Make in India: Why it should be about success of local firms and not just manufacturing goods

Almost six decades ago, during the years immediately post the second world war, Japan was known as a country that made inferior and poorly crafted products be it furniture, housing goods or even electronics. The after effects of war directly translated into humongous economic suffering to the then small nation, whose first task was to scale up economic production. Given the destroyed resources and no leftovers, the logical first step was to capture the imagination of the mass market.

Once the moniker ‘Made in Japan’ became a household name with end users through cheap (but poor quality) products, firms in Japan began to focus on other important aspects, chief of which was quality. Post the occupation period in early 1950s, firms in Japan pioneered techniques like ‘Lean’, ‘Six-sigma’, ‘Kanban’ and ‘Kaizen’ ensuring superior quality of craftsmanship in Japanese products, especially automobiles.

Five decades from the Japanese manufacturing revolution, we’re witnessing something similar in the manufacturing segment of another emerging economy, incidentally from Asia. Post the new millennium, Chinese products took the path of Japanese products of old, characterised by inferior quality to be sold at cheap prices. However, as the years have gone by, China has systematically established itself as the world’s largest manufacturing hub for a variety of products, chief of which being electronics. Though Chinese-origin companies are yet to reach the levels of their Japanese counterparts, recent trends indicate a potentially similar outcome. Like Japan was known for its automobiles, China is quietly conquering several emerging markets through its electronics and mobile phone industry.

 Make in India: Why it should be about success of local firms and not just manufacturing goods

Representational Image. Reuters

On similar lines, the last 2 years have witnessed a growing sentiment on ‘Make in India’, a campaign driven by the government of India inviting foreign investments in 25 sectors (aviation, automobiles, electronics, food processing among others), intended to create job opportunities and enhance skills. There exists striking similarities between China and India, mainly in terms of population.

However, the crucial difference is the fact that the youngest population in the world is housed in India. Like automobiles for Japan and electronics for China, India’s global rise has been powered by its services industry.

However, the slowing demand for workforce in services industry coupled with an estimated 12 million new job seekers each year presents an ideal opportunity to diversify India’s economic portfolio through “Manufacturing” new markets. {Manufacturing a market should not be confused with manufacturing a product. The word manufacturing here is purely used as an analogy similar to manufacturing a product, in this case manufacturing a new market}.

Since liberalisation in 1991, the markets in India have been predominantly designed in an ad-hoc manner. As a result, issues like lack of competition in certain spaces, disparity in resource allocation (zone wise), quality issues in end products, lack of ecological balance, public sector undertaking in many industries etc. have acted as detrimental factors in the overall growth (despite this, our growth over the last two decades has been driven by some industries chief of which is services). This is where ‘Make in India’ can go beyond its stated vision of merely producing locally manufactured goods.

In its current avatar, ‘Make in India’ is attempting to portray India as the next destination for multinational firms to make their products. However, as beneficial as it may seem in the short run, the key to sustainable economic success is ‘Manufacturing Markets’ that ultimately culminate in successful Indian firms (like the Japanese automobiles and Chinese electronics). Manufacturing a market is a strategically complex task that involves interaction and interdependence among often conflicting stakeholders. Make in India as a vehicle can act as the catalyst that caters to two important segments: the job seekers and the ultimate consumers of end products. However, the most important aspect of manufacturing markets is providing a competitive ecosystem for firms and the teeth for regulatory agencies.

After all, there is no point of manufacturing a market which lacks the bite to be efficient, thereby making its purpose redundant. Make in India can be used as the vehicle that provides an organic growth to tackle the listed issues of past failures. If Make in India can be used to manufacture markets, it not only has the potential to put India among the royal echelons of manufacturing power houses, but also caters to a large domestic segment of labor market seekers and end users. The potential success of Make in India as a market manufacturer works two-ways. If successful, Make in India can either end up producing the Indian versions of the Japanese story like automobile industry resulting in the Indian versions of Honda, Toyota etc. or it can help create pioneering companies like Google/Apple/Boeing to manufacture new markets altogether.

(The authors are faculty members, IIM Kozhikode)

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Updated Date: Apr 08, 2017 11:03:09 IST