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Manufacturing Industry in India and Abroad

Manufacturing Industry in India & Abroad

Overview, market size, growth trends, news resources

On April 12, 1870, Siemens, the German engineering giant, sent a telegram from London to Calcutta in under 30 minutes for the first time. The 11,000-km telegraph line that the company had laid for the purpose proved to be more than just a communication tool. It became a cord that secured an enduring business association between the company and India. In 1955, Nehru requested Siemens to open a manufacturing unit, in addition to its other operations. It did, in Mumbai.

As scientific historians might say, “Make in India” is a cleverly revived concept rather than an innovation. It has been dusted up because the country badly needs foreign investments for its industry.

But for much of their past, Indians did very well without any help. Their fabric, jewellery, metal, and glass units flourished under their own steam.

Indeed, manufacturing was an ancient Indian art. Today, it is more science and business. According to a prosaic, but precise, modern definition of manufacturing, it is the production of finished goods from raw materials, using a combination of labour and machines.

Manufacturing involves a highly systematic division of labour and assembly lines for the fabrication of products, and is usually done on a large scale.

The biggest and largest manufacturing industries are those that make automobiles, aircraft, and ships; consumer electronics and consumer nondurables; computers; communications, medical, and electrical equipment; food; chemicals; textiles; steel; heavy machinery; leather, rubber, and metal goods; gems and jewellery; and petroleum products. A long list, but yet not a complete one.

Through most of human history, people themselves made the things that they needed. But when they craved goods with some refinement, they went to artisans. Artisans soon started specialising in particular crafts, and they took apprentices under them. Thus, the guild system developed, and artisans passed on their skills to their students.

The system continued for much of the period before the mid-1750s, when the First Industrial Revolution began. Inventions, particularly the steam engine and the power loom, played a major role in the development of manufacturing.

The increased efficiency in the use of steam power and water power shifted manufacturing from the hands of craftsmen to machines, and factories began to come up, with textiles as the biggest manufacturing industry. The development of steam power marked the transition of fuel from wood to coal. Later, coal gave way to coke, which speeded up iron production.

During the Second Industrial Revolution (1840-1910), steam-run ships, rail transport, and machinery were increasingly used. The time taken to transport raw material to factories decreased, and worker productivity (and wages) increased.

Large-scale production reduced the cost of goods, and they became cheaper and more available to consumers. The advantages of the Industrial Revolution, which started in England, spread to the rest of Europe, the US, and Japan.

The next major milestones in the development of manufacturing over several decades were the widespread use of electricity for industrial use, the perfection of the assembly line at the Ford Motor Company, and the making of interchangeable parts.

Factories began to be built where electricity was available, though they had other major considerations in choosing locations—availability of cheap transport, with a harbour and railroad, and cheap labour. Manufacturing, therefore, developed in cities and major towns.

Today, globalisation has carried manufacturing forward (though it has also brought challenges such as the need to reduce production costs and improve competitiveness). So has the advent of information technology, the Internet, modern telecommunication systems, and more efficient means of transport, such as the container ship.

Experts predict that the next revolution in manufacturing will be spurred by the increasing demand for customised products and smart devices, and be transformed by the development of technology, including the Internet of Things, Big Data, cloud computing, 3D printing, and nanotechnology.

Many economists see manufacturing as a source of wealth for nations and corporations. But some also highlight the social and economic costs of a thriving manufacturing industry.

Although the sector has multiplied employment opportunities, the pressure on workers to increase productivity has caused health and safety concerns. The sector’s impact on the environment is a splitting headache, too.

Systems and methods of manufacturing

Manufacturing produces two types of goods: one, goods that are used as raw materials for the production of more refined products, and two, goods that are to be sold direct to consumers.

Manufacturing industries may work under two types of economies: a socialist economy (as in the erstwhile USSR), in which the production, labour, and sale of goods are controlled by the state, and a capitalist economy (as in the US), where private investors hold management reins, with some government control.

Now on to a few manufacturing methods, a vast subject that only just manages to fit in a nutshell here:

Lean manufacturing: Lean manufacturing is the elimination of waste from a manufacturing system—waste that customers would not be willing to pay for. It was introduced by Toyota and is also called “Toyotism.”

Agile manufacturing: The objective of agile manufacturing systems is to quickly respond to a changing market or customer without putting margins at risk.

Flexible manufacturing: A flexible manufacturing system is one that can be adapted to produce different components and products at different volumes.

Just-in-time manufacturing: Here, a product is manufactured only when there is demand. Under the system, excess or surplus production is avoided.

Mass customization: Mass customization enables the production of custom-made goods while retaining the advantages of mass production.

Additive manufacturing: Also called 3D printing, additive manufacturing uses a process by which an object is created by laying down successive layers of the object using computer-aided design (CAD).

A quick mention of some fundamental manufacturing processes: they are casting (in which liquid material is poured into a mould), moulding (liquid or pliable material is shaped), forming (material is reshaped without taking away or adding any other material to it), machining (material is cut into a desired shape), and joining (welding, soldering, brazing, adhesive bonding, fastening wood and metal, etc.).

Quick facts about the manufacturing industry

The global manufacturing output is estimated to be worth over $10 trillion, according to figures from 2013, made available by the United Nations Conference on Trade and Development (UNCTAD) in June 2015.

The top ten manufacturing locations are the US (output about $1.82 trillion), China (1.75 trillion), Japan ($1 trillion), Germany ($665 billion), South Korea ($355 billion), France ($268 billion), Italy ($256 billion), UK ($245 billion), India ($203 billion), and Taiwan ($179 billion).

