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A comprehensive analysis of the Indian Manufacturing Sector identifying the loopholes and suggesting innovative ideas to turn around the sector and building an innovative ecosystem that feeds on ...

A comprehensive analysis of the Indian Manufacturing Sector identifying the loopholes and suggesting innovative ideas to turn around the sector and building an innovative ecosystem that feeds on itself

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Deloitte maverick regional finals Presentation Transcript

  • 1. Disruptive Innovation in Indian Manufacturing Submitted by- Pulkit Bohra | Pulkit Mathur| Tarun Gupta
  • 2. Recommen- dation Proposed Ecosystem Infrastructural Challen- ges & Solutions Manufacturing in India Potential for Disruptive Innovation To assess India’s manufacturing competitiveness Analysed export potential of the Indian Manufacturing sector With fading labour cost arbitrage and rising transportation costs, cost leadership strategy for exports might not work Compared the manufacturing contribution to GDP Analysed industry on regional and product category basis Manufacturing contribution to GDP has stagnated over years Interaction between the system forces help increase production efficiency The proposed ecosystem provides synergy cost benefits and hence promotes entrepreneurship among SME To identify infrastructural challenges and ways to overcome them Strategic objectives Analysis Insights India is a cluster based manufacturing economy with little focus on SME’s. Building an ecosystem leveraging the cluster based strength and focusing on SME development is the required DISRUPTIVE Innovation in the Indian Manufacturing sector. To identify the scope for disruptive innovation in Indian Manufacturing Sector To develop a framework and propose execution synergies Identified growth drivers and constraints for the sector Identified the most critical growth drivers for the manufacturing sector in India Analysed Infrastructure in India w.r.t its importance for manufacturing sector. Did a ground reality check on the effectiveness of initiatives Mapped the ecosystem to see how the disruptive innovation generates higher returns India is well placed to adopt a Differentiation strategy India can disrupt the manufacturing ecosystem with its clusters-based manufacturing zones PPP’s transfer maximum risk to the private players which is not a long term strategy Indian political environment and policy framework is not considered safe by Foreign investors. Executive Summary Indian Manufacturing Scenario Disruptive Innovation Proposed Ecosystem Framework Execution within Ecosystem Infrastructural Challenges 2
  • 3. Increasing labor wages in India reducing the cost arbitrage advantage for exports Increasing oil demand is leading to increased fuel costs raising transportation costs Drivers of Manufacturing in India ■ Considered a high quality manufacturing destination ■ Favorable demographic dividend ■ Strong technical and engineering capability ■ Well regulated and stable financial markets ■ Strong domestic market Manufacturing is constrained by ■ Poor power and transport infrastructure ■ Low employee productivity, high illiteracy ■ Volatile governance and regulatory environment ■ Inadequate credit flow and rising cost of credit ■ Slow pace of reforms “With the cost arbitrage advantage fading away and transportation costs rising, India cannot adopt Cost Leadership strategy to boost manufacturing exports.” “Backed up by the rising domestic demand, Indian manufacturing industry should rather bank upon its strong technical capabilities and adopt a Differentiation Strategy to create a niche for itself in the international markets.” Executive Summary Indian Manufacturing Scenario Disruptive Innovation Proposed Ecosystem Framework Execution within Ecosystem Infrastructural Challenges 3Sources: “National Manufacturing Policy, India, 2011; Economic 360 for India: Growth Prospects and Emerging Opportunities in the Manufacturing Industry, Frost and Sullivan, August 2011; International Energy Agency Manufacturing in India
