- Education And Career
- Companies & Markets
- Gadgets & Technology
- After Hours
- Banking & Finance
- Energy & Infra
- Case Study
- Web Exclusive
- Property Review
- Digital India
- Work Life Balance
- Test category by sumit
India’s Competitor In Exports Is Not China But Industry 4.0
Can India reposition itself with the pandemic threatening life, disrupting the economy and on the other side a surge in demand for recreating the ‘New India’, post Covid-19?
Photo Credit : Shutterstock
“around 60 per cent garment workers will be replaced by robots by 2030” President of Bangladesh Association of Software and Information Services
In our quest for finding solutions to the immediate problems such as India being seen as an alternate manufacturing destination to China, at times we lose sight of looming long-term threat to our manufacturing and share of international trade from disruptive technologies. This level of competitive advantage was lost two decades back and China mastered the global value chain. Can India reposition itself with the pandemic threatening life, disrupting the economy and on the other side a surge in demand for recreating the ‘New India’, post Covid-19?
After watching devastating effects of Covid-19 on global supply chains, many companies are not convinced that moving to India is the right solution as our supply chain for major export items also starts from China, as seen in mobile phones. Isn’t this a latent challenge to be rethought before laying the new chess board? They are looking at new technological solutions within Industry 4.0 domain such as Artificial Intelligence (AI), robotics and additive technologies (3D Printing) to bring manufacturing home (back-shoring) or in countries close to its borders (near-shoring). As capital cost of such technologies decline in future, these are seen as more attractive in near-shoring and back-shoring scenarios not only for multinationals but also to smaller companies which rely on distant & complex supply chains. Is India geared on this, if not how soon?
According to the documentary “Farewell to the Global Supply Chain” broadcasted by DW, the German news channel on 30th June 2020, since the coronavirus pandemic began, Companies in Europe with supply chains extended throughout Asia, especially China have come to realise that having a single supplier in one country can be disastrous for their business. That is monopoly, which they see and intend to mitigate upon! Global supply chains, which at one time was seen as a solution for keeping costs low are today seen as a liability that can disrupt their production. This opens up opportunities for India, only if India can be a source of a significant part of the value chain, not just assembly from imported components as in the case of mobile phones. A critical re-thinking, a speedy one is required.
As an example, the above program quoted a German company BDT manufacturing data storage hardware. The company shifted its electric motor manufacturing from Philippines to India due to lower labour costs but now finds itself in a dilemma as its raw material is sourced from China. What a challenge, within the complex global supply chain? It is now looking to source its components from European manufacturers hoping that shorter supply chain would be more reliable. The company is developing a supplier in Slovakia to manufacture a complex component which it was earlier obtaining from China and hopes to change the supplier nearer home next year. This is just one baby step by firms whose end product is meshed within global supply chains and even dangerous, if it is emerging from a monopolistic supplier!
In yet another example, the supply chain for automotive is still longer and more complex with India exporting $12 billion of automotive components every year. The move to shorter supply chain resulting in back-shoring and near-shoring can turn into a crisis, a decade from now. Will Industry 4.0 will make it happen?
The threat to Indian labour-intensive industry, which is already being facing stiff competition from lower labour cost countries is very real. These industries employ close to five million (three million in garment industry alone) minimally trained workers. The new threat will come from near-shoring and back-shoring due to entry of Industry 4.0 represented by robotic factories, as well as customers going for shorter supply chain to cater to frequent fashion and trend changes, even if at a higher cost. Jim Yong Kim, the World Bank President has pointed out that automation may lead to the loss of a majority of jobs in the developing countries while an ILO study has underlined that a large number of jobs in the ASEAN clothing and leather sectors are at a risk due to automation.
Technologies do exist for robotic factories in garment production. Almost 30% of globally outsourced garments are T-shirts while another 20% is made up of jeans. Both these items can, in the near future be made in robotic factories.
China Daily reported that sewbots would produce 23 million T-shirts per year for Adidas in a fully robotic factory in the US, manned by only 22 workers. The factory will produce one T-shirt every 22 seconds at a cost of 33 cents. The cost is even lower that the labour cost in Myanmar, the cheapest outsourcing destination in the world. Next will be jeans and other mass-produced outsourced items followed by shoes, knitted undergarments, towels, bedsheets & pillow covers. As Industry 4.0 takes deep roots on the back of 5G, the outsourcing industry may be affected in the long run. This is a visible challenge and how many of us are prepared on this?
