Why Make in India is a stepping stone
Prime minister Narendra Modi’s initiative of “Make in India” is a promising one. It is an invitation to global producers to transform India into a major hub for manufacturing their products. Multinational companies (MNCs) with global brands and worldwide market reach can use our plentiful and inexpensive labour, as well as tap our domestic demand just as they did in China. They are now “making” in the rest of Asia — Vietnam, Thailand, Malaysia, Indonesia and even Sri Lanka, Bangladesh and Myanmar.
Our IT sector has a similar allure as well. We have a vast pool of trained and skilled engineers as well as an unbeatable cost arbitrage opportunity. Therefore, large IT multinational firms like IBM, Oracle, Microsoft, Google and HP have set up offshore factories in India. MNCs and global financial institutions have also set up their back-office hubs in the country due to lower costs and easy availability of skilled labour. In some cases, an additional attraction is the considerable domestic demand that is growing. Thus, “Make in India” is a competent strategy so long as we envision it as a stepping stone in the long term. Our destination is not to become the ‘sweatshop of the world’, but to design, manufacture and build global brands.
Akio Morita, co-founder of Sony, wrote a seminal book (in the style of an auto-biography) called Made in Japan, published in Japan in 1986. In October 1987, I went to Tokyo as the youngest speaker representing India at the World Congress of Accountants. My co-author was Warren Allen, president of the International Federation of Accountants.
I had the rare privilege of meeting Morita, who was the keynote speaker of the Congress. He shaped Sony as a global corporation and told us that the turning point of the company was simply this: the courage and wisdom to say ‘no!’ He once refused a large order for transistor radios from the then US giant Sears because they wanted Morita to jettison the Sony brand and sell his products under the store brand. For a fledgling Japanese company, it was a tough choice to decline such a large and profitable order and insist that Sony would sell transistor radios only if the brand was used. The rest, as they say, is history.
Sony was a company which came out of a gloomy Japan devastated by war. Perhaps, that’s why Made in Japan begins in a bomb shelter where Morita had taken refuge. It was there that he heard of Japan’s surrender on the radio.
To most Japanese, the end of war came as a relief. But it was a national humiliation. Emperor Hirohito, considered as god by the Japanese, had surrendered. On August 15, 1945 while declaring that war was over, the emperor urged Japan to look ahead and unite its strength to be devoted to construction of the future.
Entrepreneurs like Akio Morita used meagre resources at their disposal for re-building purposes. With ingenuity, innovation, courage, self-respect and confidence, they set out to conquer markets in Europe and the US with a clear vision of making ‘made in Japan’ products a hallmark of quality. They built global brands like Sony, Toyota, Nissan, Nikon and Fuji.
Closer home, we should take some lessons from our IT industry. While it is a matter of pride that the Indian IT industry exports nearly $100 billion worth of services and employs millions of people, we do not have many product companies.
Let us compare this scenario with China. We do not have equivalent of a Baidu, which alone has a market capitalisation of nearly $84 billion. We have a Snapdeal here and a Flipkart there, but nothing close to an Alibaba.com (with market cap of $248 billion compared with $206 billion of Facebook). The market cap of Tencent is nearly $150 billion.
According to a market research report by IBIS World, the size of the software industry in China was $463 billion in 2013 growing at a robust clip of 24 per cent. In China, there are over 27,600 enterprises operating in this industry. Most of these are small and medium-size companies that only operate in local markets.
But building brands is not new to us. We also have the experience of homegrown brands like Amul successfully competing in the domestic market with multinational brands. There are corporate brands like Tata, Reliance, Mahindra, Wipro and Infosys, which are known globally. Therefore, along with “Make in India”, we must also pursue a strategy of ‘Made in India’ where products are made by Indian and global companies with pride in our heritage. Products that are crafted — with care and love —to perfection. ‘Made in India’ should be synonymous with great design, frugal innovation, environment-friendliness and high quality.
Apart from “Make in India”, we should also encourage “Invent in India” by inviting global corporations to set up their cutting-edge research and development centres that focus on frontier technologies. They will be able to leverage our universities, research labs, scientists and technologists. Companies like GE, Oracle, Microsoft, Huawei and Google are creating products in India for the local and the global markets.
India is a young country with great ambition, drive, creativity, talent, boundless capacity for frugal innovation and a ‘once-in-many-lifetimes’ demographic advantage. Of course, it is a great place to make products and sell them and, therefore, “Make in India” makes sense.
But the nation’s ambition cannot be limited to being a China of the 1980s where MNCs come only for cheap labour and a large market. India is a nation where the products of the next generation will be invented. It will be a cradle for future global brands. It will be the birthplace of global firms waiting to be born. Both strategies of ‘Make in India’ and ‘Made in India’ must co-exist in the harmonious framework of the ambition of a nation unbound.
(The writer is managing director of Deloitte Consulting, India. These are his personal views)