Nothing much seems to have changed in a decade. A study across Indian sectors ("Made in India: A study of emerging competitiveness", 2005), which I researched during 2000-02, indicated that the two main sectors that were globally competitive and able to benefit from India's low costs and knowledge base were software and offshored services and pharmaceuticals.
Both these sectors have built on their strengths. From being just body shops that provided knowledge workers, leading Indian information technology (IT) firms have graduated to being solution providers that partner firms across the world seeking to cut costs, improve processes and redefine themselves to remain competitive in tough times. Adverse economic conditions since 2008 have, in fact, proved a boon for Indian software vendors.
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Indian pharmaceutical companies have similarly benefited from the global downturn. Economic travails of developed countries have prompted them to look for savings in their large healthcare costs, thus strengthening the positions and market entrenchment of generics firms. In the United States, spending on drugs went down for the first time in 2012, courtesy of a more widespread prescribing of generics. This has prompted global research-based drug companies to acquire generics capabilities, and there has been a spate of such acquisitions in India.
It's the same story with IT-enabled services or business process outsourcing (BPO) firms. These have gone up the value chain in two ways. Indian offerings have shifted away from voice business and towards knowledge process outsourcing (KPO) operations that deliver services ranging from handling the back-office processes of insurance firms to doing the research slog for law firms. Additionally, operations leveraging Indian statistical skills and the domain knowledge of the country's management graduates have scored in data mining and business analytics.
Now that the age of big data has come, the sky's the limit for these services. Interestingly, while Indian software and pharmaceutical companies have grown and retained their identities, stand-alone Indian BPO and analytics firms are mostly gone, becoming part of the offerings of large firms. (Wipro bought Spectrmind and WNS bought Marketics.)
If the IT and pharmaceutical sectors were the old winners that have continued to shine, a powerful new winner that emerged in the 2000s is auto components, graduating into auto assembly. Both have a strong export capability. There are 12 Deming prize winners among Indian automotive companies, mostly outside of Japan - a testimony to their ability to match global manufacturing best practices. Prominent among them is Bharat Forge, the largest Indian auto component exporter and leading chassis equipment manufacturer with plants in the US, Europe and China. It counts among its customers virtually all global automotive original equipment manufacturers and tier-I suppliers.
Similarly, Bajaj Auto is now the world's third largest motorcycle manufacturer. It has followed two objectives: accessing technology through acquisition (water-cooled engines via KTM Power Sports) and developing its own unique product (the quadricycle successor to its three-wheeler can play a key role in urban transport in unplanned cities with mostly narrow roads where you cannot drive fast).
If the economic slowdown has not affected the IT and pharmaceutical sectors, which have proved themselves to be globally robust, can a strategy to take competitiveness forward address larger economic ills? Also, what are the lessons of the global downturn since 2008? One is to rely less on endowment advantages and more on pure efficiency. The Indian steel industry became a global low-cost manufacturer mainly on the strength of its access to a key raw material: iron ore. Then the bottom fell out with the supply of iron ore drying up over legal and environmental issues. Today, incredibly, India is a net importer of iron ore. Future strategy has to focus on lowering conversion costs by acquiring technology and then improving upon it incrementally, the way the Japanese did.
A broader strategy to take competitiveness forward can be a mixture of neoliberal and developmental policies. The former can seek to set the macroeconomic environment right - be happy with currency depreciation, keep tariffs very low, and cut logistical and power costs. The latter can identify promising sectors and give them official support in a sequential manner, the way the Koreans have done and India has done with IT since 1991. A beginning can be made by helping electronics component manufacturing and assembly firms to grow and become globally competitive.
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