India

[Eubulides <paraconsistent@xxxxxxxxxxx>]

[Far Eastern Economic Review]
India Catches Up With East Asia

With its huge pool of skilled engineers and product designers capable of
creating low-cost, high-end products, India is fast emerging as an
outsourcing centre for everything from cars and vehicle components to steel,
pharmaceuticals and petrochemicals

By Jay Solomon/NEW DELHI
Issue cover-dated October 09, 2003


FRESH FROM ITS success in the global software and information-technology
markets, India is now aiming to become a key outsourcing centre for making
everything from cars and auto components to steel and petrochemicals.

India's big advantage, business executives here say, is an army of skilled
engineers and designers capable of creating low-cost, high-end products not
found in manufacturing centres in China or Southeast Asia. And with India's
domestic consumer market booming, Western and Asian multinationals have
begun setting up their own production operations on the Subcontinent.

"Multinationals first come here to establish their presence in our domestic
market," says Amit Mitra, secretary-general of the Federation of Indian
Chambers of Commerce and Industry. "And then they realize it's a
cost-effective base for outsourcing manufactured products."

Hyundai Motor exemplifies this trend. In 1996, the South Korean car giant
placed a hefty bet on India by building a $614 million car-assembly plant in
the southern city of Chennai, formerly Madras. At the time, many industry
analysts didn't believe India's market was large enough to support such an
investment, Hyundai officials say. Meanwhile, other would-be investors
grumbled about the country's creaky infrastructure and parochial consumers,
who seemed indifferent to foreign products.

Today, Hyundai has grabbed a 20% share of India's fast-growing passenger-car
market, selling 120,000 units last year, up 21% from 2001. And Hyundai
officials predict rapid growth will continue, pointing to a 30% year-on-year
expansion in India's car market during the first five months of this year.

A confident Hyundai is now investing another $200 million to increase its
production capacity to 250,000 cars a year.

Perhaps more significantly, Hyundai has decided to use India as an export
platform for its compact cars, which are increasingly popular in Eastern
European and Latin American markets. Local engineers helped design the
small-size cars specifically for India, Hyundai Motor India President B.V.R.
Subbu says, and the company believes the cars' affordability will make them
a hit in other emerging markets. Hyundai expects to export 30,000 compacts
this year.

"India is becoming an extremely competitive manufacturing base," Subbu says.
"They're already low-cost producers of satellites, why not cars and
components?

Hyundai isn't alone in starting to source cars from India. Ford and Suzuki
are already using their Indian operations to produce compact cars for
markets in Latin America, Asia and Africa. Tata Motors, India's
third-largest passenger-car company, meanwhile, has signed an exclusive deal
with Britain-based MG Rover Group to supply 170,000 Indica compact cars to
Rover over the next five years. The two companies are also in discussions
for Rover to source diesel models from India.

Tata Motors executives say the new deals show that India's home-grown
designs and models can be exported even without a formal partnership with a
foreign multinational. "These recent trends are very encouraging," says V.
Sumantran, an executive director at Tata Motors.

India is also going global in other segments of the motor sector. Hero Honda
and Bajaj Auto, for example, are now among the world's largest producers of
two-wheeled vehicles, with Indian sales of 3 million units a year.

Exports of everything from axles and compressors to shock absorbers have
also jumped over the past two years. From total exports of just $450 million
during the 2000-01 fiscal year ending March 31, Indian vehicle-component
exports are expected to reach as much as $1.5 billion this year.

Indian companies such Bharat Forge, Sundaram Clayton and Mico say global car
makers are looking for the cheapest, best-manufactured inputs, and
increasingly are turning to India for its design prowess and low costs.
These Indian companies are now suppliers to almost all the major United
States and Japanese car makers--including Ford, General Motors and Toyota.
And Indian officials say the component industry's total exports could reach
$10 billion by 2010, making India one of the world's major suppliers.

"No doubt China has a much larger manufacturing base, but when it comes to
skilled manpower, India is much better," says Baba Kalyani, chairman and
managing director of Bharat Forge. "India is generating thousands of
engineers every year . . . It's a huge competitive advantage." India is
estimated to have 2 million working engineers, with its elite technical
schools producing another 300,000 each year.

To be sure, not everyone is so sanguine about India's manufacturing
potential. The country's rickety infrastructure needs major overhauls, local
and foreign business executives here say. Moreover, the government's
policies are still often hostile to big business. Critics cite, in
particular, high tariffs on many imported products that can saddle Indian
exporters with bloated costs, as does the country's imposition of multiple
taxes at different levels of government. Business executives are also
concerned that India's current economic upswing--growth is expected to be as
high as 7.5% for the current fiscal year--could fizzle out.

CAUTIOUS OPTIMISM
"I'm still cautious of being overly exuberant," says Sumantran of Tata
Motors. "People were predicting annual motor sales of 1 million," years ago.
Last year, total car sales in India reached just over 700,000 units, he
points out.

Still, many economists and business leaders believe a faster growth rate is
sustainable. In addition to India's newfound international business
confidence--based largely on its success in software and technology
services--they think India will benefit from the growing economic might of
China.

Prime Minister Atal Behari Vajpayee's June summit with Chinese leaders has
fuelled warming relations between the two former foes. And Indian steel,
petrochemical and pharmaceutical companies are all reporting double-digit
earnings growth this year, propelled in part by exports to China.

"Over the next five years, China will be consuming 200 million tonnes of
steel per year, and India up to 60 million," says B. Muthuraman, managing
director of Tata Iron and Steel. "These will be the world's two fastest
growth markets and we're perfectly positioned in both." Muthuraman says that
15% of the company's earnings now come from exports, with China being the
largest market.