Trouble in India

The riots at a Wistron plant in Narasapura could have lingering effects long after the damage is cleaned up.

India has been touted as the “next China,” a label local trade groups and business executives have relentlessly promoted. Besides being the only countries with a population exceeding 1 billion, however, the similarities are perhaps too many for today’s climate.

Even so, despite Prime Minister Modi’s best efforts to convert the nation into an autocracy driven by a Hindu ruling class, India is fighting a current that China avoided during its rise to manufacturing power, and that flow is getting stronger.

Yes, Nokia and Apple suppliers like Foxconn continue to make plans to expand in the country. But the broader supply base still isn’t there, and, perhaps burnt out from their China experience, expats aren’t relocating by the thousands to help the locals set up and manage companies. The semiconductor industry has changed over the past 20 years. New foundry costs are still rising, and the number of players has shrunk. Putting multi-billion dollar plants in India that replicate older technologies while still finding the resources to compete on the leading-edge might be a longshot, at best.

Nor has India provided the incentives China did to relocate. Instead, it has taken a tack similar to Brazil’s: Steep import taxes that while aimed at China, might actually discourage others from migrating there. Already, India and the US have taken economic swipes at each other, with the US dumping India from its preferred buyer program that allowed zero tariffs exports to the US, and India hiking tariffs on product coming from the US. The EU Parliament is taking an equally dim view of the former British colony’s trade and humanitarian approaches.

Indeed, Modi’s approach to alienating and, some argue, encouraging violence toward India’s religious and ethnic minorities puts Western OEMs in a difficult spot. Already under the gun for their massive investments in China, which have helped prop up that country’s autocratic leadership and create an international powerhouse that is now flexing its economic and military muscle all over Southeast Asia, business leaders might be loathe to plow more assets into yet another unpredictable regime. With governments, including the United States, slapping restrictions on Chinese companies for their alleged treatment of Muslim minorities, it won’t be easy to win any PR battles over why India is somehow an exception.

And the pollution coming out of India might be on a par with China’s — or even worse — hardly an attraction for today’s green marketing campaigns.

It remains to be seen, but I think episodes like Wistron’s will delay the push to the “next China.”

As We Were Saying

And in today’s headlines from India:

  • Foxconn Likely to Shy Away from $5 bn Investment in Maharashtra“: “Although the world’s largest contract electronics manufacturer — which makes Apple’s iPhone and iPad — had entered into a pact with the state government in August last year, the company is yet to start its production unit in the ‘absence’ of customers.”

As we were saying

Foxconn India: Still a Pipe Dream

It’s been a year (more actually) since India announced — to great fanfare — a memorandum of understanding with Foxconn to invest $5 billion over the next five years in the nation. For India, it seemed like a marriage made in heaven: the world’s largest electronics manufacturer would be an ideal partner for its goal to develop a local end-to-end supply chain that could not only serve its burgeoning domestic population but also provide a steady stream of exports to the rest of the world.

Yet as the Times of India points out today, the bride is still waiting at the altar.

As we said at the time, Indian officials shouldn’t hold their breath waiting for the relationship to be consummated. Foxconn is really good at promising huge investments, only to fall short in the end.

Actually, we’ve been saying this for years. Foxconn is Chinese to the core. It may on occasion have dalliances with other countries, but it always returns to its mate. Suitors, take note.

 

Red Makes Green

The arrival of India’s Mars Orbiter is an achievement on many levels. Much will be made of the fact that it is the first Asian satellite to reach the red planet’s orbit. That they accomplished it on their first try will open some eyes to India’s hardware capability as well, given than the success rate for the rest of the world is just 40%.

What I’d like to focus on is the price: India spent a reported $74 million on the Mars Orbiter Mission. That’s barely 10% of what NASA spent on the Maven mission.

Coincidentally, the F-22 Raptor saw action for the first time this week. But the fighter has been under fire for years for what critics call a bloated price tag and unmet performance objectives. The DoD has spent $67 billion for 188 planes, and no more will be produced.

Wall Street Journal

Should the US government wake up and realize that a huge price tag does not necessarily translate into performance, what will be the impact on the electronics supply chain, especially in the US where so much of it relies on military spending?

India Goes Dark

Some 300 million Indians are without power today as no fewer than six states there lost power for an extended period of time. Add this to the growing list of recent potential and real supply-chain disruptions. There are at least 80 EMS companies affected by the outages, based on the number of entries in the CIRCUITS ASSEMBLY Directory of EMS Companies.

While the extended length of this weekend’s outage was an exception, according to Reuters, “blackouts lasting up to eight hours a day are frequent in much of the country.”

This is not to say that companies shouldn’t manufacture in India. However, the national power concerns should be a consideration for those who choose to put all their eggs in one (offshore) basket. Spread the risk.

 

 

 

India’s Environmental Policy for Chemicals

Last April we wrote about India’s new manufacturing policy. They needed one then, and some say still do. Manufacturing in the land of cumin and curry has stalled. But don’t be fooled into thinking that means manufacturing is not happening at all in India — it means growth has stalled, not production.

Some wonder, rhetorically, how could Indian manufacturing have kept growing…?

Answer: by finding new markets.

Maybe you saw the news (India GDP news May 31, 2012) that India’s GDP growth slowed to 5.3% in Q1. This represents a three-year low for the nation. However, let’s not count India out just yet. Not even close. The nation, like many of its neighbors, is pausing, looking for new markets to pour its tremendous energy into.

