Indias Skill-based Sectors Must Target China: McKinsey Study

New Delhi, October 25: | Updated: Oct 26 2002, 05:30am hrs
Rather than lose sleep over China, India can make the Chinese market a major destination for its skill-based sectors such as automobiles, auto components, consumer electronics and pharmaceuticals. This message has emerged from a CII-McKinsey study on how India can learn from China to unlock manufacturing potential at home. The study anticipates that the growth charge in skill-based sectors will take Indian exports from $5 billion at present to $24 billion by 2012. China will be a major stop for these exports from India, the study says.

Bharat Forge, Lucas TVS, Sundaram Fasteners, Ford, Cummins, Ranbaxy and Dr Reddys Laboratory (DRL) have already started exploring the opportunity in the Chinese market, it notes.

Highlighting Chinas domestic pharmaceutical market of over $12 billion, the study says: Indian pharmaceutical players can seek to build dominance over China in export markets as well as tap the opportunities to sell in the large Chinese domestic market, both through production in China and through exports from India. It notes how DRL and Ranbaxy have already started tapping this opportunity, because they have established facilities there.

In the automotive sector, China presents an interesting opportunity for Indian players, the report suggests, explaining how years of protection of domestic manufacturers and control on private ownership of vehicles have resulted in a relatively less developed automotive supplier industry in China.

Tariff reductions driven by Chinas accession to World Trade Organisation (WTO) and removal of ownership controls will drive rapid growth in the Chinese automotive market, opening up opportunities for Indian companies, it says.

The study points out that Indian automotive companies are price competitive and have adequate margins despite paying an import duty of 25 per cent in China. Leading companies such as Bharat Forge, Lucas TVS and Sundaram Fasteners have already started building or are planning to build strong positions in large exports markets such as the US and China. Multinational companies such as Ford and Cummins are evaluating supplies to their Chinese divisions, the study adds.

The study points out cost effectiveness at stages of equipment design and manufacturing besides availability of low cost high-skilled labour as the major strengths of the Indian companies.

Indicating at the growing price-cost squeeze in the global automotive original equipment manufacturing (OEM) segment, the report says that they (original OEMs) are likely to increase global sourcing from low cost locations such as India. Apart from serving OEMs, Indian players can also serve the large after-market for these components, it adds.

In the CNC machine tool segment, where China is the third largest market and imports 60 per cent of its requirement, Indian companies are better positioned to take advantage with good engineering and technical talent, the study points out.