Manufacturing
Manufacturing is emerging as an integral pillar in the country’s economic growth, thanks to the performance of key sectors like automotive, engineering, chemicals, pharmaceuticals, and consumer durables. The Indian manufacturing industry generated 16-17% of India’s GDP pre-pandemic and is projected to be one of the fastest-growing sectors.
The Indian manufacturing sector is transitioning to more automated processes, which are projected to improve
efficiency and enhance productivity, positioning India as a key player in global supply chains. Due to factors like power
growth, long-term employment prospects, and skill routes for millions of people, India has a significant potential to
engage in international markets. Several factors contribute to this potential.
- First, these value chains benefit from India’s advantages regarding raw materials, industrial expertise, and entrepreneurship.
- Second, they can exploit four market opportunities: expanding exports, localizing imports, internal demand, and contract manufacturing.
- India is steadily advancing towards Industry 4.0, driven by government initiatives like the NMP, which aims to increase the manufacturing sector’s GDP share to 25 percent by 2025, and the PLI scheme for manufacturing.
Growth Drivers and Opportunities
Robust Demand
- During FY24, India’s merchandise exports reached US$437.06 billion, down from US$451.07 billion in the previous fiscal year.
- India can export goods worth US$ 1 trillion by 2030 and is on the road to becoming a central global manufacturing hub.
- By 2030, the Indian middle class is expected to have the second-largest share in global consumption at 17%.
Increasing Investment
- Propelled by priority sector growth and favorable megatrends, India’s manufacturing sector has opened itself to new geographies and segments.
- Building on the competitive advantage of a skilled workforce and lower labor costs, the manufacturing sector is also witnessing an increased inflow of capex and heightened M&A activity, leading to a surge in manufacturing output and a resultant increased contribution to exports.
Policy Support
- India’s manufacturing sector is poised to reach US$1 trillion by 2025-26, led by the automobile, electronics, and textile industries. Make-in-India and PLI schemes drive growth, attract FDI, and enhance industrial infrastructure.
- DPIIT is boosting India’s startup ecosystem and manufacturing sector by developing incubators to foster innovation, enhance competitiveness, create jobs, and strengthen the country’s self-reliance and global trade position. Government initiatives and collaborations between corporations and startups support this.
Competitive Advantage
- Positive developments in the manufacturing sector, driven by production capacity expansion, government policy support, heightened M&A activity, and PE/VC-led investment, are creating a robust pipeline for the country’s sustained economic growth in the years to come.
Our Services Applied to the Manufacturing Sector
Manufacturing has real-time operational systems, but finance needs more integration. The pandemic has brought challenges in financial planning, leading to declining revenue and profitability. Uncertainty makes forecasting financial performance difficult, emphasizing the importance of risk management and insurance policies for manufacturing organizations. Supply chain disruptions and increased manufacturing costs require FP&A teams to develop cost management strategies and optimize operations. Rising costs have compelled many firms to rethink their pricing strategy.
Strategic Planning, Positioning, and Growth Strategy Options
Formal Growth Strategy and Market Expansion
- Market Penetration and Market Development
- Enhancing revenue from existing customers through analytics (Share of Wallet)
- Maximizing Customer Lifetime Value (CLV)
- Customer Retention and Churn Analysis
- Market Development through Market Entry Feasibility Study
Commercial Excellence
- Customer Strategy
- Sales Strategy and Sales Force Effectiveness
- Pricing Strategy
- Service Portfolio
Financial Planning and Analysis
- Robust Forecasting. Commercial Excellence portfolio is a crucial prerequisite for robust forecasting.
- Medium-term through Business Plan
- Short Term through Rolling and Annul Forecasting
- Profit Maximization. Pricing strategy and service portfolio enhances the profit maximization opportunities.
Fundraising Advisory
- New Avenues for Financing
- Growth Equity (Private Equity)
- Bond and Credit Rating
- Equipment Finance
Analytics
- Sales and Customer Analytics
- Product and Customer Profitability Analysis
- Supply Chain Analytics and IoT
- Financial Analytics
- The analysis is divided into granular levels to understand the issues and synthesize the opportunities.
FP&A, with a strong awareness of operational needs and a causal model of economic realities, can be a competitive advantage for a company. Expanding the capabilities of FP&A beyond external financial reporting results by developing more robust models for internal decision support and operational systems integration is a top priority.
Challenges
Growing too slowly could render India non-competitive, as the growth rate of manufacturing infra has to match the pace with demand growth, considering local and international markets. Countries and companies are constantly looking to one-up each other, and all it takes is the slightest snag in the system to hold the company and the country back.
