• Strategy
  • CFO Asia

Made in India

India may be known more for BPO than manufacturing, but the subcontinent's factories are roaring into life.

Bharat Doshi, finance chief of India’s US$6.2
billion Mahindra Group, is ever grateful he
was only 42 years old in 1991. Back then, he
was executive assistant to the managing director
of Mahindra & Mahindra (M&M), the automotive arm of
the Mahindra Group. As such, he spent much of his time in
Delhi’s labyrinthine “Licence Raj,” trying to persuade bureaucrats
to increase the number of tractors and off-road vehicles
his company was allowed to make each year.

Then came India’s liberalization in 1991. Reforms shifted
the country from a planned economy to a market-based system;
the legislature hacked away at stifling regulations; and
India opened its borders to international trade. “My boss at
the time was a brilliant man, but he spent all his life bogged
down in getting approvals,” says Doshi with a sigh. “At least
for me it was only half my life. Since 1991, we have had the
freedom to invest as we want, to embrace new technology, to
set up collaborations and partnerships, to start making new
types of products and to respond to the market. The change
has been incredible.”

It’s also been tough, not just for M&M, but for all manufacturers
in India. As Doshi recalls, “The scrapping of licensing
and the introduction of competition — both with domestic
players and foreign ones — was a complete shock.” By 1993, for
example, Japanese car-maker Suzuki was churning out 122,000
vehicles a year in India with a workforce of 4,000. Mahindra, by
contrast, was producing 73,000 vehicles with a staff of 17,000.

Today, after years of restructuring and productivity
improvements, Mahindra is not only growing rapidly — its revenue
rose 37 percent last year — but is also expanding globally.
Exports of tractors, light trucks, and sport utility vehicles grew
34 percent last year to nearly 21,000 units.

In many ways, M&M’s recent transformation embodies the
long journey of India’s entire manufacturing sector. Decades
of socialism, closed borders, and self-sufficiency starved firms
of investment and opportunity. Now freed from these shackles
and with the pain of restructuring behind them, India’s manufacturers
are emerging with a vengeance. Many are now world
leaders in productivity — a remarkable change, considering how
staggeringly uncompetitive they were in the early 1990s.

Take Tata Steel, part of India’s Tata Group. During the
decade between 1995 and 2005, Tata Steel halved its workforce,
from 75,000 to 40,000, and doubled its output, from 2.5
million to 5 million metric tons of steel a year. In 1995, the
company consumed 4.5 tons of raw material to produce 1 ton
of steel; today it uses just 3 tons of raw material. In June 2005,
World Steel Dynamics, a U.S.-based industry research group,
gave Tata Steel ten out of ten for its operating costs in a survey
and named it “the best steel company in the world.”

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