Going beyond IT

The third construction equipment and construction technology fair, Excon-05 organised by CII, which was held in Bangalore over last week underlined the rapid changes taking place in the country in the fields of infrastructure and manufacturing. The latest fair had a sharply higher level of participation and generated 60 per cent more business interest compared to the second Excon held in 2002. In the last three years the construction equipment industry in the country has grown rapidly, by 30 per cent annually, and is currently valued at $ 2 billion. But the importance of the sector goes beyond its size. It is a proxy for the changing face of the country's infrastructure. Buoyancy in it means that rapid investment is taking place in infrastructure and also that construction work is being undertaken by using more sophisticated technology. This is highlighted by the fact that construction equipment companies in India are shifting from low volume intensive use machines to special purpose high-volume machines. The opportunity before the industry is reflected in the $ 200 billion likely to be invested over the next five years as nearly 60 per cent of all construction work is accounted for by the infrastructure sector. In 2002, the golden quadrilateral road project and the proposed interlinking of rivers offered great hope for the construction equipment industry. Today that hope has been realised, despite the fact that one major anticipated source of demand, the river linking project, has not taken off. Also the fact that Bangalore continues to host the growing fair (most construction equipment companies are located around it) underlines the diversity in recent growth. The city's earlier focus on manufacturing, which was overshadowed by the growth of IT, is now being partly restored. The overall message is that Bangalore and India are no longer only an IT story but an emerging manufacturing story too.

The rising demand for construction equipment is giving a fillip to manufacturing as well because MNCs are outsourcing more work to India in order to cut costs and lower prices. JCB, a leading MNC in the field, has indigenised different product lines to between 60 and over 90 per cent. An Accenture survey of outsourcing, unveiled during the fair, indicates that this process has been aided by the superiority of India in skill-intensive segments, including design capability, and established quality performance. Some of the other Indian advantages are more well-known, like availability of qualified personnel, commitment to contracts and of course knowledge of English. But there is still a long way to go. China is high-cost countries' foremost preferred sourcing destination and ahead of India in the use of construction machinery at the global average of 100 per million population, compared to India's paltry ten. The Accenture study finds that new EU member countries like the Czech Republic, Poland and Hungary are ahead of India in terms of overall attractiveness for outsourcing. Generally, outsourcing to low cost countries suffers from two negative attributes""long lead time and inadequacy in product innovation""but these are overcome by the cost advantages being gained. Such savings are likely to grow by up to 40 per cent in the next three years. The designing skills present in India should eventually take care of the shortfall in innovative capabilities provided Indian firms take up the challenge of developing and marketing machines of their own.