Manufacturing companies face challenges such as evolving into data-driven organizations and building a transparent and sustainable supply chain network. They are confronted with an increasing shortage of skilled workers and a changing global competition policy (China +1), which makes reorientation necessary for many business models.
The good news is that Indian manufacturers fare better than global averages for cost control despite low-capacity utilization, primarily because of lower wages and a focus on reducing costs. However, compared to those in the top quintile, Indian manufacturers face more quality complaints and fulfillment delays. The pace of innovation is much slower (with Indian manufacturers requiring 2 to 3 times longer to launch new products), and Indian players’ agility to scale up or down is much lower. In short, manufacturing in India lags behind global competition in vital areas.
- R&D Investment. Insufficient focus on R&D hampers technological advancement and innovation, limiting global competitiveness in Indian manufacturing. Compared to developed countries, India must catch up in R&D, hindering domestic manufacturers’ ability to compete globally and adapt to emerging trends. Manufacturers in this industry must continuously innovate to meet evolving demands and stay ahead of the competition by enhancing manufactured parts’ functionality, durability, and efficiency.
- Supply Chain Disruptions. Global events such as pandemics and political upheavals can disrupt supply chains, underscoring the need for solid inventory management and diversified supplier networks. Global events such as pandemics or political instability can disrupt supply chains and cause raw materials and components shortages. Limited
- Accessing capital. The availability of capital will be the biggest obstacle to increasing India’s manufacturing GDP. With an incremental capital-to-output ratio between 4.5 to 6.0 (which could become more favorable with productivity gains), India’s manufacturing sector would need investments totaling $1.0 trillion to $1.5 trillion over the next seven years to double its GDP in the same timeframe, provided that India also raises its GVA capture in these value chains by 25 percent.
- Improve Capital Productivity. India’s manufacturers must also improve the productivity of their capital, in some cases by 50 percent or more. While such improvements are challenging, they are possible if companies set bold targets and adopt an “owner–entrepreneur” mindset when tackling large capital projects or making other significant investments.
- For example, during the planning of a new 4,000-megawatt facility, the company involved customers, suppliers, and engineers in making Indianized design decisions, saving over $100 million while maintaining safety and reliability standards.
- Some Indian companies are working to raise the productivity of their existing assets, for example, by focusing on equipment reliability. In our experience, throughput improvements from 40 to 100 percent are possible when Indian companies apply traditional lean-management techniques to keep machines running longer and to reduce time wasted during retooling and production line changeovers.
- Tata Steel focused on standardizing tasks and empowering workers to identify equipment issues, leading to significant production increases in one of its melting shops.
- Indian manufacturers lag behind their global peers in critical operational areas. AT Kearney analyses point to four elements that contribute to India’s limited manufacturing competitiveness:
- Low productivity. Poor workforce productivity holds manufacturers back, primarily because of a lack of automation, outdated manufacturing processes, limited use of design-for-manufacturing, and numerous non-value-added tasks.
- Inefficient supply chains. Infrastructure bottlenecks and structural impediments attributed to state- level taxation policies have contributed to longer lead times and excess inventory across the value chain.
- Lower levels of supplier competence. Many Indian tier 2 suppliers have been part-to-print suppliers that have not invested in improving their product development or quality control capabilities. This has made rework and returns routine, further reducing productivity.
- Talent and skill shortage. Vocational schools need to be better equipped to train workers. Companies fail to focus on intermediate-level manager or foreman (meister) grades that can provide on-the-job training to direct labor, and Indian academics stress simulation and Excel modeling for engineers over kanban and kaizen processes.
- Tata Steel improved its output per worker between 1998 and 2011 by adapting operational and management practices to India’s unique conditions. For example, it adjusted blast furnaces to account for variations in the ash content of Indian coal, allowing for more efficient coal burning. The company made significant organizational changes to support new working methods, including reducing managerial layers to 5 from 13, investing in analytical and interpersonal skills, and providing training for over 2,000 employees annually. These changes strengthened the company’s focus on continuous improvement and helped it become one of the world’s lowest-cost steel producers.
Manufacturing companies face challenges such as evolving into data-driven organizations and building a transparent and sustainable supply chain network. They are confronted with an increasing shortage of skilled workers and a changing global competition policy (China +1), which makes reorientation necessary for many business models.
Solutions to Address the Challenges
- The future is endless, with India developing an entire components and raw materials ecosystem. It has taken two decades to build the foundation for scaling up manufacturing. As a country, we should seize this opportunity and work together.