One of those markets looks like it might be the chemicals industry.

Let’s take a look at the chemical industry (and related policy) in India.

India industrial sector growth: chemicals. In India, the chemical industry is said to be one of the oldest in the nation. It’s essential to any nation’s economic development that is based on manufacturing. In years past, India has had to import and almost-embarrassing amount of raw materials, including chemicals. Still, the Indian chemical sector is growing, estimated now to be worth about $108 billion.

Asia itself is a rising star in chemical sales. For example, over the last 10 years, Asia’s share of global chemical sales has increased by ~14%. Currently, the Indian chemical industry accounts for approximately 7% of India’s GDP. The share of industry in national exports hovers near 11%. Despite its large size and significant GDP profile, India’s chemicals industry represents only about 3% of global chemicals.

The Indian chemical industry is one of the most diversified sectors touching thousands of commercial products. As the raw materials engine in a booming manufacturing ship, the chemical industry is central to industrial and the agricultural development. The chemical industry provides essential building blocks for multiple downstream industries, such as textile, paper, paint, soap, detergent, pharmaceutical, varnish, etc. In India, the chemical sector is known to be largely based on feed stock derivatives from cracking of naphtha in oil refineries providing the building blocks, such as benzene, toluene, xylene, cresols, etc.

India environmental policy: chemical policy like REACH? India’s Ministry of Chemicals and Fertilizers has declared the need to invigorate the chemicals aspect of its environmental policy. Holding out for REACH-like* legislation might be a stretch in the near future (someday maybe). But the Ministry is talking in the direction of the safer use of chemicals. “For the protection of human health and the environment, and in order to reduce the current number of chemical-related laws,” authorities are saying.

*REACH is a European regulation, a pioneer initiative in the world on that deals with the registration, evaluation, authorisation and restriction of chemical substances, which entered into effect on June 1, 2007 in the European Union.

However, in India, the Department of Chemicals and Petrochemicals did begin a consultation process of the draft national chemicals policy in April of this year (2012). The resulting document includes a wide range of objectives and proposals.

Included in the documentation is the stated need to consolidate the “multiple legislations in India governing the chemicals industry that fall under the purview of different ministries.”

Also, according to the draft, India lacks legislation that addresses the following:

  1. the registration of substances
  2. preparation of a national inventory
  3. restrictions on hazardous substances
  4. banning of certain substances
  5. detailed classification and labeling criteria
  6. transport classification

The draft policy also calls for the creation of a “National Chemical Centre” (NCC). They would perform functions such as:

  1. draft legislation
  2. monitor its implementation
  3. monitor international trade practices
  4. identify opportunities for innovation and technology

The NCC would have a role in disseminating information about hazardous chemicals and create and maintain a chemicals inventory, which would include data on production, consumption and toxicological properties.

A second new body which the document states should also be set up under the guidance of the department is a “Chemical Standard Development Organisation”, or CSDO. They would “drive consensus regarding national requirements, including safety norms.”

Sound like REACH?  Yes — ish — in theory.  In reality though it’s light years away, in miles, sure, but mostly in time.

Resources besides those referenced above, as links:
International Labor Assn for Sustainable Development ILASD
Subscription / fee based: Chemical Watch

India’s New Manufacturing Policy

The Indian government said in April it will soon unveil a national manufacturing policy, which aims at attracting overseas investments and increase the share of the sector in the economy. “India will come out with a national manufacturing policy within this year, hopefully before June,” Indian Commerce and Industry Minister Anand Sharma said recently. The country will also be taking other initiatives along with states to promote the manufacturing sector, Sharma also said.

“I hope, we will be able to do it soon,” Sharma said at a CII function in New Delhi.

The Indian government aims at increasing the share of manufacturing sector from 16-17%  to 25-26% of the GDP by 2020. It’s said that over 80% of the country’s overall industrial production is from manufacturing.

Sharma said that India’s first National Manufacturing Policy is in the works. It will likely include integrated “green-field” mega-investment zones to attract global investment and cutting-edge technologies.

India 2.0. Millions of skilled workers are expected to join India’s manufacturing segment in the near future. A good new policy would help attract those individuals as well as increased foreign direct investment into the country.

India’s exports this fiscal are likely to increase to $235 billion, from $178.6 billion in 2009-10. The new export strategy aims at doubling India’s exports to $450 billion by 2014.

On the proposed Anti-Counterfeiting Trade Agreement (ACTA), which is a new international treaty being framed by a group of developed nations, the minister Sharma declined to pursue that line of thinking.  He said India would not accept any such attempts to discuss intellectual property rights outside the multilateral WTO framework, as reported multiple journals in India. India is opposing ACTA, saying that it would have far-reaching implications for non-members of ACTA. The countries such as the US, EU, Japan, Australia, Canada and New Zealand are still evaluating the agreement.

“Few countries will group together and try to change what is and will always be a multilateral regime called the TRIPS agreement. If it has to revisited in any stage in future, it will be only in multilateral forum — the WTO — it cannot be done outside,” he added.

For reference, make a note of these links:

Confederation of Indian Industry: www.cii.in

Federation of Indian Chambers of Commerce and Industry: www.ficci.com

National Manufacturing Competitiveness Council: http://nmcc.nic.in