Archive for ‘Manufacturing’

19/10/2014

India’s big manufacturing push: Time to make in India? | The Economist

NO ONE doubts that Narendra Modi, India’s prime minister (pictured), is a capable speaker. On September 25th he called together hundreds of diplomats, business leaders, journalists, ministers and others to a swanky hall in Delhi to launch his latest marketing push. The event was broadcast live across India and to diplomatic missions abroad. A remarkable cast of industrial heavyweights were called on to show support, including Cyrus Mistry of Tata Sons, Reliance’s nervy-sounding boss, Mukesh Ambani, the chairman of Wipro, Azim Premji, the chairman of Aditya Birla Group, Kumar Mangalam Birla, and the chairman of ITC Limited, Yogesh Chander Deveshwar.

Over the course of two hours these business cheerleaders, along with ministers and then Mr Modi himself, took turns to explain why it would be a great thing if industrial production, in particular labour-intensive manufacturing, could blossom in India. They are absolutely right. India needs to create lots of jobs—perhaps 1m additional ones a month—if it is to employ its booming population. One speaker suggested 90m manufacturing jobs could be created in India over the next decade. Mr Premji set out how Wipro—better known for IT—has five manufacturing units in India (they make hydraulic cylinders) and overall relied on a broad network of 1,200 Indian suppliers, meaning lots  of jobs created indirectly.

Mr Birla spoke of a new high-end aluminium manufacturing site in Odisha (formerly Orissa) which now does quality work for the firm that used to be done in a British factory. A representative from Lockheed Martin, an American defence firm, explained how its factory near to Hyderabad makes component parts for its global production of the massive C130-J Hercules plane. A stronger manufacturing sector could help in a host of other ways, suggested speakers, linking India into global supply chains, boosting exports, helping to reduce the current-account deficit and so on. Mr Ambani concluded that India’s economy could boom in the long run, at a sustained rate of 8-10%, growing quicker than China, if only the right conditions were created.

All this looks and sounds attractive. So, too, do a flash new website that Mr Modi inaugurated, a new symbol—a lion made up of cog-wheels—and some new brochures that set out how India is a bit more welcoming to manufacturers. But was the exercise anything more than a PR event? As one cynical member of the audience grumbled, it seemed to be a big palaver for the launch of a few marketing tools.

What has actually changed in India as Mr Modi pushes manufacturing? First, discount the worst gush from business leaders. The likes of Mr Ambani and Mr Deveshwar may be embarrassed to be reminded of how sycophantic they were in Mr Modi’s presence. Mr Ambani waffled on about being “blessed with a leader”, the “unique leadership quality of a prime minister, a man who dreams and he does”, who has apparently motivated a billion Indians to “dream and do”. Mr Deveshwar was even more craven, thanking “the Almighty” for the leadership “given to us” in Mr Modi, for “your astuteness, your wisdom…Sir, I’m profoundly inspired by the boldness of your vision and the simplicity with which you have communicated.” Mr Modi sat stony-faced as they fawned. But he probably agrees with the implied message: that most of what it takes to boost manufacturing in India is strong leadership from him, as he showed when he was chief minister of Gujarat. Indeed, when he spoke, he referred back to his success in Gujarat, saying that with the same civil servants and resources as the rest of the country, he had produced striking industrial successes. He expects more of the same in the country as a whole.

Sadly, leadership alone will not do it. Matters are more complicated than that. Mr Modi, endearingly, admitted in his speech “I am not a big economist” while urging investors not to think of India only as a big emerging market, but also as a place for production. As he suggests, achieving that requires progress in a host of areas. He spoke of an urgent need for skills development as far too many of India’s youngsters are poorly prepared for globally competitive work (though that is a huge mission, since it means fixing a rotten school and university system) and identifying 21 clusters for industrial development. He spelt out how infrastructure would improve (but not where massive capital to fund that will come from). Laudably, he emphasised the need to make India a far easier place to do business by scrapping red-tape and oppressive rules, mentioning a recent meeting he had with the World Bank to discuss India’s awful ranking—134th—on its annual “ease of doing business” assessment. Mr Modi thinks India should aim to be ranked much higher, quickly, in the top 50 countries.

via India’s big manufacturing push: Time to make in India? | The Economist.

02/10/2014

India launches campaign to boost manufacturing – Businessweek

India’s prime minister has launched a campaign to entice investment and promote the country as the world’s next cheap labor economy.

The “Make in India” campaign is as much a slick marketing campaign as it is a promise to streamline bureaucracy and make India investor friendly.

Prime Minister Narendra Modi said at a launch event Thursday that “the whole world is ready to come here.”

India’s 1.2 billion people are anxious to see the economy expand and create more jobs. Some 13 million Indians become old enough each year to join the workforce.

