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MARCH 25, 2007
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Mobile Security
Today, it is all about information and how the right information is sent to the right people at the right time and right place. Uncertainty about how to secure mobile phones in the face of increasing threats is slowing individual adoption of mobile applications. There are many facets of mobile security, including network intrusion, mobile viruses, spam and mobile phishing. Analysts expect big telecom companies to develop security solutions on various security platforms.

Rough Ride
These are competitive times for the Indian aviation industry. As salaries zoom, players are scrambling to find profits. Even the state-owned Indian is now seeking young airhostesses to take on the competition. It is planning to introduce a voluntary retirement scheme for airhostesses above 40 years. On an average, they draw a salary of Rs 5 lakh a year. The salaries of pilots, too, are soaring. According to industry estimates, the country needs over 3,000 pilots over the next five years.
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Business Today,  March 11, 2007

The China Effect
In a variety of industries, cheap imports from China are killing local manufacturers. How much of it is due to China's competitiveness and how much due to dumping?
Two-wheeler rims and spokes are the fastest growing auto imports from China
They are the three most feared words in developed markets, and now they are beginning to rattle nerves in India, too. The China Price. When your buyer utters those words, he's asking you to cut your prices by as much as 40 per cent, since that is likely to be the difference between your price and that of the Chinese supplier. And it doesn't matter what you manufacture-it could be chemicals, silk, auto components, toys, or footwear. The China Price is the new reality that every manufacturer based outside of the Middle Kingdom must grapple with every day.

When India opened up the economy way back in 1991, many in industry feared that their businesses would be wiped out by cheap imports from China. Things haven't proved that fatal, but there are industries-especially in the small-scale sector-that are beginning to buckle under the China Price. That brings us to the question, why are Chinese manufacturers so price competitive? Or, if you will, how are they able to sell at rock-bottom prices, when other manufacturers are hard-pressed to cut costs even by a few percentage points?

These are questions that governments in Europe and America have spent lots of energy and money on to answer. Often, their conclusion has been simple: China dumps. Consider this: 86 anti-dumping and trade protection investigations were initiated by Turkey, India and the European Union on Chinese products last year, compared to 63 the year before. According to the Chinese Ministry of Commerce, of the 86 cases, 63 were anti-dumping, two cases of government dumping, and 21 cases of investigations on protectionist measures.

Yet, there's no denying that Chinese manufacturers are vastly more competitive. Compared to Indian manufacturers, who have comparable low-cost advantages, China scores on just on point: scale. Take toys. As a country, China churned out $15.2 billion (Rs 67,200 crore) worth of toys in 2005. In contrast, the entire toy exports from India were worth Rs 443 crore. It's a difference that's rapidly growing the competitive divide in manufactured goods between India and China, hurting industry after industry.

Business Today looks at a handful of industries that is reeling under the China Price.

But before you read on, here's a word of caution: Just like there can be no justification for dumping by China, there can be no justification for India, or any other country, to erect tariff barriers in the way of competitive Chinese suppliers. In the end, the consumers must win, and not inefficient Indian manufacturers.


Cheaper Chinese SILK has led to the closure of several units in Karnataka
Sanjay Labroo, Managing Director, Asahi India Glass, and Vice President of the Automotive Component Manufacturers Association of India (ACMA) gets uncharacteristically animated when you bring up the topic of China. "I don't understand China," he says, before holding out a chart showing how much Chinese component imports into India have increased over the past five years. In 2002-03, India was a net exporter of automotive components to China-importing a paltry Rs 47.4 crore, while exports totalled Rs 69.3 crore. ACMA predicts that by the close of 2006-07, if the current growth rate is kept up, Chinese component imports will touch a massive Rs 1,117.6 crore.

"The problem is not that we are uncompetitive," says Labroo. "In the last 10 years, the Indian component industry has developed into a quality supplier of components, but sometimes we find ourselves competing with guys who are selling below raw material cost," he says. Labroo isn't the only one complaining. "I know what steel costs, I know what it costs to produce welded sheet metal parts," says S.K. Arya, Managing Director, Jay Bharat Group. "I know what black magic they use, but when you hear quotes below the price of the steel going into the component, how can you compete?" he asks.

Labroo says that ACMA has conducted studies in China and found that the country does have some inherent advantages such as good infrastructure ranging from logistics to electricity, besides cheaper labour. But there's no way, he says, that Chinese auto-part manufacturers can sell at the prices they do. "All our calculations at ACMA have led us to conclude that, at best, China can offer an 18 per cent cost advantage. But our members are regularly outbid by 30-40 per cent. In a recent case, a supplier was outbid by 55 per cent," says Labroo in consternation.