  • 4. Food Processing Cluster, Guwahati, Assam Engineering Cluster, Kolkata Auto Components Cluster Vijaywada, AP Pharmaceutical Cluster ,Hyderabad Textile Cluster; Tirupur, Tamil Nadu India’s Manufacturing strength based on clusters Wood based Cluster : Srinagar, Jammu & Kashmir Textile Cluster : Panipat, Haryana Ceramic Pottery Cluster Khurja, UP Food Processing Cluster, Arunachal Pradesh Steel & Metallurgy Cluster, Orissa Pump, motor & Foundry Cluster; Coimbatore Tamil Nadu Textile Cluster : Ludhiana Punjab Stone Cluster : KishanGarh, Rajasthan Gems, Jewelry Cluster : Surat, Gujarat Chemical Cluster : Vapi, Gujarat Pharma/Auto Cluster : Pitampura, MP Auto Components Cluster : Pune, Maharashtra Aerospace & Auto Components Cluster : Bangalore, Karnataka Traditional Approach failure, Manufacturing contribution to GDP has stagnated SMEs are the way forward • SMEs promote local entrepreneurship • SMEs support strengthening of existing leading enterprises • SMEs offer huge employment potential at low capital cost • Government incentives like Technology Acquisition and Development Fund (TADF) would encourage use of technology An eco-system comprising cluster driven Indian SMEs is the required DISRUPTIVE INNOVATION in the Indian manufacturing industry Executive Summary Indian Manufacturing Scenario Disruptive Innovation Proposed Ecosystem Framework Execution within Ecosystem Infrastructural Challenges 4 Sources: “National Manufacturing Policy, India, 2011; Frost & Sullivan; The SME Chamber of India
  • 5. Challenges in the Indian Context • Infrastructure Deficit: Power and Transport • Land Acquisition delays • Delay in environmental clearances • Archaic Laws: Labor related issues • Multi -tier regulatory system and complex structures Advantages of such an Ecosystem • Development of Small and Medium Enterprises (SMEs) • Easier and focused Implementation of industrial training and other skill up-gradation measures • Rationalisation and simplification of business regulations • Impetus to technology development Forces that will Drive the Cluster-based SMEs Manufacturing Zones “Manufacturers are highly supportive of clusters that provide infrastructure and land use on the basis of zoning, clean and energy-efficient technology, necessary social infrastructure, skill development facilities, etc., to provide a productive environment to persons transitioning from the primary sector to the secondary and tertiary sectors.” Executive Summary Indian Manufacturing Scenario Disruptive Innovation Proposed Ecosystem Framework Execution within Ecosystem Infrastructural Challenges 5 Sources: Team Iguanas analysis; Point of View, National Manufacturing Policy, PwC India
  • 6. Executing “Disruptive Innovation” at each node of the proposed ecosystem Reinventing BRAND INDIA 1 Cash Flow Expenditure of SME Income To SME •Direct Finance •Indirect Finance •Guarantee Schemes Investment Market Size TrainingOrg. LearningPerformance HR Payment Product Quality Market Share Customer Reputation to SME Create Niche Market •Supplier certainty •Low transportation cost •Synergy benefit Resources Government Policies Capabilities Growth Drivers Taxation Finances R&D Innovation Education Raw Materials Human Infrastructure Technology Efficient Process Best Practices Transport- Power Cost Innovating Trade Policies- Securing Markets through Internationalization & impetus to domestic procurement 3 Implementing Big Data Exploring Cloud Based ERP Solutions & Automation for efficiency 2 Gov. Policies – Leveraging Corporate Cash; Priority sector status; use of VC; setting up SME stock exchange 5 Skilling Local Labor – inviting PPPs under NSDC 8 Labor Reforms Improve labor attractiveness relative to capital 6 Innovating with synergies to reduce transportation cost, inventory cost – thus lowering cost of Raw Material 4 Integrating Green Technologies to gain Carbon Credits 7 Sources: “Kameyama Model for SME Sector Development 2003”; “Regnier Report 2006”; “Crisil SME Insight Vol 2”; “National Manufacturing Policy 2011”; “WEF Manufacturing for Growth 2003” Executive Summary Indian Manufacturing Scenario Disruptive Innovation Proposed Ecosystem Framework Execution within Ecosystem Infrastructural Challenges 6
  • 7. Infrastructure challenges in Manufacturing Sector Importance of Infrastructure 70,548 Km of NH (2% of network carries 40% of traffic): only 17% Four-lane; 53% Two-lane; and 30% Single- lane Highways Inadequate berths, rail / road connectivity and draft are constraints Old technology; saturated routes: slow average speeds (freight: 22 kmph; passengers: 50 kmph); low payload to Fare ratio (2.5) 14% peaking deficit and 11% energy shortage; 27% T&D losses; absence of competition; and inadequate private investment Ports Railways Power “A truck carrying goods from Gurgaon to Mumbai has to pass through 36 checkpoints and takes up to 10 days to reach its destination.”  It has a multiplier effect: With 1% increase in infrastructure spending household access to safe water increases by 0.3%, paved roads by 0.8%, power 1.5% and telecommunications 1.7%. (World Bank, 1999)  1% increase in road investment is associated with a 0.3% drop in poverty incidence over five years. (ADB Study) Why to develop Where to develop 1 2 3 Focus on development of infrastructure in the identified 3 zones will help India strengthen its manufacturing capability. Executive Summary Indian Manufacturing Scenario Disruptive Innovation Proposed Ecosystem Framework Execution within Ecosystem Infrastructural Challenges 7 Sources: Infrastructure in India, PwC India, Fulfilling the promise of India's manufacturing sector, McKinsey Quarterly
