import duties
De bottleneck ports and accelerate power reforms
Encourage the development of several manufacturing clusters
Accelerate labor reforms and facilitate skill development
2.
3.
4.
*Dr. Manika Singla - Project Fellow
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
The dumping of “one hour technology” inferior products(fans, toys,
watches, mobile etc) has become threat to Indian industry and is the one of
the main cause of dampening labour intensive export market.
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As China followed a path of Capitalism through FDI, India also need to
have a solid political foresight and realistic economic strategy to face the
internal challenges and widen its scope of manufacturing base with a view
to make its place in international markets.
Strategy for India:
A Strategy to make India a manufacturing hub in global competitive export
segments through - harnessing the global opportunities and managing the
key economic resources effectively, is prerequisite for economic
development.
*Dr. Manika Singla - Project Fellow
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India needs to roll out innovative and effective economic plans like:
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Agriculture – Be a Food Base for the World
 Producing the value added food, medicinal plant, aromatic oils & bio
material for the global market.
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Manufacturing – Realizing the existing labor cost advantage & labor
flexibility
 Reforming the tax structure and labor laws
 Supporting with modern infrastructure
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Infocom – Capture huge market potential & natural advantage of huge
talent pool (Technologically Savvy and English- Friendly)
 Offering cost benefits of the technology to customers
*Dr. Manika Singla - Project Fellow
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Water & Energy Resource - Change the landscape of agriculture,
hydroelectric power & alter the economics of the continent.
 Effective water management
 Exploration of oil and gas
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Investing in Physical and Professional infrastructure –
 Significant investments in air ports, ports & harbors and roads
 Professional resource development like education & research
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Attracting the Global savings – To support the global leadership
 Encourage FDIs
 Harness domestic savings and investing the same in right channels
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Creating a new World mind set – In living with continuous uncertainty
in the new scenario
 Adapting to knowledge explosion
 Rediscover the hidden potential to innovate, create and collaborate.
*Dr. Manika Singla - Project Fellow
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Answers to
Questions
*Dr. Manika Singla - Project Fellow
Research
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
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An FDI driven Approach
Development of Homegrown Entrepreneurship
Efficient Banking & Transparent Capital Markets
Stronger Infrastructure to support Private Enterprise
Fuller Utilization of Resources
Organic Growth
Absorption of New Technologies from Abroad
*Dr. Manika Singla - Project Fellow
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Uncertainty in the markets
Inappropriate receptors (production organizations) to absorb foreign
technology
Poor quality of the industrial partner having trading orientation instead of
industrial orientation.
Inability to mobilize the resources effectively
Less developed employment-intensive manufacturing
Weaknesses in infrastructure and administration
Labor market rules
Poor regulatory quality and government ineffectiveness
Weak banking system
Commercial banks are still largely state-owned
Political resistance to selling the state banks or allowing foreign banks to
enter the Indian market
*Dr. Manika Singla - Project Fellow
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As per analysts, India may deliver more sustainable progress
than China’s FDI-driven approach in many ways:
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Full utilization of its resources through organic growth
Open-economy model (initiation of major liberalization measures)
Relatively favorable demography
Well-developed private sector
Relatively entrenched legal system
Stable democracy
Potential for policy improvement
Large opportunity to raise the investment rate
*Dr. Manika Singla - Project Fellow
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Dimaranan Betina, Lanchovichina Elena, and Martinr Will, 2007, “China,
India, and the Future of the World Economy”, Policy Research Working
Paper 4043, The World Bank Development Research Group, August.
Wilson Dominic and Purushothaman Roopa, 2003, “Dreaming with
BRICs: The Path 2050”, Goldman Sachs, Global Economics Paper no:
99, October.
Dooley, Michael, David Folkerts-Landau, Shunming Zhang, “Inequality
Change in China and (Hokou) Labour Mobility Restrictions,” NBER
Working Paper No. W10649, July 2004.
Eichengreen, Barry, Yeongseop Rhee, Hui Tong, “The Impact of China
on The Exports of Other Asian Countries,” NBER Working Paper No.
W10727, September 2004.
Hertel, Thomas and Fan Zhai (2004)."Labour Market Distortions,
Rural-Urban Inequality and the Opening of China's Economy" World
Bank Policy Research Working Paper 3455, November 2004
*Dr. Manika Singla - Project Fellow
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The main data sources used in the study are:
 The UN Commodity Trade Statistics
 WITS, a Trade database of UNCTAD
 DGCI & S Trade data
 Asian Development Bank Database
 India Trade Database of Centre for Monitoring Indian
Economy
 WTO Database on Tariff Schedule
 PRC General Administration of Customs, China's Custom
Statistics
 Reserve Bank of India Data Base
*Dr. Manika Singla - Project Fellow
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Dr. Manika Singla
(Project Fellow – UGC Major Project)
Leave the Comments Below
*Dr. Manika Singla - Project Fellow
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