Column: US is re-industrialising, India isn’t

Dec 27 2013, 03:20 IST
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SummaryHuge productivity hikes are making the US think of shifting factories back onshore from low-wage countries

Let me share three recent conversations I was involved in. At an international summit last month, I was part of a group which was discussing the key trends shaping global manufacturing value chains. The Chinese participant, a senior member of their textile industry association, said that apparel exporters in China are shifting their manufacturing capacities to other low-wage countries like Bangladesh and Vietnam as wage costs in China are growing faster than productivity gains.

The second conversation was with a BCG colleague from the US who was describing the plans of a US manufacturing company making hi-tech valves and pumps to bring much of their offshore production capacity back to the US. When I probed the rationale for this move, he said that the company was expecting the productivity-indexed wage rates in the US to become very competitive by 2015, and more importantly they were betting that by leveraging digital technology in both product design and production they could reduce total life-cycle costs to levels which would make them more competitive than peers from emerging markets.

These two conversations point to the two game-changing trends shaping the world of manufacturing, one that is led by China, the ‘factory’ of the world where labour rates are increasing fast, and the other by US, the ‘consumption centre’ of the world where manufacturing companies are looking at exploiting the power of digital technology to develop completely new business models to compete. The rest of the world, including India, thus have a narrow window of opportunity to reposition themselves in this fast-evolving global manufacturing environment before the trends ‘settle down’ and repositioning becomes more challenging.

But what are we doing to exploit this window of opportunity? The government had approved a manufacturing policy which has set an ambitious target of increasing the share of GDP from 15% to 25% and create 100 million manufacturing jobs by 2020. The 12th Five-Year Plan for industry details the challenges in achieving this aspiration and proposes many new initiatives and policies. The recent speech by Rahul Gandhi at an industry meet clearly articulated these challenges, from reviving the investment cycle, simplifying business regulations and clearances to bring in more transparency, finding solutions to the vexed issue of making it easier to acquire land for industrial development, and most importantly and probably a first for a senior political figure, admit that we need to develop an efficient and flexible labour market if

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