The problem, ACMA believes, is that the Chinese component industry is highly opaque, and a supplier today may not exist tomorrow. The part whose imports have grown the most in the past year have been two-wheeler rims and spokes. However, Labroo takes pains to state that ACMA is not for protectionism, a point that is backed by Lumax Industries Chairman D.K. Jain. "Lighting systems were affected by the Free Trade Agreement with Thailand, but we have held our own, because we offer value-engineering to our customers here," says Jain. "Even with China I think the same thing will happen." However, he does think the parts that are commodities will be hit.

Just the same, Labroo says that the government should investigate if Chinese suppliers are dumping. "I have no problems with consumers benefitting from cheap components, but I have problems with dumping products below cost-price since that adversely and unfairly impacts Indian industry," says Labroo.


Chinese reagents cheaper than Indian ones are benefiting local pharma industry
On a quiet street in Ramanagram, some 50 km from Bangalore, M. Imtiaz Pasha is overseeing operations of a dozen semi-automated reeling machines. Pasha's MIP Silk Industries is one of the several dozen units that employ some 7,000 people in this town. With India a seemingly distant second to the Chinese dragon in the silk market, life has become an uphill struggle for businessmen such as Pasha, who is also the president of the local reelers association. The strength of Chinese reelers is evident just outside the unit, where a wood-fired reeling unit lies defunct and employees focus solely on the newer electrically-run machines. "If we had stayed with wood, most of our units would have wound up in the face of increasing Chinese competition," says Pasha, who has seen several businesses go belly up and as many as 3,000 one-time reelers head to larger cities such as Bangalore in search of work.

Work on his wood-fired reeling unit may have ceased a couple of years ago, but that doesn't mean that Pasha and many other Ramanagram reelers (an estimated 500 of the 2,000-odd reelers have given up their licences) are doing much better today. "The industry's losses are around Rs 5-10 crore today and insolvency of several units means that it's harder for us to approach banks to raise funds for modernisation and expansion of our facilities," he contends. While local reelers such as Pasha and politicians (including the likes of Karnataka Chief Minister H.D. Kumaaraswaamy) argue that "dumping" of Chinese silk is to blame for the decline, others say that the sheer scale of Chinese silk farmers and production units makes Indian produce a side-show on the global stage.

The problem of cheaper Chinese imports is not restricted to Ramanagaram, or even silk. In fact, overall textile imports from China went up from $78.71 million in 2000-01 to $548.81 million in 2004-05. In the textile segment, the imported synthetic yarn and synthetic fabric from China is cheaper than what is possible to make locally. "We are able to compete with China in the international market but not in India," says a member of the Andhra Pradesh Spinning Mills Association. He attributes this mainly to customs duty of 10 per cent on PSF (polyester staple fibre), a key raw material, which is making cost of production uncompetitive compared to China. And though PSF is also being made locally, the price matches with the landed price of imported PSF. Today, he says, a 40-ring spun PSF yarn can be sold in India at best at Rs 114 per kg, but got from China for as low as Rs 106 per kg.


Toy Association's Paresh Chawla says that half the toys sold in India are Chinese
The business of toys is no longer child's play for Indian manufacturers. Increasing competition from Chinese players is changing the nature of the game. "Today, the total retail worth of toys sold in India is Rs 6,000 crore. Of this, nearly Rs 2,500 crore are Indian made toys. The rest Rs 3,500 crore are Chinese made," says Paresh Chawla, President of Toy Association of India. In fact, 90 per cent of the Indian toy industry output comes from the unorganised segment. Since imports of toys started in 1999-2000, the Indian toy industry has been through a torrid time. More than half of the toy manufacturers shut shop, and today around 1,500 players are operating in this industry, most of whom are small-scale players. That's a far cry from 2,500-plus players in 2000.

"We are not against Chinese imports and neither are we blaming Chinese manufacturers," says Chawla. "The problem is with Indian importers who are under-invoicing the Chinese products coming into the country." But increased competition has not been just bad news for the Indian industry. At one level, the quality of toys available in the domestic market has gone up. Furthermore, the better quality of toys has also meant that Indian exports of toys have also increased.

Kolkata-based Funtoys, the second largest soft-toys brand in the country, started sourcing from China in 2002. Since then, the costs have come down by at least 20-25 per cent and the entire benefits have been passed on to the consumers, says Abhineet Gupta, Director, Fantacy Creations, makers of Funtoys brand of toys. The company imports raw materials for soft toys, electronic modules for hi-tech toys and raw materials for plastic toys from Shau Tou and Changhai in China.


