6/1/2008 | 6 MINUTE READ

Insight: India Rising

While there is plenty of attention placed on China, don't overlook the power of India.
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It doesn't take much examination of the global competitive landscape to see that India is emerging as a formidable competitor to the United States.


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It doesn't take much examination of the global competitive landscape to see that India is emerging as a formidable competitor to the United States. Over the next decade, India's growing economy and burgeoning automotive sector will present perhaps more of a threat to the U.S. than China. With over $11-billion investment in foreign automotive business, India has already become a very competitive market with low-cost sourcing, and its automotive industry will oversee 60 new launches in 2008 alone. India portrays itself not as a "low-cost" country but as a "lower-cost" country with the additional benefits of a highly educated workforce and emphasis on advanced technology and R&D expertise.


The Current State

It is true that the average automotive factory in India today looks more like how the U.S. plants operated in the 1960's or 1970's—with a dirty, dimly-lit shop floor and little or no emphasis on the robotics or lean methodologies you will find in Japan, Europe and the U.S. Like in China, in India you see the people more than you see evidence of the technology—but that is changing. India faces significant challenges such as the retention of high-impact employees and experienced management, and its workforce has overall limited product and process knowledge. There is general lack of understanding of U.S.-based specifications that result in a high number of scrap and re-work incidents, and India's quality and safety certification doesn't always equate to demonstrable capability. From an operations standpoint, brown-out conditions occur frequently in India, "local-equivalent" materials are not always adequate and available, and re-sourcing takes 6 to 12 months or longer than it does in North America.

But, according to Reuters, already some 10 million people are working in factories across India - making cars and motorcycles, tractors and trucks, or locating in sales and service centers - and their numbers are ready to swell. The broad-based and continued rise of India over the past several years coupled with the U.S.'s inability to counter its loss of manufacturing jobs by staking a claim to future advanced technology in the sector has brought us to a crossroads. The U.S. must respond over the next several years or be prepared to lose its leadership role on the technology side. From a "celebration of education" standpoint, the Indian culture has us in a corner unless we do something radical over the next 10 years, such as promote K-12 math and science and translate its intrinsic and self-sustaining value into practical engineering applications and leading-edge research and development. Looking at the Education-Literacy Rate in India, it was 44% in the 1980's, 52% in the 1990's, and has grown to 65% during this decade, which is proof of the commitment India has made to educate its population and secure the technological "high ground" if the U.S. doesn't act quickly to re-build its engineering and science base—which is our only real alternative in the global automotive space.


Looking Ahead

By 2016, the automotive industry will possibly create employment for 25 million people in India, and India will be the destination of choice for both vehicle and component manufacturing. India's GDP ratio has doubled over the past 20 years and India will quadruple its GDP by 2020. With the 4th largest economy in the world, Indians will buy five times more cars and consume three times more crude oil during the next decade. India's trade in goods and services accounts for 35% of its GDP, it has the largest number of English-speaking graduates in the world (as well as the youngest), and India will offer the largest overall trained workforce in the world by 2020.

But its future is not without risk: while corruption is not widespread, it is evident and commonplace in India although some enforcement policies are in place. Ethics are higher because of the influence of the British legal system, and some dispute resolution remedies in place. But will the accounting and legal standards soon replicate those of the U.S.? And while there are safety and environmental standards beginning to be put in place, will they keep pace with overall growth India will experience over the next 10+ years?

The Indian government predicts that in 10 years no more than one-tenth of the jobs created by the automotive industry will be unskilled, with nearly two-thirds of the new jobs being classed as skilled, and the remaining classified as managerial or general work. Currently, Reuters says the automotive sector accounts for 5% of India's economic output, but it is set to grow much faster than the rest of the economy. Consequently, by 2016 automotive output in dollars is expected to quadruple while GDP is expected to have merely doubled. This will make the automotive sector an ever-more important contributor to economic growth in India: by 2016 it should account for 10% of India's GDP, according to the government.

We are witnessing a remarkable transformation of India's entire economic landscape going on right now, just as the country's population is gaining dependence on the automobile. Sooner than we may care to acknowledge, the Indian government could realize the critical importance of the car industry as a primary driver of its growing economy. With the world's second largest and fastest-growing populace, there is no denying India's potential in both economic and population terms and the effect it will have on the auto industry in the years to come.


Checkmate for North America?

There are some dramatic events recently that support the deliberate rise of India. In March, Chrysler pulled its seat contract for the Jeep Wrangler from Johnson Controls and will source seats exclusively from India in 2010. India's own Tata Motors, which unveiled its new Nano car at the New Delhi Auto Expo earlier this year, intends to position the Nano as the cheapest car in the world - selling for a skinny $2,200. Higher gas prices will create demand for smaller cars, particularly in the emerging markets like India, and if its middle class becomes a bigger buying segment, it could yield extremely lucrative results over the next decade. Coupled with its acquisition of Jaguar and Land Rover, Tata is beginning to "place the pieces" in a very interesting formation in this strategic chess match. So what are the implications of these strategic moves? How will they impact the future global market?

Taken independently, the migration of the U.S. OEMs to India and the growth of Tata and other India-based manufacturers might not appear to be causing critical mass. Certainly Tata and all of India must come to terms with emissions standards, environmental concerns, regulatory demands, and the ever-changing mass customization requirements necessary to sell to fickle U.S. consumers if they are to be considered a global competitive threat. These issues are complicated and will take time to embrace and sort out. But if India's governmental and private-side business strategies are sustainable, and if its culture continues to promote ever-higher education standards, India will take its share of not only the assembly pieces but also the advanced technology pieces on the chessboard. Is India rising? There is clear evidence to support the business case that they are indeed. And so the U.S. OEMs and the towns and communities and automotive industry they serve must act now to meet the challenges ahead and try to avoid a competitive "checkmate" in the months and years ahead. As Americans, the time is urgent and the need couldn't be greater.