India must take advantage of its lower manufacturing labour costs: Wilfried Aulbur
Chennai, April 8:
Wilfried Aulbur, Managing Partner of consultancy firm Roland Berger Strategy Consultants in India, is no stranger to the country.
As former Managing Director and CEO of Mercedes-Benz India, he was responsible for production, sales and after-sales of passenger cars, buses and trucks from 2006 to 2010. Now, as a consultant, he advises companies on entering as well as exiting India.
In an interview with BusinessLine, Aulbur spoke about a wide range of issues such as logistics, ‘Make in India’, Goods and Services Tax (GST) and manufacturing. Edited excerpts:
What is crucial for the success of the Make-in-India programme?
It can succeed only if logistics is put in order. If I want to produce for the market, I need to have a way to distribute it. To export, there should be adequate capacity and deep draughts at ports to ensure faster turnaround of vessels. Vessel turnaround time at ports should be in line with global practice. It can’t be four days, but a day-and-a-half maximum.
Can Make in India label succeed like Made in Germany or Japan labels?
Yes, but you need to have consistency in the entire ecosystem and across companies.
It’s not enough that Hyundai or Nissan only do wonderful work in India. How do we ensure that every major production company, Indian or multinational, knows that if they build a product in India, it will be cost-competitive and best in quality? That’s the challenge. This will not happen overnight, but may take 10 or 20 years. However, it’s possible, as auto and wind energy sectors have shown the success for others to replicate. India should take advantage of its lower manufacturing labour costs when compared with China.
How much cheaper?
OECD data says India is cheaper by 48 per cent on manufacturing labour cost. Then you have efficiency and productivity factors. There is an advantage for India now. India has an attractive labour cost.
If you invest in training the labour, then India has a strong case for manufacturing in India and export out of India. It’s now a race for employment that will be only won if you create an environment that is conducive.
Can India replace China as low-cost manufacturing hub?
As China moves out of low-cost manufacturing, it’s important that India captures this space even as Indonesia, Vietnam, Myanmar and Morocco are emerging as strong contenders. China is trying to automate manufacturing and there is a drive towards cyber manufacturing system and relatively cost-efficient general purpose machines to work with humans. This means they will gain 18 per cent in efficiency.
India’s cost advantage of making products is 20-30 per cent depending on the currency, which is unfavourable today. The business case of low-cost manufacturing out of India may not be valid 10 years down the line. You have an opportunity today. The question is how long you have to wait.
Should there be change in policy to be more competitive?
Policy has never been an issue. It’s only about execution. The government would do tremendous jobs if the allocation on sectors like infrastructure is spent for it is meant.
If that happens, it will boost economic growth. Governments in the past have communicated quite a bit, but have not always delivered. That’s an approach that may not be tenable going forward.
The new government has said it clearly is different. So, this will be measured going forward. For instance, there was a plan to make 20 km road a day, but only 2 km was achieved. The challenge is to get those committed things done.
Will GST help companies?
There is a need to implement GST quickly to reduce logistics cost and get rid of the complexity in moving goods within the country. Companies dependent on logistics lose 2 per cent on return on sales due to higher logistics cost.
GST will give an opportunity to plan the location of the warehouse not based on tax consideration but on logistics flow.
Currently, warehouses are located in different states because it’s tax optimal. It should be driven by the needs of the business not taxation.
Getting it done on the ground is a big step forward to indicate to local and global investors that things are moving in the right direction.