Sleeping With The Enemy
On almost all counts, China scores over India

RAW MATERIALS
Most cost 30% less than in India. Especially in areas such as home appliances, electronics and auto ancillaries, Indian companies have tremendous sourcing opportunities.

LABOUR
In industries like two-wheelers, average wages are third of India's. But, on the whole, worker salaries are comparable to India. Still, higher productivity is luring manufacturers to China.

INFRASTRUCTURE
Power, roads, and ports are better and more cost-effective. Indian companies that have established export markets can use China as a springboard for exports to other parts.

TAXATION
China follows the VAT system, which lowers finished product costs by an average of 5%. Indian companies can form joint ventures to sell to markets within China.

INTEREST RATES
Lower rates of interest (between 6 and 6.5%) and inflation (1%) in China allows long-term competitive planning by companies manufacturing out of that country.

SCALE ECONOMIES
China is well established as a bulk manufacturer. But its marketing skills are poor. Therefore, Indian firms can source locally, but sell branded goods to China and others.

PURCHASING POWER
China's GDP, at $1,100 billion, is 2.25 times India's. And a per capita income of $870 (India: $490) makes China attractive to Indian exporters.
Source: Siam-at Kearney & CII sourcing from china

Sourcing From China

Shekhar Bajaj, Managing Director, Bajaj Electricals

This is the most preferred form of association and is most prevalent in the home appliances industry, although two-wheeler manufacturers are also exploring sourcing opportunities. Bajaj Electricals and Usha International have been sourcing appliances like fans, sandwich-makers, fluorescent bulbs and steam irons from China for around two years now. Bharti Teletech is sourcing its high-end telephones from SunCorp International and Rockway International, China. Typically, their products are made to specification. Bharti started importing phones two years ago in small numbers. But this year, it will import 2 lakh instruments and benefit from a 15-25 per cent cost advantage.

Bajaj Electricals and Usha International have tied up with the largest fan manufacturer in China-Midea. In fact, Bajaj sells its table, pedestal and wall (TPW) fan range under the brand name Bajaj Midea. These fans work out 20 per cent cheaper than domestically manufactured fans, even after all duties are paid. Bajaj sold 1.5 lakh units of Chinese TPW fans and 30,000 India-made TPW fans in 2000-01, up from 70,000 TPW fans in 1999-2000. ''Bajaj Midea has been a runaway success,'' says R. Ramakrishnan, President, Bajaj Electricals. The result: the company's net profits in 2000-01 doubled to Rs 2.80 crore. Usha, on the other hand, upped turnover 5 per cent to Rs 450 crore last year.

Last quarter, Bajaj started importing microwaves and claims to have cornered a tenth of the market. And now Usha wants to follow suit.

Exporting From China

Raghupati Singhania, Managing Director, JK Tyres

Recently, the Delhi-headquartered JK tyres started exporting light commercial vehicle (LCV) tyres to countries like South-East Asia and Middle-East from China. The Raghupati Singhania-owned company, which exports to 55 countries, has tied up with a large tyre manufacture in east China for outsourcing its production requirements. ''We didn't have the production capacity to manufacture new orders for LCV tyres in India,'' says Singhania. He also didn't want to invest in India at a time when interest rates were falling. Today, shipments from China account for Rs 25 crore of JK's Rs 200-crore annual exports. Shortly, JK plans to sell branded tyres in China. But once again, the tyres will be locally sourced. Singhania, who has asked his exports team to learn Chinese, plans to do business with China on a long term.

Selling To China

Recently, the AV birla group company, Indal, began exporting speciality grade alumina to china. A two-million tonne shortage of alumina gave Indal the much-needed toehold. Over the last few years, Indal has seen growth come primarily from exports to countries such as Bangladesh and Sri Lanka. A presence in a large market like China will only help Indal boost its turnover further.

Typically, though, it's more low-end products not manufactured in China anymore that are getting exported. Samcor Glass, a Satish Kaura venture, saw an opportunity to export glass shells for black and white TVS and computer monitors way back in 1997. In the first year, exports fetched only Rs 1 crore, but now they've soared to Rs 18 crore-which is roughly a tenth of Samcor's topline. ''Once we were able to optimally utilise our capacity, we found ourselves to be more cost-competitive than the Chinese,'' says R.S. Wazir, Vice President, Samcor Glass.

Samcor, however, realises that B&W screens' is a dying market. Once orders from China begin to diminish, it plans to export colour monitor glass. At the moment, Samcor's per unit price of colour glass monitors is as much China's. To consolidate its position, Samcor will need to squeeze out better efficiencies from its manufacturing systems. But given the problems with India's infrastructure that may be a tall order.

Manufacturing In China

Three months ago, consumer electronics giant Videocon International acquired a Shanghai-based television manufacturing company for Rs 10 crore. Through this acquisition, Videocon will manufacture 1.5 lakh internet TVs for world markets. Videocon was already producing internet TVs at its Aurangabad plant, but these were assembled out of semi-knocked down kits (SKDs). Since this plant is situated in the special economic zone, Videocon will have to sell 50 per cent of its output in China. And although China-made internet TVs cost 5-8 per cent less, the company's chairman Venugopal Dhoot says the investment is strategic. ''I didn't go to China for the 5 per cent cost advantage. I went there to prove a point,'' says Dhoot, who in November 2000 had acquired an Italian compressor manufacturer, Necci. He now is eyeing a Chinese appliances company, which he wants to buy for about Rs 25 crore. He says the deal could be sealed by January, 2002.

In September this year, the Rs 1,000-crore Aurobindo Pharma signed a 50:50 joint venture with a Chinese pharma company to manufacture bulk drugs and formulations such as semi-synthetic penicillins and certain cephalosporins. Called Aurobindo Tongling, the JV has Rs 24 crore in equity from Aurobindo. ''China is a big consumer of semisynthetic penicillins and cephalosporins, and we wanted to participate in the market intensively,'' says Srinivas Lanka, Director, Aurobindo Pharma. Besides being a large pharma market, China offers the necessary raw materials for bulks in large quantities. ''There are several cost and productivity advantages too,'' says Lanka. ''Also, procedures are less cumbersome and project completion faster,'' adds Lanka. Like JK Industries, Aurobindo Pharma plans to export bulk drugs to other countries from China.

1  |  2   

Issue Contents  Write to us   Subscription   Syndication

INDIA TODAY | INDIA TODAY PLUS | COMPUTERS TODAY | 
THE NEWSPAPER TODAY |  TNT ASTRO |  TEENS TODAY |  CARE TODAY
MUSIC TODAY | ART TODAY

© Living Media India Ltd