Modi has been promoting India as the next manufacturing powerhouse. That’s a title long held by China, which is now growing wealthier and pushing toward becoming a consumer economy.

via India launches campaign to boost manufacturing – Businessweek.

17/09/2014

Is China’s promised $100 billion India investment more dangerous than its border policy?

Experts believe that China deliberately uses trade as part of its geo-strategic arsenal.

The script is almost predictable. Right before meetings of Indian and Chinese heads of state, something happens on the border to remind everyone that sentiment between the two countries is not exactly neighbourly. Last year it was a standoff in Daulat Beg Oldi about infiltration by the Chinese army. This year, with everyone excited at China’s promise to pump $100 billion into India, there’s another incursion by the Chinese into Demchok in Ladhak.

Chinese President Xi Jinping arrives in India today and will visit Ahmedabad on Prime Minister Narendra Modi’s birthday. But Chinese troops have also been reported to have moved 500 meters into Indian territory.

Beijing’s approach seems to be sweet-talking – this time taking the form of foreign direct investment – coupled with regular pinpricks that remind India that they have the stronger position on the border.

But could the proposed investment be as much of a threat to India as the border dispute?

Trading places

India’s total trade with China was around $65 billion in 2013-’14. Of that, only $14 billion were Indian exports heading into China, leaving India with a trade deficit of $36 billion. If oil imports are included, Chinese imports are responsible for nearly half of India’s overall trade deficit. This is a great many Indian eggs in one Chinese basket.

For many economists, this isn’t a problem. It’s simply the way efficient markets ought to function, with India buying the goods it needs from the most competitive seller. “The more competitive the trading partner, the more India should buy from it, and the bigger should be the bilateral trade deficit,” wrote commentator Swaminathan Aiyar last year. “China is the most competitive exporter of all, so India should run its biggest trade deficit with this country.”

Yet India does feel the need to reduce the trade deficit with China. Answering a question in the Lok Sabha earlier this year, minister of state for commerce Nirmala Sitharaman admitted that the balance of trade was heavily in China’s favour and that India was taking steps to address this.

“With a view to reducing the trade deficit with China, efforts are being made to diversify the export basket,” Sitharaman said.

via Scroll.in – News. Politics. Culture..

05/09/2014

The U.S. Trade Deficit Shrinks—Except With China – Businessweek

The good news? The overall U.S. trade deficit unexpectedly shrank a bit less than 1 percent in July from June. It was the smallest gap in half a year, and exports broke a record. The bad news? The U.S. deficit in manufacturing set a monthly record, and the deficit in goods traded with China also broke a record.

China Shipping Container Lines containers sit stacked at the Port of Los Angeles in San Pedro, California on April 8

Alan Tonelson, a trade analyst who blogs at RealityChek, dwelt on the negative in an interview today. “There’s no doubt that major barriers to U.S. exports remain,” he said. “China is case in point No. 1. It’s still one of the most protectionist economies in the world.”

Boston Consulting Group has argued in a series of reports that the U.S. has a bright future in manufacturing because the high productivity of American workers makes it an affordable location for production, while China is slowly pricing itself out of the market through rising labor costs. It calls the U.S. a “rising global star.”

But that stardom isn’t showing up yet in the trade data. Says Tonelson of Boston Consulting’s view: “If they’re just premature, they seem wildly premature.”

As reported by the Bureau of Economic Analysis, the overall U.S. trade deficit in both goods and services was $40.5 billion in July—down from June, but up $1.1 billion from a year earlier. The July deficit with China in goods was $30.9 billion, vs. a previous high of $30.6 billion. The overall manufacturing deficit, at $67 billion in July, is running 11 percent ahead of last year’s record pace, Tonelson calculates.

via The U.S. Trade Deficit Shrinks—Except With China – Businessweek.

05/09/2014

U.S. South Draws Global Manufacturers With Low Taxes, Cheap Labor – Businessweek

Just before the recession hit in 2007, Electrolux (ELUXA:SS), the Swedish home-appliance maker, was trying to decide what to do about an aging plant outside Montreal. The building was more than 100 years old and the line of high-end stoves and ovens produced there needed a refresh. The factory’s 1,300 union workers earned around $20 an hour.

Rather than sink more money into the old plant, Electrolux decided to move where it could operate more cheaply. In Europe, it was shifting work from Sweden, England, and Denmark, to Hungary, Poland, and Thailand, where workers are paid less. In North America, Electrolux settled on another low-cost region: the American South.