  • 8. “57% of goods in India are transported by road (the most inefficient, expensive and emissions-intensive mode of transport), the figure in China is just 22%”. It is estimated that addressing this deficit can enhance growth in India’s manufacturing sector by 3% annually” How to develop – Overcoming Challenges Fixing PPP’s Boosting FDI Actively Discourage aggressive bid Restrict Post Bid Negotiations Don’t ask private players to take bets on un foreseeable events Strengthening political commitment Improving long- term planning, project prioritization, and project governance Developing reliable regulatory frameworks Ground Reality Vivekanand Bridge: 640 crores, JV of PASCIG and L & T. NHAI GRANT 120 crores. Revenues in 2011 , 50% of that projected Tata Power's 2,400 MW Mundra power project is just one of the many affected by having to import costly coal. Forced to import coal, and not able to raise tariffs to pass on higher fuel costs to consumers under the terms of its tariff agreement, it faces annual losses of around Rs 1,900 crore. Case Study 1 Case Study 2 Executive Summary Indian Manufacturing Scenario Disruptive Innovation Proposed Ecosystem Framework Execution within Ecosystem Infrastructural Challenges 8 Sources: The Global Infrastructure Challenge, BCG; DMICDC website
  • 9. Appendix
  • 10. 4th Largest Market Export: petroleum, Machinery. Jewelry, electronic goods, non- ferrous metals Import: organic chemicals, electronic goods Bilateral cooperation through Joint Action Plan (JAP) Export: Textiles, Gems & Jewellery Import: Engineering Products, Chemicals & Minerals The United States continues to be one of the largest trading partners of India. Exports: chemicals, textiles, gems and jewellery. Imports: specialized machinery, medical and surgical equipment, and organic chemicals. Bilateral relations exist in terms of trade of gems and jewellery, engineering goods, textiles, apparels, chemicals, manufacture of metals, fabrics, machinery, and instruments. Under the framework of Most Favored Nations (MFN), main exports to China include ores, iron and steel, organic chemicals, and cotton. • Main imports are electrical machinery and equipment, nuclear reactors, mineral fuels, and oils. USA EU UAE China Singapore 0 1 2 3 4 5 6 7 8 9 Economy Labor Infrastructure Education Domestic Demand Business Environment 2004 2010 2014 Barring Labor Cost, India is slated to become more competitive in every other area. Key trade agreements & Export/Import details (India) Competitiveness in Indian Manufacturing Industry based on Key Industry Drivers Latest developments in Manufacturing Industry (India) Sources: Mckinsey Global Institute Analysis, Frost & Sullivan
  • 11. Innovation needs EcosystemFailed Innovations Execution Focus Execution Focus + Co-innovation + Adoption Chain Successful Innovations Delivering the right product to beat the competition Michelin tires failed to sell tools to mechanics required for their path breaking technology Sony eReaders failed to deal with legal challenges e- books would pose for authors & publishers Hollywood decided to bring digital cinema to movie theatres; failed to confront the conversion costs Delivering the right product to beat the competition + Who else needs to innovate to complement my innovation + Adoption of my innovation so that end customer can assess the Value Proposition Li & Fung dissected the entire supply chain to add value at all nodes and then pulled it back together Apple iPod kicked off because Jobs waited until broadband was ready to support music data transfers Boeing’s Dreamliner is manufactured with components 22 countries – Best Quality, Least Costs 1 2 Sustainable Innovation needs Ecosystem Sources: Innovation, sustainability & complexity, ATKEARNEY
  • 12. India is moving up the ladder but the challenge to make manufacturing companies successful still remains. Sources: Fulfilling the promise of India's manufacturing sector, McKinsey Quarterly , Global Manufacturing, Mckinsey Global Institute