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NARSEE

MONJEE COLLEGE OF COMMERCE
AND ECONOMICS

BY

Robin Chedda 189
Ashish Jain 202
Vikram Jain 203
Michael James 204
Aayush Kochar 209

Email- id: ashish1310@gmail.com

Subject: International Marketing
Faculty Incharge: Harish Purohit
Electronics production in China will be an $80 billion business by
2005, larger than the estimated $73 billion production in all of Western
Europe, claims a new study.

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More than 77 percent of the growth of manufacturing in developing
countries will be in China, increasing its share of global electronics
production from 8 percent to 14 percent, says the study from International
Finance Corp. (IFC), the private sector arm of the World Bank Group, and
management consulting firm Booz Allen Hamilton.

The study found that electronics production activity in emerging
markets will nearly double, from $65 billion in 2001 to $125 billion by 2005
-- accounting for 43 percent of total worldwide manufacturing growth. The
growth rate is twice as fast as any other region.

Emerging market growth outside of China will primarily be in other
developing South-east Asian countries, Eastern European countries and
Mexico.

Trends in the Current Electronic Industry:

• Convergence & digitalization
• Emergence of new access devices for the internet
• Miniaturization and consistent enhancement of computing speed
• Growing PC penetration rate
• Bandwidth expansion
• Spread of IT and telecom services along with mobile communication
boom
• Large business volumes setting the stage for manufacturing
• Diffusion of new products and widening of the range of items under
IT umbrella.
• Spate of mergers and acquisitions that started sometime back
continues unabated
• Consolidation resulting in stronger and bigger units
• Smaller players going for technological up gradation and new
business models.

At the same time, going by the potential demand as well as the need to
Support the massive requirement for the software and services, the future
growth. Trajectory can only be a rising curve with plenty of new
opportunities opening up.

What Holds for the Future?

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• Annual PC sales expected to touch 14 million by end of 2010 from the
present 1.8 million.
• Mobile phone subscriber base to exceed 30 million by 2005 from the
present 5.2 million
• More than 10 million colour TV market by 2005 from the present 5.6
million

India requires $160 billion hardware equipment and another $60 billion
component to support the software target of US$87 billion by 2008.

This translates to the immediate need for a large-scale investment inflow.

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CURRENT SCENARIO

Strengths and Weaknesses of India
STRENGTHS

Surge in Research and Development and infra-structural
expenses
Over 100 to MNC and Indian Research labs set shop on our home
grounds in 2003. There have been numerous breakthroughs in electronics
as well as the IT industry. Such advancements have attracted more
foreign institutional investors to our country.

Emphasis on Quality
Indian electronics, like many other upcoming sectors are facing a major
paradigm shift from changing the conception of a commodity to a brand.
This includes the use of standardisation and quality assurance techniques
like the ISO 9000, ISI, etc. These methods, in the long run, will give India
an edge over the Chinese Commodities.

Customisation
Just like times change, so do customers wants and needs. They grow
more and more “fussy” about what they want. Any concern, to survive in
the global scenario must move in perfect synchronisation with the
market. India has always been an expert at this ‘Just-in-Time’, ‘customer
tailored’, production process in contrast to China’s mass-production
theory.

Innovation
India has pioneered a great deal of innovative ventures, from the
PARAM super-computer to lower-end consumer electronics. China has
been running on its belief in reproduction of innovation in a cheaper
manner. This will benefit China only in the short run. The current global
scenario demands continuous innovation and creativity, which India is in
a much better position to provide.

Specialized manpower

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China certainly offers cheaper labour, but we must also keep in mind
that we are referring to only blue-collar labour here. This implies that
China does have a competitive advantage in manufacturing. However
India has the largest workforce of specialist in the world. From
engineers to managers to doctors, we have them all. This gives us the
edge in administration as well as the service industry.

WEAKNESSES

Resistance to change
The Indian government attitude towards change is quite dismal. Their one-
track thought process makes it very difficult to realize and work towards
moving with the rest of the world. Chinese communist government certainly
has the dynamism required to move the country with the global scenario.

Government compulsions and pressure
Our formalities hit the roof as far as global trade practices are concerned.
India was always a protective economy. It certainly takes time to break the
shell. Comparing this to the Chinese one-window clearance system, India
has a long way to go.

Special Economic Zones
India needs to work on the development of stronger economic zones
comparable to the Chinese economic zones of Shenzhen, Zhuhai, Shantou,
Xiamen and Hainan. India should have more Special Economic Zones and
high technology zones so that Chinese enterprises and other overseas
investors could set shop here as was being done in China over the years.

Protection of SSI
The Indian theory of protection of the SSI, contradicts its strife towards
achieving economies of scale. SSIs reduce the scales of operations hence
shrinking opportunities for creating mass-markets.