Alabama, North Carolina, and Tennessee—along with Mexico—all competed for the plant, offering generous incentive packages. The winner was Tennessee, which together with the city of Memphis and Shelby County, assembled an offer that, according to Electrolux, was worth $182 million, including public infrastructure funds, tax breaks, and, crucially, worker training. The company committed $100 million to build the plant. In December 2010, Electrolux announced that a site just eight miles from Graceland would be home to its most advanced factory. “We don’t just grab at every project that comes through here,” says Memphis Mayor A C Wharton Jr. “But this one was particularly appealing.”

Manufacturing is slowly returning to the U.S.—and much of the action has been below the Mason-Dixon line. With its low tax rates and rules that discourage unionization, the South has for decades been seen as business-friendly, which helped the region attract service companies that rely on low-skilled workers, such as call centers and warehouses. Now industries such as autos and aerospace are moving in. According to Southern Business & Development (SB&D) magazine, which tracks commercial projects valued at more than $30 million, manufacturing made up 68 percent of investments announced last year. The number of projects totaled 410, the most in 20 years.

Changing conditions in the oil market and China have a lot to do with manufacturing’s resurgence in the South. In 2001, when China joined the World Trade Organization, the price of oil was $20 a barrel and the hourly manufacturing wage in China’s Yangtze River Delta was 82¢ an hour. Oil is now more than $100 a barrel and workers in the Yangtze make $4.93 an hour. The once enormous manufacturing advantage of the People’s Republic has in some cases vanished.

An April 2014 study by Boston Consulting Group found that the U.S. now ranks second only to China in manufacturing competitiveness among the top 10 exporting countries. Three years ago, BCG Managing Director Harold Sirkin, co-author of the report, forecast that states such as South Carolina, Alabama, and Tennessee would become “among the least expensive production sites in the industrialized world.” That’s especially true for companies making things for sale in the U.S. The South “has become the cheapest place to make things inside the largest economy in the world,” says Michael Randle, publisher of SB&D.

via U.S. South Draws Global Manufacturers With Low Taxes, Cheap Labor – Businessweek.

25/07/2014

Ethiopia Vies for China’s Vanishing Factory Jobs – Businessweek

Ethiopian workers walking through the parking lot of Huajian Shoes’ factory outside Addis Ababa in June chose the wrong day to leave their shirts untucked. The company’s president, just arrived from China, spotted them through the window, sprang up, and ran outside. Zhang Huarong, a former People’s Liberation Army soldier, harangued them in Chinese, tugging at one man’s polo shirt and forcing another worker’s into his pants. Amazed, the workers stood silent until the eruption subsided.

Turning Ethiopia Into China's China

Zhang’s factory is part of the next wave of China’s investment in Africa. It started with infrastructure, especially the kind that helped the Chinese extract African oil, copper, and other raw materials to fuel China’s industrial complex. Now China is getting too expensive to do the low-tech work it’s known for. African nations such as Ethiopia, Kenya, Lesotho, Rwanda, Senegal, and Tanzania want their share of the 80 million manufacturing jobs that China is expected to export, according to Justin Lin Yifu, a former World Bank chief economist who teaches economics at Peking University. Weaker consumer spending in the U.S. and Europe has prompted global retailers to speed up their search for lower-cost producers.

Shaping up employees is one part of Zhang’s quest to squeeze more profit out of Huajian’s factory, where wages of about $40 a month are less than 10 percent of what comparable Chinese workers may make. Just as companies discovered with China when they began manufacturing there in the 1980s, Ethiopia’s workforce is untrained, its power supply is intermittent, and its roads are so bad that trips can take six times as long as they should. “Ethiopia is exactly like China 30 years ago,” says Zhang, 55, who quit the military in 1982 to make shoes from his home in Jiangxi province with three sewing machines. He now supplies such well-known brands as Nine West and Guess (GES).

Almost three years after Zhang began his Ethiopian adventure at the invitation of the late Prime Minister Meles Zenawi, he says he’s unhappy with profits at the plant, frustrated by “widespread inefficiency” in the local bureaucracy, and struggling to raise productivity from a level that he says is about a third of China’s. Transportation and logistics that cost as much as four times what they do in China are prompting Huajian to set up its own trucking company, according to Zhang. That will free Huajian from using the inefficient local haulers, but it can’t fix the roads. It takes two hours to drive 30 kilometers (18 miles) to the Huajian factory from the capital along the main artery. Oil tankers and trucks stream along the bumpy, potholed, and at times unpaved road. Goats, donkeys, and cows wander along, occasionally straying into bumper-to-bumper traffic. Minibuses and dented taxis, mostly blue Ladas from Ethiopia’s past as a Soviet ally, weave through oncoming traffic, coughing exhaust.

via Ethiopia Vies for China’s Vanishing Factory Jobs – Businessweek.