The Rs 6,000-crore ceramic tiles industry is yet another example of an industry that has been at the receiving end of cheaper Chinese imports. Industry players say that the Indian tile industry is going through a tough time, thanks to dumping of tiles by Chinese players at "unprecedented levels."

According to the Indian Council of Ceramic Tiles & Sanitaryware, the volume of dumped tiles in the local market is estimated to be around Rs 450 crore in 2005-06. The industry body also says that the volume of tiles dumped from China into the Indian domestic market has risen from 3.1 million square metres (2003-04) to 14.6 million square metres (2005-06). Meanwhile, the overall share of tile imports from China has increased from 39 per cent ('03-04) to 81 per cent (2005-06). The problem is especially severe in the vitrified tiles segment, which is estimated to be worth about Rs 1,500 crore. "Over the last few years, the volume of Chinese vitrified tiles dumped in the domestic market has gone up tremendously. In 2003, the Chinese market share in the vitrified segment was 20 per cent, which rose to 30 per cent last year," says Vijay Aggarwal, Managing Director, H&R Johnson (India).

Industry watchers like Aggarwal believe that dumping of Chinese tiles is due to an 'inverted duty structure', where a trader importing tiles from China pays only 5.37 per cent basic customs duty. On the other hand, Indian tile manufacturers importing raw materials such as abrasives pay much higher basic customs duties, sometimes as high as 10 per cent. That has made it more profitable for traders to import Chinese made tiles rather than make the tiles themselves. As a result, the prices of vitrified tiles have taken a beating over the past couple of years. In the last two years, vitrified tile prices declined from Rs 120 to Rs 40 per sq ft. Chinese vitrified tiles cost Rs 30 per sq ft.


Hyderabad-based Virchow Laboratories might arguably be the first Indian bulk drug company to face an anti-dumping investigation from China. Virchow is being investigated for allegedly dumping Sulfamethoxazole, an antibacterial and a widely used pharmaceutical ingredient-an allegation the company denies. "We are not selling at a price below our cost of production. We make profit and sell at the market price of around Rs 323 per kg and our cost of production is lower than that," says Dr N. Venkata Reddy, one of the founders of the company. A case like Virchow's is a rarity in an industry where cheaper imports from China are more the norm.

Plant Organics, another Hyderabad-based bulk drug company, had been importing its two raw materials from China at $12 per kg (for 3-cholo 4 fluoro aniline) and $8 per kg (for emme or ethoxymethylene) to make Norfloxacin (an antibacterial) and sell at around Rs 1,200 per kg in the domestic market and export at around $45 per kg.

But over time, input prices have fallen to $4.2 and $3.2 per kg respectively and the end product is made by Chinese players at as low as $25 per kg. Plant Organics no longer sells Norfloxacin in India (today available at around Rs 850 per kg). The company has been forced to look at regulated markets like Europe and Japan, both for export of end product and intermediates.

Norfloxacin is just one of the active pharmaceutical ingredients (APIs) or bulk drugs that is being imported into India at prices at least 10 per cent lower than its domestic equivalents. That is not all. Other drugs like paracetamol, analgin, ciprofloxacin, metronidazole and diclofenac sodium are also getting imported from China and sold at a cheaper rate in India (in all about a dozen such products). Ciprofloxacin, for example, costs Rs 1,200 per kg in India, but you can buy it for just Rs 1,000 per kg from China. Ouch!


The Rs 14,500-crore Indian tyre industry has also been challenged by the imports of cheaper tyres from China. "Cheaper Chinese tyres are flooding the Indian market. Truck and bus tyres are especially being imported in large numbers," says D. Ravindran, Director General, Automotive Tyre Manufacturers' Association (ATMA). Ravindran adds that between April and September 2006 alone, 3.15 lakh truck and bus tyres were imported into India. That might seem minuscule compared to the Indian industry, which produces 1.2 crore bus and truck tyres a year.

But industry watchers suggest that tyre prices are being driven down to unreasonable levels thanks to Chinese imports that are, at times, 25 per cent cheaper than Indian tyres. Industry sources allege local importers of underinvoicing imports. "Underinvoicing is rampant among Indian importers. Other than that, Chinese players have structural subsidies built into the system like the exchange rate of their currency which makes their tyres cheaper," says Arnab Banrjee, Vice President, Marketing, CEAT.


From torchlights to table tennis racquets, and from crockery to transformers, Chinese goods have flooded the