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The Indian manufacturing sector, long seen as coddled by government protection and as globally uncompetitive, is starting to emerge as a confident player in world markets. As Indian companies go global, they are increasingly interested in partnerships with foreign firms that can help improve competitiveness. A number of Canadian companies are already profiting from such opportunities but there is a great deal more room for Canadian participation in the renaissance of Indian manufacturing.
While Indian manufacturers would be the first to admit that the world may not be ready for their products, Indian firms in skill-intensive sectors such as engineering, agro-chemicals, auto components, pharmaceuticals, and specialty chemicals feel that they can leverage the India advantage to develop lucrative international niches. With Indian CEO mindsets in these sectors focused on international markets and a willingness to try new things, there are profits to be had by Canadian firms willing to enter the Indian market or partner with India’s large manufacturing houses.
The recent performance of Indian manufacturing has been impressive. Output of the Indian manufacturing sector grew at about 5 percent annually during the 1999-2002 period. But in the first half of FY 2003, manufacturing activity in India registered a 6 percent growth (year-on-year) with long-term growth forecasts for the next four years averaging 7 percent annually. To put things in perspective, amongst significant Asia-Pacific countries, this makes India’s manufacturing sector growth second only to China and surpassing growth projections in the manufacturing sectors of Australia (3.5%), Indonesia (5.2%), Japan (1.9%), New Zealand (2.5%), South Korea (6.5%), and Taiwan (6.8%).
Growth in manufacturing output has been underpinned by continuing economic reform in the Indian economy and, even more encouragingly, has been driven by exports. In the first half of FY03, manufacturing exports rose by 19 percent compared to only a 5.4 percent growth for the 1997-02 period. Indian manufacturing houses in the engineering, pharmaceuticals, specialty chemicals, and auto components sectors are busy redesigning plants, rationalizing work forces, automating processes, investing in standards accreditation, partnering with foreign firms to create market niches, and investing in sales and distribution networks overseas. To take just one measure, the number of plants in India with ISO14000 and ISO9000 accreditation increased from virtually zero in 1991 to about 8000 in 2002.
Canadian firms are playing a role in the restructuring and overseas expansion of Indian manufacturers. A recent example is the provision of data warehousing software architecture by Ottawa-based Hummingbird Ltd to Ranbaxy Laboratories Ltd – India’s largest pharmaceutical company and among the top 10 generic pharmaceutical companies in the world. To support Ranbaxy’s aggressive expansion in Europe and the United States (the most recent acquisition was that of the generic drugs manufacturing unit of RPG Aventis in Europe, for US$60-70 million), Hummingbird put in place a system of enterprise-wide data extraction, transformation, loading, and reporting tools that allowed Ranbaxy to optimize business processes and strategic planning.
Another example is the strategic alliance between a medium-sized Pickering-based firm Eco-Tec Inc and Thermax, a leading Indian engineering house with exports to over 40 countries and 11 overseas offices. This strategic alliance provides Indian manufacturers with resource recovery solutions that reduce overall operational costs while at the same time providing eco-friendly processes. Examples include the first chrome and nickel electroplating recovery systems installed for Bajaj Auto Ltd and TVS Motor Company Ltd – two of India’s largest motorcycle manufacturers. Eco-Tec and Thermax have also installed Eco-Tec’s patented salt removal technology for Reliance Petroleum’s Jamnnagar refinery complex in Gujarat state, another first for India. The Jamnnagar facility accounts for 24 percent of India’s refining capacity and is the world’s 5th largest refinery at any single location.
The reform and restructuring of Indian industry has a long way to go yet, and the reputation of Indian companies continues to be uneven. However, in skill-intensive manufacturing sectors such as pharmaceuticals, petrochemicals, and auto components, Indian firms are ahead of the pack and are expanding aggressively. These companies will need the best in design and engineering services, information technology, and environmental services to help them play on the world stage. Canadian firms should seize the opportunity.
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