Breach in the wall

ABB needs both India and China to collaborate on future projects

The question facing most multinationals is whether they should put their money on China or on India. As corporates worldwide consolidate their manufacturing in a few large facilities, investments in one country have often been at the cost of the other.

ABB, the Zurich-based $20 billion power and automation technologies major, is trying out a new experience: it wants to bring down the China wall and make the two countries a unified production base with total synergies in their operations.

Thus, equipment made in India could use parts produced in China. Or if an automation process is manufactured in China, it could be commissioned by Indian engineers. This process has already begun.

ABB engineers from India have commisioned automation processes for metals industries made by ABB in China in markets like China, Taiwan and Vietnam.

In fact, the Asian metals business of ABB is being handled jointly out of Beijing and Bangalore. A year ago, a half-dozen ABB blue collar workers from China were flown to Baroda to work at ABB's transformer factory.

In fact, the give and take of personnel has gone beyond that. Peter Leupp, ABB's country manager for China, has been co-opted on ABB India's board. And ABB India's vice-chairman and managing director participated in a string of strategy meetings of ABB China earlier this year.

ABB's aim is clear: by 2015, over 50 per cent of its manufacturing will be done out of the two countries. Currently, India and China account for 20 per cent of ABB's automation products and 35 per cent of its power technology products.

Of course, ABB is constantly adding to its bottomline by migrating its manufacturing to China and India. And it goes beyond just labour arbitrage. ABB manufacturing processes are highly automated and labour makes up only 8 per cent of the value chain.

"Moving to China and India means an improvement in the whole supply chain, which can help cut costs by as much as 40 per cent," Dinesh Paliwal, head of ABB's automation division worldwide, says.

Also, with markets in Europe and the US showing signs of saturation, ABB wants to be close to markets with a higher growth potential. In its estimate, both China and India will show high double-digit growth for many more years to come. By 2008, China and India will account for almost a quarter of ABB's revenues, up from 15 per cent now.

Observers say there could be another twist to the ABB "China and India" strategy: there is a growing perception that the Chinese economy is getting overheated and the high growth may slow down in the near future; the Indian factor could be a good hedge against such an eventuality.