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STRENGTHS AND WEAKNESSES OF CHINA
Consumer goods from China is flooding into the Indian Market. A
Calvin Klein or a Rolex look-alike watch, Reebok (shoes) look-alikes can be
picked up for a low price. Dry cell batteries, electric irons, ceiling fans, toys
and cycles are among the few other items which are giving a very hard time
to the local industrial products. And these Chinese-made goods are fast
replacing indigenous goods. Lock market is yet another example. Chinese
totally captured lock market. Who will now go for an expensive Goderej
lock!

The presence of Chinese goods is evident all over the country whether
it is Mumbai, Madras, Delhi, Calcutta or Cochin or any other small towns.
Customers seem to be quite happy as they are getting goods at a cheaper
rate. But the industry especially manufacturing sector is shocked. As
consumers have begun to opt for these cheap goods. At the same time
retailers are also happy since they get better commission.

Doubtful Quality!

The price is the attraction of the Chinese product and not the quality. Dry
cell batteries, for instance , enter India at an undervalued price of 50 paise
each. After paying all the duties when it enters retail outlets it is sold for Rs
2. Indian manufacturers say the lead inside a battery alone costs at least Rs
2 here. If the Indian battery's life is 50 minutes the Chinese one last only 23
minutes. Similarly Chinese bicycles with a price advantage of over Rs 500 is
available in Indian market giving much cause of worry for Indian bicycle
manufacturers. The European Community , on grounds of safety, has
refused entry to these bicycles, which is made of alloys instead of steel. The
quality of items like watches, digital alarm clocks and other electronic
equipment is also doubtful.

Impact:

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This Chinese invasion had done harmed our industries specially some of
them considerably. For instance Eveready Ltd's subsidiary unit Eveready
Energiser Miniature Ltd, which manufactured miniature batteries had to
close down. Similarly T-Series fans which controlled 5 per cent of the
organised sector also had to close down its manufacturing operations at
Noida. Chinese fans come with an in-built inverter. In case of a power
failure it will continue to work for next two to three hours. This provide an
answer to the problem of frequent power cuts also. Against a retail price of
Rs 1,150 for a domestic fan, imported Chinese fans cost anything between
Rs 800 and Rs 900. The ordinary ones cost Rs 400 and with duties, the cost
in India comes to Rs 660 only.

Dumping:

There are allegations of Chinese involvement in dumping activities. The
Indian government recently started a number of investigations against the
alleged dumping of toys, batteries and sports shoes by China, following
complaints by the domestic industry, in compliance with rules of the World
Trade Organization. The WTO agreement defines `dumping' as export of a
product, whose export price is either below the price charged in the
exporting country's home market or the average cost of production. Such
'dumping' may be done with a predatory motive to drive out local industries
from the market.WTO antidumping legislation prohibits such 'unfair' trade
practices. The importing country is also permitted to impose an antidumping
duty or get a price undertaking from the dumping firm to raise the import
price and reduce competition for domestic competing firms. But `dumping'
has first to be proved with evidence.

R. Gopalan, joint secretary in the Ministry of Commerce said the Indian
government had failed to get information regarding the prices of Chinese
goods in the country of manufacture. Thus it is yet to be proved that China
is actually discriminating in prices between the two markets or selling below
cost. China might just be producing at a lower cost than India and other
countries.

Cheap and even free Labour
China enjoys the benefit of cheap Labour on account of largest population
in the world and also due to it being a communist country. In some case it is
also the case that China has free Labour. Eg during the time of peace the

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army works in the factory for the benefit of the country. Also it has also been
reported that the Chinese prisoners are brought in the night in the factory
and they are made to work during that night shift.

Special Economic Zones
The five Special Economic Zones China established in Shenzhen, Zhuhai,
Shantou, Xiamen and Hainan provinces as it began its economic reforms
remain some of the best manufacturing bases in the world. Over 4,000
different kinds of industrial parks have also mushroomed across the country.
Also these Economic Zones are set up next to ports and coasts so the goods
can be easily exported.

Infrastructure & Transport benefits
Their world-class infrastructure such as fibre optic telecommunications,
high-speed Internet connectivity, highways, quality office space,
warehousing and housing, and responsive local government has attracted
companies such as General Motors, Alcatel, Mitsui, Nabisco and even the
classical ceramic maker Wedgewood. These companies enjoy the benefit of
large scale production and than in turn export the same products in
different parts of the world. Also the public transport system of Chain is
comparatively better hence it also enjoys benefits of low cost out here.

Less Formality
Today there is the age where you will be appreciated more if you are to
deliver the goods on time. One of the important step in doing so is having
less formalities or in other words one window clearance which China has
for most of its electronic goods.

What is Chinese advantage?

