Can brains compete with brawn?

June 9, 2009

When it comes to outsourcing, India’s success is undisputed and much of this success is due to the sheer size of the brainpower pool that India has to offer.
Likewise, China’s huge pool of cheap and relatively low skilled labor has turned the country into the world’s undisputed manufacturing powerhouse (albeit one with rapidly rising costs) while a whole host of nations with Vietnam leading the way are vying to be the plus in the China-plus-one manufacturing strategy. Hence, the question arises: Can India with all of its success in outsourcing, effectively use its vast brainpower pool combined with its huge pool of low cost and low skilled labor to effectively compete with China for manufacturing investment or at least be a contender in the race to be that plus in the China-plus-one manufacturing strategy?

Noha Tohamy of AMR Research recently wrote about (India: The next China?) the results of a survey they did that seemed to show that global manufacturers are increasingly recognizing India’s potential. This survey revealed a significant uptick in plans by global manufacturers to source from India with the reasons cited including India’s growing middle class consumer base and cost competitiveness versus China for both materials and labor.

Meanwhile, an October 2007 issue of Business Week included an extensive special report (Made In India) that profiled the growth and aspirations of India’s manufacturing sector along with the many challenges it faces. The challenges indentified included poor infrastructure, overcrowded ports and airports, a shortage of vocational training, stifling labor and other anti-business regulations – problems that have largely been dealt with in China and even Vietnam.

Nevertheless, Noha points out that India is seeking to differentiate itself from China by using its skilled and highly educated labor pool to focus on skill-intensive design and manufacturing outsourcing work and one such area where India has a clear advantage would be in pharmaceuticals. In fact, a recent article in the May 2009 issue of Chemical Week mentions a Frost & Sullivan study that states that although the cost of manufacturing in India is rising, the country will remain a leading destination for outsourcing pharmaceutical manufacturing with the growth of contract manufacturing of pharmaceutical ingredients or finished drugs predicted to grow by 30-40% a year until 2013. Furthermore, a KPMG report from last year concluded that India has the chance to become a global pharmaceutical powerhouse.

Manufacturing Outsourcing

In addition, India’s brainpower pool gives it a clear advantage in doing research and development or design related work and already, global manufacturers are taking notice. In fact, the New York Times recently mentioned that global manufacturing behemoth Honeywell will build a brand new US$50 million research and development facility in Bangalore that will eventually employ 3,000 workers while Noha also points out that Tata Consultancy Services has dozens of foreign design and engineering clients – including aerospace giants Boeing and Airbus along with automotive maker Chrysler.

Furthermore, India’s homegrown manufacturing sector which includes companies like Bajaj, Bharat Forge, Larsen & Toubro, Moser Baer and Tata, has the potential to produce truly global brands like Lenovo or Haier if they strive towards producing quality products. And if homegrown Indian manufacturers can achieve this in tandem with the country becoming a leading manufacturing outsourcing destination for global manufacturers, then India not only has the potential to be the plus in the China-plus-one manufacturing strategy but to also be the “China” in the China-plus-one manufacturing strategy.


Comments

3 Responses to “Can brains compete with brawn?”

  1. munich on June 16th, 2009 2:30 pm

    Anyone can compete with anyone else, like this any country can compete with any other country. The real question is can they win? I doubt that India can compete with China in manufacturing any time soon. In manufacture you need physical goods to be shipped and you need physical infrastructure in which China excels and India lags big-time.

  2. Glowtouch Technologies on June 17th, 2009 8:49 am

    I feel India tries to meet all the outsourcing requirements. India is very sportive in accomplishing things and I feel they will make it. China may have communication issues as most of they do not use English as an official language there. But still this fact is negligible. Let us wait and see what happens.

    Bryan Robinson

  3. Pathy on June 17th, 2009 8:56 am

    As the AMR Research mentioned, I think India can compete with China on niche knowledge based manufacturing outsourcing. I recently read that Tata is planning to use their Nano platform to design and develop hybrid and electric cards for the BRIC countries. I am not sure how for Tata can succeeded but there is a potential for India to compete with China on higher-end manufacturing jobs but definitively not in low-end manufacturing jobs

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