However, a certain amount of offshoring many still continue due to companies trying to avoid the stringent pollution compliance in their markets by pushing polluting industries like textiles & garments to developing countries. We must be alert to this aspect.
Our industries must adopt Industry 4.0 to remain globally competitive a decade from now. This requires both 4G and 5G infrastructure to be installed widely as the backbone for Industry 4.0. 4G is not fully operational and 5G is several years away from launch. Due to US-China trade war and other protectionist policies of many governments, compounded by black swan events like Covid-19, automation in back shoring and nearshoring look very attractive as labour arbitrage loses its advantage.
What should India do to retain its export markets as well as provide avenues of employment to millions of displaced workers?
One thing it should not do is prevent introduction of mechanisation and automation. Kerala government did just that in the cashew industry, in the 70s to save jobs. The result was that export leadership went to Vietnam and stayed there. Kerala still lost lakhs of jobs as factories shifted to other states and later even to African countries. One of the large sectors where we have only scratched the surface for exports and employment potential is agribusiness. Khadi along with handloom can be turned into a value-added signature fabric of India. There is little competition but require extensive marketing as well as stringent quality control. In fact, these fabrics can be sourced from organic cotton of which India is the largest producer. Already, government has taken an initiative in increasing export of khadi by allotting it a new HS Code. It should be followed up by establishing extensive value chain from rural sourcing to buyers in prosperous countries. It can lead to supply chain innovation in areas like vegetable dyeing, another eco-friendly product. Since textiles is one of the largest consumers of chemicals, the organic sustainability supply chain could be a big seller in Europe, US and other high-income countries. There are over 400 khadi institutions in India, under Khadi & Village Industries Commission (KVIC) which are strongly embedded in the rural economy and they can spearhead this program. In fact, KVIC should be given the status of an Export Promotion Council.
Yoga is a strong global brand with origins in India but we have never tried to synergise yoga with marketing of organic and healthy lifestyle products abroad. Post Covid19, this trend will gain traction. Our village agri-business can be linked to this value-added export base. Fifteen years back there was little export of mint oil from India. Today, we have captured 80% of the world’s market. A win-win result through collaboration between a CSIR research centre, farmers and entrepreneurs. We should introduce new technologies such as hydroponic or vertical farming to enable small landholders to grow value-added organic medicinal herbs and spices, the market of which growing at 20-30%. Near the farms, distillation and extraction units can be set up to add value to farm produce. India is a goldmine of medicinal plants but our exports are less than 10% of China. Though capital investment is large, suitable subsidies and financial assistance along with wide usage of solar technologies can make it happen. Netherlands, with a landmass 79 times smaller than India is the second largest exporter of agricultural products in the world. Adoption of modern technology can make it happen in India too as adoption of latest technology would certainly bring down capital costs.
Agribusiness can be a solid foundation for value-added exports. Processed food can be a game changer not only for the rural employment but also the whole sector This sector has the potential to become the largest foreign exchange earner. The success of export of frozen French fries where it was being imported just a few years ago has clearly shown the potential of agribusiness farm to export value chain. In spite of world’s No.2 producer of fruits & vegetables, we have negligible presence in the global market for convenience food, the fastest growing food sector. Organic honey can be next. The Govt. of India has rightly chosen honey production as a major source of income for marginal and landless farmers. It has approved a new Central Sector Scheme entitled “National Beekeeping & Honey Mission”. If developed to its full potential, we can displace China as the largest exporter. Chinese honey which is exported is heavily adulterated and does not enjoy good reputation in either US or Europe. In fact, Indian honey is often mixed with Chinese adulterated honey to sell abroad. The US Customs has called it “The Honey Laundering”. The list of products is endless.
We have only to examine the investment being made in smaller countries such as Thailand’s Food Innopolis Project or Dubai’s World Food City to see not only the vision of these countries to become leaders in processed food exports but also the rising technological gap between India and its closest competitors.
The technological disruption would take place not only in garment industry but the entire gamut of industrial landscape, including construction which is another large source of minimally trained labour. Foresight scanning with a 10-year horizon should be applied to develop various change scenarios likely to happen. If we give it an active consideration today and take baby steps to identify and adapt the displaced workers to alternate employment avenues, we can make the change ten years from now when the capital cost of automation will tip the scale in favour of factories which will employ a fraction of today’s workforce. This will happen not only in the advanced countries but India too. In a VUCA world, anticipation is winning half the battle.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.