Rise in Chinese manufacturing costs offers opportunities for India

[Hellraiser007]

Rise in Chinese manufacturing costs offers opportunities for India​

November 26, 2012:
Cheap labour helped China become the manufacturing hub of the world, but rising wages in the Communist nation present an opportunity for India.

Chinese workers’ wages rose by 16 per cent to almost $1.8 an hour during the 2003-10 period, whereas Indian labourers – who earned more than the Chinese till 2007 – have only witnessed an eight per cent rise in pay to approximately $1.4 an hour.

While the wage hike resulted in a 14 per cent improvement in value addition per employee in China, Indian workers’ productivity rose by 17 per cent, according to a report by McKinsey & Co, titled, ‘Manufacturing the Future’.

But while the lower manufacturing labour costs give India an advantage over China, it will need to find other advantages over countries such as Vietnam, Nigeria and Indonesia, where labour costs are far cheaper.

Vietnamese and Nigerian labourers earn around $0.4 per hour, while Indonesian labourers earn just about $0.3 per hour.

Wages in Vietnam, Nigeria and Indonesia rose by nine per cent, 14 per cent and seven per cent, respectively, between 2003 and 2010. This resulted in nine per cent, 15 per cent and 12 per cent increases in productivity, according to the report.

India’s position in the list of global manufacturing majors has improved substantially over the past three decades.

In 1980, India was ranked 15th on the list of the world’s largest manufacturing nations in terms of gross nominal value added to manufacturing output. By 1990, it was 14{+t}{+h} on the list, a ranking it maintained at the turn of the 20th century. And as of 2010, it was 10{+t}{+h} on the list, surpassing Russia and Canada.

Similarly, China has risen from 7th to 2nd in the rankings during the 30-year period, surpassed only by the US. Indonesia found a place in the 2010 list as well, achieving the distinction of being the world’s 13th largest manufacturing nation.

A large part of India’s relative success in manufacturing can be attributed to its lower labour costs and huge workforce.

But while the share of the sector in total employment is expected to rise in the near- to medium-term, it will undergo a decline in the long term, according to McKinsey.

This is because as India becomes more developed, the labour-intensive nature of its manufacturing activities is likely to give way to technology-driven processes and innovation that offer higher margins from lower associated costs.

Accelerating growth of the services sector will also play a role in reducing the share of the manufacturing sector in employment, a trend seen in most of the advanced economies around the world.

arvind.jayaram@thehindu.co.in

Business Line : Industry & Economy News : Rise in Chinese manufacturing costs offers opportunities for India

If India can build infrastructure and surely India can do what China has done in the last decade.

 

[WAR-rior]

That is bound to happen. And with ageing chinese ppl, this is gonna come to us. and the cycle will move on. After India who knows maybe pakistan or any other abundant labor country.

 

[Hellraiser007]

That is bound to happen. And with ageing chinese ppl, this is gonna come to us. and the cycle will move on. After India who knows maybe pakistan or any other abundant labor country.

India can grow well for decade or two if infrastructure is improved.

 

[Mech]

Im not very optimistic. Despite low labour costs, we have active trade unions and politicians fleecing prospective investors.

Its not necessarily a bad thing, but overactive trade unions in a developing country like India will have its negative effects.

If you remember, the Chinese leap had its baggage which could only be eliminated by strong communist dictatorial regime.

We are an extremely democratic nation.

 

[xuxu1457]

This must be happen, some labor-intensive industries will move to lower labour costs countries; But opportunity only to the people who are prepared, ASEAN will be a strong competitor to India, India should improve Electricity, water and infrastructure quickly

 

[Mech]

This must be happen, some labor-intensive industries will move to lower labour costs countries; But opportunity only to the people who are prepared, ASEAN will be a strong competitor to India, India should improve Electricity, water and infrastructure quickly

We have a better infrastructure than ASEAN and an even bigger market with a HUGE number of technicians and engineers. But even so, it is difficult. Eventually, trade unions and politics will screw around with any significant investment or land acquisition for major production firms.

Key to ALL this is how FDI and subsequent bills comes through.

 

[AADHAAR]

China sells everything on the basis of low price.

We need to understand how this low price comes:

Off course, labour is cheap.

But china produces 48 per cent of the coal in the world.
China produces 3500 million tonnes of coal ... worth about USD 350 Billion.

Off course, less than 20 % of the world's population (with living standards still below world average) doesn't consume 48 % of the world's coal for their own benefit.

So, does china export coal?
No.

So, where does all that coal go... that's the question !!

Let us say, china population uses half the coal (still 24% of the world's coal production) for it's own benefit .... that would still make less than 20% of the world populatin using 24% of the world's coal production.

In other words, they consume USD 175 billion worth of coal (half their production) domestically.

What about the other half ... another 24% of world's coal production, worth USD 175 billion.

It's exported .... exported in kind !!! ....

That second half .. 24% of the world's coal production.. is consumed around the world. In the form of exports from china.

So, if you are using chinese made "toy", you are also consuming chinese coal.

If you are using chinese made "glassware" or "plasticware", you are also consuming chinese coal.

-------

And "coal" is just an illustrative example.

With the "chinese exports" is mixed export of chinese coal, chinese water (read about Virtual water - Wikipedia, the free encyclopedia), chinese labour, chinese environment .. etc etc.

Now the thing is .... if India were to get into a "chinese manufacturing model" .... we have to produce "coal for export .... export in kind, atleast".

And it's not just coal ... if you look at the mineral production in china ... it will look that china economy is significantly small compared to the mineral weath it produces.


So, it may not be just labour ... it's the low cost minerals (like coal) which are mixed in chinese exports.

With that comparison, china is following the Saudi model ... and if India can't follow the Saudi model, neither can it china's.

But, let's do what we do best.. use our human resources. That's what we export, in the form of IT. In the form of BPO.

And let manufacturing be technology driven, and innovation driven.
And manufacturing for profitability ... not use manufacturing as a blanket to export our mineral weath underneath.

Manufacturing, china-style, will need ripping our mineral wealth at an unsustainable rate. Probably, we don't want that.

 

[itaskol]

the labor cost in india is lower, but it does not mean india can make cheaper product.
india is poor in lot of nature resource, and the capacity of enegy produce of india is very low.

en.wikipedia.org/wiki/List_of_countries_by_electricity_production_from_renewable_sources

 

[IndoUS]

Well its natural China is more developed than India and average Chinese has more money than an average Indian. So it is natural they would want higher income to support their lifestyle. Same things happened in almost all developed nations.

Im not very optimistic. Despite low labour costs, we have active trade unions and politicians fleecing prospective investors.

Its not necessarily a bad thing, but overactive trade unions in a developing country like India will have its negative effects.

If you remember, the Chinese leap had its baggage which could only be eliminated by strong communist dictatorial regime.

We are an extremely democratic nation.

Unions are a big pain. They have some good points but they end up asking too much from companies which result in lower productivity and less investment.

 

[ChinaToday]

Best of luck to india

 

[Dandpatta]

A lot of Chinese clothing manufacturers have moved their capital to countries like Bangladesh with complete transfer of machinery/technology . And today Bangladesh's garment manufacturing is ruling the waves of garment exports .

 

[cloud]

trade Union is a bit overrated term, while it may be true in Kerala but certainly not much in north India, where the lower class population to just too much, it is more related to dirty politics and the governance which in turn affects infra.