Firstly, China's per-capita food grain production is well above India's.
Secondly, since the decade of the 1980's China's Labour productivity has
increased tremendously. Thirdly, China has a growing domestic demand to
supplement the export market, which has provided Chinese industries with
economies of scale. Fourthly, a high rate of FDI inflows, along with a rich
mineral base which further reduced the cost of capital and raw materials.
The socialistic accounting procedure, which excludes the price of raw
materials, like minerals, from the production costs, contributed to lowering
the production cost. Overall, the large stock of 'public goods' created by the

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communes which provides, a vast pool of cheap Labour, a large and rich
expatriate community and a rich mineral base, supplemented by large FDI
inflows has contributed to lowering production costs.

What the Indian manufactures can do?

It is high time that Indian manufacturers woke up to the expectations
of its consumers and improve the quality. In the highly globalised
environment imposing unnecessary levies is not the answer. Is it proper to
protect the inefficient Indian manufacturer and deny the Indian consumer
the gains of globalization? Need of the hour is to sort out the fundamental
issues that hold back Indian industry. Poor infrastructure, high capital costs
and rigid labor laws are some of the greatest obstacles that need to be
addressed immediately. For far too long, the Indian consumer has been
taken for a ride. He has had to cough up ridiculously high prices for
substandard stuff. He has had to grapple with callous after-sales service.
The Chinese imports have revealed to the Indian buyer a brighter and better
world. It doesn't mean that all the products from China are of high quality.
Many of them are poor and of substandard quality.

India must see ensure that the Chinese exporters are not misusing the
Indo-Nepal bilateral treaty for the purpose of dumping goods into India.

India had provided Nepal with special facilities for import of goods
through the Calcutta port, (via the road route). Under the agreement with
SAARC countries like Nepal and Bangladesh, imports are allowed under
concessional rates.

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What is the solution? :

The time has come for India to learn from the Chinese experience.
Industry must explore India's export potential to China. Another possible
solution lies in removing the reservation for small scale industries (SSI) and
permitting the entry of bigger players in areas which could lead to
economies of scale, resulting in lower prices and better products. It's time
for the government to open up the SSI sector to fight the Dragon.

It is also important to distinguish between dumping and smuggling
through Nepal. The Indo-Nepal trade and transit bilateral treaty, as altered
revised in 1996, makes Nepal a potential transit country for third country
exports to India at zero import duty. If Chinese goods being smuggled
through Nepal, then antidumping or other duties will only lead to more
smuggling.

Again antidumping duties protect producers at the expense of
consumers. If the Chinese goods are not proven to be dumped, antidumping
duties can be a very short-lived protection for Indian industries. The only
way to fight competition is by cutting costs and improving quality. It is also
time has come to review the Indo-Nepal bilateral treaty.

What now comes from China is only marginally better than what is
available in India, and most of those products are not really of international
quality. Our advantage Infact lies here. When we compete with in the

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international market, price advantage alone cannot win the race. Quality
matters! By supplying inferior goods in fact China is loosing Indian market!

Globalisation and converging technologies are uniting countries and
people the world over as never before. If India and China can jointly market
their respective software and hardware skills and products, they will have a
win-win situation in the emerging digital world. India is software giant as
China is in hardware. Both the countries should take advantage of their
strengths and mutually benefit.

For instance, India exports about 70 per cent of its software to the US
and Europe, while China exports about 90 per cent of its hardware goods to
the western markets. But in turn the US exports 90 per cent of software to
China, and 60 per cent of its hardware to India.

If India and China can come together, they can not only cater to the
entire world, but also dominate their own domestic markets.

China is ready to help build world class facilities in India to
manufacture all kinds of electronics and consumer goods and enable India
emerge as a hub for assembling lines and components. With increasing use
of software from design and development in end-products, India will stand
to gain a lot by emerging as a manufacturing hub of Asia on the lines of
China, Taiwan, Japan, South Korea, and Malaysia.

Though India is moving in the right direction so far as its import tariff
and other taxation measures are concerned, a lot more needs to be done on
labour reforms, single-window clearance and efficient transport sector, be it
roads, sea ports, or airports for faster shipments and travel.

Since India has agreed to reduce import tariffs on all IT and
electronic products to zero duty by 2005, and bring about pro-active
reforms in the industry on taxation and regulation fronts, we can certainly
make an entry into India for setting up our own production units here or
supply raw material to outsource our global requirements in components,
embedded software, and electronic production services through contract
manufacturing.

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According to Chinese Electronics & Information Industry Chamber of
Commerce project manager Yuan Xull, India should have more Special
Economic Zones and high technology zones so that Chinese enterprises and
other overseas investors could set shop here as was being done in China
over the years.

India needs to have radical policies at the central, state and
provincial levels, with flexible Labour laws, exit policy and freedom to do
business by anyone under local conditions as there is no dearth of skilled
workforce and other resources.

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