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Indian manufacturers tackle the
Dragon
By Indrajit Basu
KOLKATA - Back in year 2000, when the Chinese
manufacturing juggernaut made its first move to muscle
into the Indian market with rock-bottom prices as bait
on a range of products, from televisions to steel
products, garments to toys, there was widespread fear
that Indian companies manufacturing products that China
was exporting would eventually have to close shop.
After all, Chinese products were (and still are)
available 40-80 percent cheaper than their made-in-India
counterparts. But two years down the track, Indian
industry is demonstrating that it is not only faring
better than anyone expected, it has been quick to spy an
opportunity and capitalize on it.
"Two years ago
Indian manufacturers thought they'd be finished by the
Chinese onslaught, but now they're learning to take them
on successfully and learn from them," said Satish Kaura,
chairman of color-TV picture-tube maker Samtel India.
Indian industry is tackling the Chinese
in a variety of ways. At one level, the
Indian manufacturing sector has started identifying opportunities to
win a slice of the burgeoning Chinese market. On another, it
is leveraging China as a source for components and
finished goods to cut costs for its own products and
stay competitive in India and internationally.
A
good instance of how Indian companies are finding
opportunities in the Chinese market is India's largest,
and the world's cheapest, steel maker, Tata Iron and
Steel, or Tisco. According to the company, during the
last financial year (2001-02) it had just started
probing the Chinese market and its exports there were
"very small". But the company soon initiated a study on
the Chinese market, and it revealed some interesting
facts.
It showed that there were only two steel
markets in the world - India and China - that had the
potential for impressive growth prospects in terms of
steel consumption. However, while growth in India was
about 5-6 percent a year, growth in the Chinese market
has been a steady 10 percent, "and that, too, on a much
larger base". The study also revealed that growth on a
year-to-year basis in the Chinese market today is even
larger than the total consumption of steel in India.
"The city of Shanghai alone consumes more steel than the
whole of India," the study said, adding, "The figures
encouraged the company to explore the Chinese market and
establish a presence there."
And, in the nine
months from April to December 2002, Tisco made a
breakthrough of sorts: it doubled exports to the Middle
Kingdom to US$20 million.
Tisco also found that
China consumed about 195 million tons of steel in 2002,
while its production capacity was a mere 160 million
tons a year, and the steel plants were old and would
need to spend $730 million for each 1-million-ton-a-year
steel plant it wished to set up.
"Keeping in
mind the present Chinese scenario, Tisco has started
looking at long-term associations with some of the
biggest consumers of steel in that country and will
continue to do so," said a Tisco spokesperson.
JK Tyres, one of India's top automobile tire
makers, is one of the smarter companies taking on the
Chinese by stepping into their boots. JK Tyres has tied
up with a Chinese tire manufacturer to produce light and
heavy commercial vehicle tires, which it finds
low-margin and "bothersome to produce". The company
imports tires and sells them under its own brand name in
several parts of the world.
"We've two
advantages," said Raghupati Singhania, JK's managing
director. "By sourcing these tires from China we've been
able to release capacity in our plants that can now be
used for making radial [high-value] car tires. So I save
on fresh investment. Secondly, it's 20 percent cheaper
to source tires from China than in India. So we're more
competitive internationally."
The company is, in
fact, moving even farther; it is selling tires made in
China in India under the JK name. And it's charging a 20
percent premium on its tires. JK expects its global
business will be worth about $170 million in the next
three years, and half of that will come from China.
Others who see a large domestic market waiting
to be tapped in China and who are aiming at it squarely
include two-wheeler maker Bajaj Auto. "Ninety-five
percent of two-wheelers in China are made by local
companies, which are rather inferior," said Sanjeev
Bajaj, vice president. "About 5 percent are made by the
Japanese, but they're two-and-a-half times more costly.
We see an opportunity to produce Japanese quality
two-wheelers at prices that match the Chinese. It's a
clear window of opportunity."
For Samtel India,
China has proved a good opportunity to provide quality
at lower prices, which has even allowed Samtel to make a
dent in the Chinese market. The picture-tube
manufacturer follows an interesting strategy: it imports
glass shells from China and exports finished picture
tubes to the country. "Don't forget that China has a
glass-shell manufacturing capacity of 40 million
annually and its prices are at least 5 percent cheaper
than India," said Satish Kaura. Samtel claims it offers
equivalently reliable quality at lower prices - about 3
percent cheaper than the Chinese-made picture tubes.
Sourcing components, however, remains the
biggest attraction. A range of home-appliance makers are
turning their eyes to China. Air-conditioning equipment
maker Voltas, for instance, has a joint venture with US
major Fedders International in India. The Indian JV now
sources compressors for its room ACs from the Fedders
plant in China. The reason is simple, says K J Java,
vice president: "The price we get is 5 percent cheaper
than in India because of the advantage of economies of
scale there. We're thus leveraging on the strength of
our partner in China."
Bajaj Electricals, a
domestic appliance maker, has gone a step farther by
jointly branding products imported from China. The
Mumbai-based company realized that it didn't make
economic sense to manufacture pedestal and wall fans in
India because of low volumes, so it tied up with China's
Midea, the world's largest fan maker, which produces
17.5 million fans a year, compared with India's 1.5
million. Midea makes the fans in China according to
Bajaj's specifications. Bajaj jointly brands the fans
and sells them using their large distribution network in
India. "It's win-win for both," said R Ramakrishnan,
chief executive officer. "Midea gets recognition of its
brand in India by the rub-off effect of its associating
with Bajaj. And we save costs to the extent of 15
percent by manufacturing in China. We also get access to
the latest in technology and design, as Midea is the
world's largest."
But while these strategies of
Indian companies appear encouraging for the country's
manufacturing sector, some caution that India still
shouldn't underestimate the Chinese challenge.
According to industry lobby the Federation of
Indian Chamber of Commerce and Industries, while Chinese
manufacturers may not have made any major breakthrough
yet in some sectors, such as the home-appliances and
building-materials sectors, because of quality doubts,
they have nevertheless built up a decent market share.
For instance, Chinese home appliances have reportedly
garnered a 5 percent market share, and Chinese floor
tiles have already grabbed about 15 percent of the
market.
And in some sectors the Chinese appear
to be winning. For instance, Indian sports-footwear
manufacturers say that at least half of them will have
to close down against the onslaught of cheap Chinese
imports. Chinese products already constitute 10-15
percent of the sports-footwear market in India.
"Their costs are 40 percent lower than ours,"
said N K Aggarwal, director of leading sports-shoe
brand. "Plus traders are under-invoicing imports and
taxes on us are as high as 35 percent. If this continues
and taxes don't fall, we'll stop manufacturing and start
trading."
Other industries feeling the pinch of
China's competition include Hero Cycles, the world's
largest bicycle maker. "[The price of ] steel, the main
input for manufacturing cycles, has tripled this year,"
said B K Munjal, chairman of Hero Cycles. "If this
continues we will no longer be able to absorb the
increase by squeezing our margins - the Chinese will get
an opportunity."
Even for companies doing well,
it's premature to declare victory against the Chinese
just yet. "India has accepted the World Trade
Organization regime, which means import barriers in
India will halve in next few years," said Singhania of
JK Tyres.
"That's when Chinese products will
become even cheaper and perhaps pose the real threat."
(©2003 Asia Times Online Co, Ltd. All rights
reserved. Please contact content@atimes.com
for information on our sales and syndication policies.)
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