July 26, 2016 Out of The Shadows

Volume 10 | Issue 2

India emerges as an economic power.

A growing number of U.S. manufacturers are focused on the emerging China market, and rightfully so. Some 1.3 billion people in a vibrant consumer market growing at 10 percent a year beckon investors and exporters alike.

But we should not let China’s rise distract us from the equally promising foreign market next door. According to a recent report in Kiplinger’s, by 2030 India will have more people than China, and by 2050 will outnumber the Chinese by 1.6 billion to 1.4 billion.

This is a major consumer market in the making. India’s working age population is expected to grow for at least the next two decades. There is a clear correlation between long-term growth and the low dependency ratio associated with relatively youthful populations. Though many Indians live in abject poverty, there is a large and growing middle class that will by 2020 constitute 60 percent of the population.

The U.S. Department of Commerce says India’s economy is “one of the fastest growing in the world.” The Federation of Indian Chambers of Commerce and Industry says India’s real growth has averaged 8 percent over the past three years and is accelerating. Goldman Sachs projects India can sustain an 8 percent annual growth rate until 2020, and will surpass Italy and France overtaking the United Kingdom as the world’s fifth largest economy by 2015.

And yet today India ranks 22nd among U.S. export markets. If few U.S. manufacturers see India as a great opportunity, it is likely because of India’s reputation for bureaucracy, excessive regulation, corruption, an inadequate transportation infrastructure and unreliable energy grid.

But India has committed to change and is already making significant progress toward opening its market to foreign investment and exports. Reform began under the Congress Party in the 1980s, was continued by the nationalist BJP government in the 1990s, and continues today under the coalition government elected in 2004.

Greatest asset: workers
The World Bank reports that the burden of India’s licensing and bureaucratic regulation has been significantly reduced since 2000, and many foreign companies compare India favorably to other markets. Manufacturing investors can incorporate in India as either Indian companies or foreign companies. These can be joint ventures or wholly owned subsidiaries, and in most cases foreign equity ownership can be up to 100 percent.

Perhaps India’s strongest asset is a large and growing cadre of highly educated and motivated workers – the heart and soul of that growing middle class of consumers. With more than 380 universities, 11,200 colleges and 1500 research institutions, India turns out more than 50,000 computer professionals and 360,000 engineers each year.

“India’s greatest asset is its skilled workforce – especially knowledge workers,” said Jim McGill, Vice President for Asia Pacific of Eaton Corporation, an international manufacturer of highly engineered industrial products. “We are finding that they have a strong desire to learn and develop themselves. They are avid, continuous learners and are often pushing us to give them the experiences and coaching they need to improve both technical and leadership competencies. They really have a terrific work ethic.” Eaton currently has about 800 employees in India, most of whom are engineers and other professionals.

Smaller manufacturers also are finding India to be fertile ground. Stephanie Harkness, Chairman and Chief Executive Officer of Pacific Plastics and Engineering, of Soquel, Calif., has 110 employees in the U.S. and 85 in India making plastic injection molds and assemblies. She is bullish on India’s future. “India is developing a huge middle class,” she said. “You have a ready pool of educated engineers and software people with a strong work ethic. There is a low barrier for entry, Indians speak English and Indian courts respect intellectual property rights. We have not had many problems with the bureaucracy.” Harkness said also that her commitment to India coincided with expansion of her domestic operation in the U.S. where her workforce has doubled.

Antonio M. Capellini, Chairman and Managing Director, Goodyear India, who has worked for Goodyear for 30 years in seven countries, is bullish on India too. “I have never been as excited about Goodyear business as I am today leading the Goodyear business in India,” he said. “There is a sense of optimism across all areas of Indian industry that is contagious and helps in making things happen in our India business.”

Scott Bayman, General Electric’s National Executive for India, points out that over the past four years, 12 Indian companies have won Japan’s coveted Deming Prize, more than any other country – including Japan. “Indian industrialists no longer talk of level playing fields,” Bayman said. “They argue for open markets, free trade, and view the globe as their marketplace.”

Last year I had the opportunity to organize a meeting at the NAM with senior officials of several Indian state governments.  I was impressed with their eagerness to attract more U.S. companies to India and their commitment to improving the business climate in their regions.  To accelerate progress, many are establishing special economic zones where businesses can operate with less red tape and have access to improved infrastructure.

There is strong interest in developing working partnerships with companies that offer world-class products and services, both large multinationals and sophisticated smaller companies like Pacific Plastics & Engineering.  Some experts contend that China has the advantage in high volume, low technology manufacturing, while India has the upper hand in lower volume, higher technology manufacturing. Any way you slice it, China and India present U.S. manufacturing with great challenges and opportunities, and the emerging middle classes in both China and India demand a greater presence of U.S. manufacturing in both countries. The U.S. Department of Commerce offers practical advice to U.S. firms seeking to do business in China, India and other Asian nations.

Commitment to Growth
The dominant theme of India today is economic growth and a commitment among Indians from all walks of life to fully participate in the modern world. India is the third largest car market in the world, and the fifth largest maker of commercial vehicles. Cell phone users in India have jumped from three million in 2000 to more than 100 million today. The number of television channels rose from one in 1991 to more than 150 last year. Improvements in transportation infrastructure are underway.

The reality on the ground is that India is not one market but many. “One needs to recognize that India is really more like a collection of ‘island’ markets as opposed to a single market, with huge disparities between major cities and smaller towns, and among the northern, southern, eastern and western states,” said Pierre E. Cohade, President of Goodyear Tire & Rubber Company, Asia Pacific Region. While several of India’s 29 states remain virtually off limits to foreign investors, many others are highly competitive in terms of productivity, flexibility and quality of life. Cohade said Goodyear has been in India since 1922 making tires for the Indian market and for export to other countries in south Asia. “Over the years, Goodyear has expanded its operations in India,” he said. “The Indian market today is one of the fastest growing consumer markets in the world. The country offers an excellent manufacturing base with skilled manpower and availability of raw materials, like natural rubber.”

Bureaucratic corruption is endemic in many areas of India but foreign companies report that when they refuse to pay bribes, they suffer no repercussions. “You don’t get labeled as a bad news company,” said one U.S. executive, “which can happen in other economies.”

John Engler is president of the National Association of Manufacturers, whose mission is to enhance the competitiveness of manufacturers by shaping a legislative and regulatory environment conducive to U.S. economic growth and to increase understanding among policymakers, the media and the general public about the vital role of manufacturing to America’s economic future and living standards.

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