The top five manufacturing companies in the world, according to Wikipedia, are Toyota (revenue $235 billion), Volkswagen Group ($221 billion), Samsung Electronics ($148.9 billion), Daimler ($148.1 billion), and GE ($147.6 billion).

In the US, the manufacturing output accounted for 12 percent of the total national economic output of the country, compared with 30 percent in China, 19 percent in Japan, 22 percent in Germany, 31 percent in South Korea, and 13 percent in India.

Among the 20 top manufacturing locations, the manufacturing output per head was the lowest in India ($200) and highest in 18th-ranked Switzerland ($11,300).

The World Bank’s provides different figures: global output – $12 trillion (2013); China – $2.9 trillion; US – $1.9 trillion; Japan – $904 billion; Germany – $771 billion (2014); and South Korea – $389 billion (2014). India is in the sixth place with an output of $325 billion (2014).

Twenty-five percent of employees/workers in India work in the manufacturing sector, compared with 17 percent in the US and 30 percent in China. Globally, one in seven workers is employed in the manufacturing industry.

Current scenario of manufacturing in India

The manufacturing industry in India contributes about 15 percent of the country’s GDP. Under the National Manufacturing Policy 2015, ambitious programmes are under way to take this figure to 25 percent and the total output from this sector to $1 trillion by 2022.

India’s manufactured exports are worth over $180 billion, or 45 percent of the country’s total exports, with the biggest exports being engineering goods, chemicals and related products, and leather goods.

Textiles, capital goods, cement, food products, pharmaceuticals, metals, plastics and rubber, electronics and automobiles are the most upbeat segments, according to reports.

According to online sources, the top ten manufacturing group/companies in India by turnover are the Aditya Birla Group (turnover $40 billion, 1.36 lakh employees), L&T ($13.5 billion, 45,000), Hindustan Lever ($4 billion, 40,000), Apollo Tyres ($2.5 billion, 16,000), Jindal Steel ($2.5 billion, 7,600), Videocon Group ($2.3 billion, 9,000), Haldia Petrochemicals ($2 billion, 1,000), Ranbaxy ($1.8 billion, 10,400), Asian Paints ($1.7 billion, 4,900), and Bombay Dyeing ($310 million, 10,000),

The government has launched the “Make in India” campaign to project the country as a global manufacturing hub. The Delhi-Mumbai Infrastructure Corridor (DMIC) and the National Investment and Manufacturing Zones (NIMZs) are among other initiatives. The country’s envoys in 160 countries will focus on economic diplomacy to attract investments.

In mid-2015, the manufacturing sector in India recorded a year-on-year growth rate of 4.7 percent, the highest among industrial sectors in the country. Until June 2015, the sector had recorded growth rates for 19 consecutive months.

But a question also crops up for manufacturers: should we build our factories in China or India? Here, too, India, like in all its other sectors, has the advantage of cheap labour. The labour cost per hour is just 92 cents, compared with $3.5 in China, according to the Boston Consulting Group, though these figures depend on the type of manufacturing and location.

Big manufacturers frown at India’s labour laws, regulatory systems, tax regime, and land acquisition delays. Lack of first-class infrastructure is a big bugbear. China wins here, in terms of ports, roads, and power supply. However, the slowdown in China has given India a slight edge, at least for now.

Meanwhile, India has to match China in electricity production (now about 1100 terawatt and 5500 terawatt, respectively), roads (70,000 km and 6 million km), expressways (1,000 km and 100,000 km), and railway (65,000 km and 104,000 km). The China vs. India debate could also be in part a question of perception. But clearly, India’s image also needs a bright coat of paint.

In the recent past, India’s manufacturing sector has drawn the interest of top global corporates. Siemens is investing $1.3 billion in its Indian facility, Samsung is expanding its plant in Noida at a cost of $77 million, IKEA is planning to double its sourcing from India to $711 million, and the pharmaceutical major Sanofi SA is investing $69 million to develop its facility.

Other companies, including Samsung, LG, Airbus, and Philips, have reported made commitments to invest $16 billion in India. With these investments, the country’s chances of remaining a top nation in the Global Manufacturing Competitiveness Index are bright.

Jobs in Manufacturing

The manufacturing industry touches lives on a daily basis. However, it accounts for only 12 percent of all jobs in the country. Moreover, 80 percent of employment is generated by the unorganised manufacturing sector. Of jobs in the organised sector, 80 percent are unskilled jobs, according to a study by the International Labour Organization.

Because of the constant trend of migration to urban areas, the economy has to generate employment on a large scale. The manufacturing sector, including large-, small-, and medium-scale units, looks the most promising, and the National Manufacturing Policy envisages the creation of 100 million additional jobs by 2022.

However, a poll of 386 companies, conducted by Federation of Indian Chambers of Commerce and Industry (FICCI), reveals that despite growth, 79 percent of companies in the manufacturing sector are unlikely to immediately hire new staff—because they predict poor investments and because exports are unlikely to pick up in the short term.

But companies do have to fill vacancies. Whether they expand their payrolls depends, at least in part, on “Make in India.”

Resources for updates and news on the Manufacturing industry

  1. The Economist
  2. Forbes
  3. Industry Week
  4. Manufacturing News
  5. Global Manufacturing
  6. The Manufacturer
  7. Live Mint
  8. The Economic Times
  9. Business Standard
  10. Business Line

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