15/07/2014

Apple Manufacturer Foxconn Goes Green in China’s Guizhou – Businessweek

Guizhou may be one of China’s poorest and least developed provinces. But the flip side is an environment so pristine that President Xi Jinping recently joked its air should be bottled.

Terraced fields of rice paddies are farmed on June 4, 2013, in Jinping county, Guizhou province, China

Now, Taiwan’s Foxconn Technology Group (2317:TT), the world’s largest consumer electronics producer, with more than a million employees working in 30-some industrial parks across China, has set its sights on backward but beautiful Guizhou.

The maker of Apple’s (AAPL) iPad and iPhone and Hewlett-Packard (HPQ) servers is building an industrial park in China’s southwest, seemingly worlds away from its massive and gritty Shenzhen manufacturing base, that aims to be state of the art in energy efficiency and environmental friendliness. Set among karst hills on the outskirts of Guiyang, the provincial capital, the 500-acre park will keep about 70 percent of the natural vegetation undisturbed.

via Apple Manufacturer Foxconn Goes Green in China’s Guizhou – Businessweek.

13/05/2014

India Poll Prospects Drive Auto Shares – India Real Time – WSJ

Shares of most automobile companies in India surged on Tuesday on expectations that the pro-business Bharatiya Janata Party will emerge victorious when national election results are announced Friday.

Maruti Suzuki India Ltd.532500.BY +1.97%, Mahindra & Mahindra Ltd.500520.BY +1.40%, Tata Motors Ltd.500570.BY +0.81%, Ashok Leyland Ltd.500477.BY +1.19% and Hero MotoCorp Ltd.500182.BY +3.17% were trading around their 52-week highs when markets closed Tuesday evening.

“This (share-buying) is mainly sentiment-driven,” said an analyst at a Mumbai-based brokerage, who did not wish to be named.  He expected auto shares to trade even higher if a BJP-led government with a clear majority were to emerge the winners of India’s federal election.

The analyst said investors are hoping that a government led by BJP’s Prime Ministerial candidate Narendra Modi would take strong steps to revive economic growth, increase foreign investment, and boost industrial growth, which would in turn improve market sentiment and demand for new vehicles in India, the world’s sixth-largest car producing market.

via India Poll Prospects Drive Auto Shares – India Real Time – WSJ.

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29/04/2014

China vs. the U.S.: It’s Just as Cheap to Make Goods in the U.S.A. – Businessweek

An entire generation of Americans has come of age laboring under the assumption that the U.S. can’t compete in the manufacturing arena with low-cost competitors such as China and Brazil. That may have been true a decade ago, but it’s no longer true today.

An employee of Rebecca Minkoff handbags at the Baikal manufacturing facility in New York.

I recently completed a review of manufacturing costs in the top 25 export economies with my colleagues Justin Rose and Michael Zinser. Our research shows that when the most important economic factors are considered—total labor costs, energy expenses, productivity growth, and currency exchange rates—Brazil is one of the highest-cost manufacturing nations in the world, Mexico is cheaper than China, China is virtually even with the U.S. (as are most of the traditionally “low-cost” countries of eastern Europe), and the low-cost leader in western Europe is none other than the country that launched the Industrial Revolution: the United Kingdom.

So throw away the old playbook. Welcome to the new era.

via China vs. the U.S.: It’s Just as Cheap to Make Goods in the U.S.A. – Businessweek.

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11/04/2014

All you need to know about business in China | McKinsey & Company

A lot of people view China business as mysterious. Relax. Consumers behave pretty much the same everywhere. Competition is pretty much the same everywhere. You just need to ignore the hype and focus on the basic fact that in China today, there are six big trends (exhibit). That’s it. Six trends shape most of the country’s industries and drive much of China’s impact on the Western world. They are like tectonic plates moving underneath the surface. If you can understand them, the chaotic flurry of activity on the surface becomes a lot more understandable—and even predictable.

Coauthors Jeffrey Towson and Jonathan Woetzel discuss China’s six megatrends with Nick Leung, the managing partner of McKinsey’s Greater China office.

These trends move businesses on a daily basis. They’re revenue or cost drivers that show up in income statements. Deals, newspaper headlines, political statements, and the rising and falling wealth of companies are mostly manifestations of these six trends, which aren’t typically studied by economists and political analysts. In fact, we happen to think that Chinese politics or political economics are wildly overemphasized by some Westerners in China. So let’s tell a story about each of these megatrends, with some important caveats. They’re not necessarily good things. They’re not necessarily sustainable. For every one of them, we can argue a bull and a bear case. Most lead to profits or at least revenue. Some may be stable. Some lead to bubbles that may or may not collapse. We are only arguing that they are big, they are driving economic activity on a very large scale, and understanding them is critical to understanding China and where it’s headed.

via All you need to know about business in China | McKinsey & Company.

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