Can India compete?In a recent McKinsey Quarterly article entitled "Fulfilling the promise of India's Manufacturing Sector", authors Dhawan, Swaroop and Zainulbhai answer affirmatively....provided that manufacturers can substantially enhance productivity.
They outline a series of four steps for government (ownership, land and labor barriers, and infrastructure) to create the catalytic environment. Additionally they note that demographically India is poised for an increase in domestic demand large enough to create 90 million jobs. And they project that if India's manufacturers could realize their potential, they would generate 25-30% of GDP by 2025.
But....And anyone who knows India knows there is a big but...it is a culture with a firmly ensconced bureaucracy and mindset that process trumps results. Certainly there are exceptions, and there is a frenetic pace and tremendous entrepreneurial potential waiting to be unleashed. However productivity is compromised by the tacit acceptance of the supremacy of process. And of course the corollary - the necessity of bribes to circumvent the most onerous and unnecessary procedures.
The authors cite a number of succesful "home-grown" initiatives in the IT and manufacturing world which have enhanced worker skills and engagement - and therefore productivity. Enough to satisfy the 50% increase which the article suggests is necessary? That's not clear. What is clear, however, is the potential opportunity for American businesses.
Productivity excellenceGlobalization of manufacturing has become a political focus in the US. Statistics are bandied about which paint contradictory pictures. American manufacturing output has grown, and continues to grow, consistently. While at the same time American manufacturing employment has fallen consistently. What explains the contradiction? Unprecedented growth in productivity.
American businesses have cracked the productivity code and American workers have demonstrated exceptional capability. And this represents an enormous opportunity for those American companies which sell products and services which enhance productivity.
Emerging markets follow consistent patterns. Low cost labor creates a low-cost manufacturing environment. Manufacturing grows, employment strengthens, incomes rise, consumption grows, inflation increases, wages rise and manufacturing costs increase. And the cycle evolves into another market - with a low-cost labor pool always available to replace one as costs rise.
American OpportunityThose that intend to compete, understand they need to break the cycle - and they do so by increasing productivity. Just as I recently wrote about Vietnam's similar challenge, India's need to boost productivity creates demand for the American products and expertise which has been proven repeatedly. And the opportunities in Vietnam and India are similar to those in various other growing markets.
Do you provide industrial automation, consulting or other products that enhance productivity? Interested in learning how your business can capitalize on this push for productivity in emerging markets? Consilium Global Business Advisors offers export assistance and international business advisory services to help companies identify optimal international markets and develop profitable business. Contact us to learn how we might help your company find profitable growth.