- Entrepreneurs need to commit to building sustainable manufacturing companies. A clear strategy and discipline are critical for success.
- The future is ripe with possibilities, especially with the entire ecosystem for components and core raw materials being developed in India. It has taken India the last two decades to build the foundation to scale its manufacturing to larger and more complex products. Now that the opportunity has presented itself, we as a country should come together and make the most of it.
- Additionally, entrepreneurs must understand and commit to building sustainable manufacturing companies. Manufacturing cannot be part-time for companies that want to grow in this sector. Complete discipline and a clear strategy are also critical to survive and thrive.
Reinvestment as Growth Driver.
- Product Development. A well-structured and streamlined product development life cycle (PDLC) is essential for efficient manufacturing and on-time delivery. By adopting efficient project management practices, manufacturers can reduce lead times, improve team coordination, and enhance productivity. Clear communication channels and effective stakeholder collaboration are crucial to achieving a smooth PDLC.
- Promoting Digital Transformation: Adopting advanced technologies like artificial intelligence and automation revolutionizes manufacturing processes, boosts productivity, and opens new markets. This transformation allows Indian manufacturers to increase productivity, improve quality, and exploit new market opportunities.
- Upgrading Infrastructure: Investments are being made to improve transport networks, power supply, and logistics, which are essential for the efficient movement of goods and overall productivity. This enhances the movement of goods in the country and increases overall productivity. Skill development initiatives are needed to improve employability and promote human capital development. Increased funding and incentives for research and development are being promoted to foster innovation and maintain a competitive edge globally.
- Advanced Machinery. Investing in advanced machinery and manufacturing infrastructure can improve production efficiency and scalability. Automated systems, robotics, and other advanced technologies enable manufacturers to quickly handle large-scale manufacturing and complex processes. Upgrading machinery enhances product quality, reduces downtime, and increases overall productivity.
- Value Chain Solutions. Domestic sales growth could add $180 billion to India’s GVA. Indian manufacturers could access strong consumer markets for various products. To seize this opportunity, they should offer quality products in smaller formats and different price points. These markets are expected to grow as GDP per capita increases, supported by factors like consumer credit and attractive retail interest rates.
- Export growth ($70 billion to $75 billion of additional GVA). Exports of manufactured goods could increase from 14% to over 25% of manufacturing GDP, with growth potential in sectors like pharmaceuticals, farm equipment, auto components, small cars, steel, textiles, and processed goods. Manufacturers must achieve economies of scale, meet international quality standards, comply with foreign regulations, and sustain R&D investments to succeed in foreign markets.
- Import localization ($55 billion to $60 billion of additional GVA). India’s manufacturers could challenge foreign competitors in strategic sectors such as electronics, A&D, capital goods, APIs, and petrochemical intermediates. There’s an opportunity to reduce India’s import spending from 30% to 15-20% by improving technology and quality and lowering prices. Short-term trade protections may be needed to help local value chains catch up with foreign ones.
- Contract manufacturing for global markets ($4 billion additional GVA). Indian manufacturers operate at 60- 70% capacity and can fulfill overseas orders through tolling or contract manufacturing in select value chains. These arrangements must match underutilized assets with the right markets and companies.
- India could be competitive in several industries. India’s manufacturing sector has the potential to generate 25 to 30 percent of GDP by 2025, creating 60-90 million new jobs and making it an attractive investment destination. Indian product manufacturers must adopt global best practices in operations and customize them to suit India’s specific conditions to significantly enhance the efficiency and effectiveness of the country’s manufacturing investments. Examination of how certain Indian companies progress in these areas indicates a blueprint others can emulate.
- Digitisation as part of the corporate strategy. Digitization promises beauty but presents complex implementation. For successful digital transformation, it’s essential to take a holistic perspective, identify specific potential, follow a customized implementation plan, and secure employee buy-in through early involvement. Digitization should be integrated into the corporate strategy to ensure sustainable development, enhance efficiency, and boost competitiveness. Selecting suitable processes and applications for digitization measures is crucial to fully leveraging identified potentials.
- Resilience, Transparency, and Agility are critical to success. Help yourself by building a Repeatable Formula, i.e., Execution. Repeatability drives Scalability, Sustainability, and Competitiveness. Digital transformation is evolving rapidly due to technological advancements, accelerated by the introduction of new digital technologies and the impact of the Corona pandemic. Resilience, transparency, and agility, in addition to digitalization, are increasingly critical to the success of the manufacturing industry. Data strategy and management are essential for new digital business models. All industries invest in data collection and analysis, which suggests the topic’s future importance. Data-driven companies are thus becoming the “new normal.”
