1 MAN U F ACT U R I N G F OR W E AL T H CR E AT I ON

I n this s ection, we fir s t define manufactur ing and clas s ify differ ent
types of manufactur ing. We will als o s tudy its r elation with other
s ector s of economy and r eview its r ole in national development,
including cr eation of differ ent types of wealth.

1 .1 D ef in in g Man u f act u r in g

Manufactur ing can be defined as phys ical and/or chemical

tr ans for mation of mater ials into pr oducts on a lar ge s cale us ing
machiner y or capital equipment, in contr as t to pr oduction of hand-
made goods for per s onal us e. T he pr oducts pr ovide utility or
s atis faction to human/living beings . T hey may take the for m of final
cons umption goods , s emi- finis hed goods (par ts and r aw mater ials ) or
capital goods (us ed for making final pr oducts ). As s ociated activities
s uch as blending of mater ials , as s embly of components , and finis hing
(painting, heat- tr eating, packaging, etc.) ar e als o tr eated as par t of
manufactur ing. Let us ex amine this definition fur ther and s ee the
ex tent to which it will be meaningful in futur e.

Fr om an engineer ing point of view, one can conceive of two types of

pr oducts : dis cr ete pr oducts (e.g., chair and phone) and continuous
pr oducts (e.g., s ugar and paper ). T he manufactur e of dis cr ete pr oducts
includes the pr oces s ing of mater ials , fabr ication of components and
s ub- as s emblies (inter mediate pr oducts ), and the as s embly of final
pr oducts . T her e is no s uch as s embly activity in continuous pr oducts ,
which involve a s er ies of conver s ions s tar ting fr om r aw mater ials .
S ome pr oducts , e.g., a bottle of pills , combine both types of pr oducts :
continuous , followed by dis cr ete. New technologies s uch as fr ee for m

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fabr ication ar e gr adually blur r ing this dis tinction. I n futur e, continuous
pr oces s es may manufactur e many dis cr ete pr oducts .

T he actual act of pr oduction (conver s ion of mater ials into us able for m)
is getting mor e and mor e efficient and automated, es pecially in
developed countr ies . T his is as s ociated with r educed cos ts , lead- time
and labor . T he focus and inves tment of r es our ces (finance and
employment) is s hifting to other activities in pr oduct development as
well as s er vices . For ex ample, cons ider ably lar ger time is s pent in
des igning a moder n air cr aft and managing its s upply chain logis tics
than in its manufactur e.

T he tr aditional definition of manufactur ing as s ociates it with economies

of s cale, implying s tandar d par ts . T his is owing to the high cos t of
r es ear ch and development, tooling and pr oduction facilities for a
s pecific pr oduct, which need to be amor tiz ed over a lar ge number .
T hus , ex clus ive and cus tom- made pr oducts ar e ex pected to have high
value and cos t. T his gap is as ymptotically r educing to z er o becaus e of
flex ible and dir ect manufactur ing s ys tems . Mas s manufactur ing is
giving way to mas s cus tomiz ation.

An or iginal equipment manufactur er (OEM) is under s tood to be a place

wher e labor , mater ials and machines conver ge to pr oduce finis hed
pr oducts . T he ter m OEM is not s uitable for continuous pr oducts and will
not be us ed her eafter . I n contr as t, s upplier fir ms ar e under s tood to be
thos e, which cr eate s emi- finis hed pr oducts , components or mater ials
for us e by the main manufactur er s . Fir s t- tier fir ms s upply to the final
pr oduct manufactur er , s econd- tier fir ms s upply to the fir s t- tier fir ms ,
and s o on.

T he manufactur ing activities (main as well as s upplier s ) r equir e an

ar r ay of s uppor t and s er vice activities . T he vital ones include ener gy

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s upply, equipment maintenance, tr ans por tation (for r aw mater ials ,
s emi- finis hed and finis hed pr oducts ), mar keting (including cus tomer
r es ear ch and adver tis ement), r es elling (to an inter mediate or final
cus tomer ), finance (bor r owing, accounting, s aving), human r es our ce
management (fr om hir ing to fir ing), infor mation & knowledge
management and legal (cover ing vir tually ever y activity). I n the pas t,
fir ms tended to per for m all the activities thems elves – r efer r ed to as
ver tical integr ation – with hands ome r etur ns and gr owth. T he
incr eas ing complex ity of s uppor t and s er vice activities (beyond a
cr itical point) s wung the tr end in the oppos ite dir ection. Manufactur ing
fir ms s tar ted focus ing on their ‘cor e’ competence and activity,
outs our cing ‘non- cor e’ activities to s pecializ ed fir ms . However , the
s teep gr owth and fall of s er vice fir ms , es pecially thos e r elated to
infor mation technology, may lead to other patter ns in futur e.

1.1.1 Pr oduct life and cycle

T he tr aditional definition of manufactur ing focus es only on the act of

pr oduction: s tar ting fr om r aw mater ials , conver s ion thr ough a number
of s tages , and ending with as s embly and tes ting. A mor e
compr ehens ive definition includes all activities in pr oduct life, s tar ting
fr om cus tomer inputs for concept des ign, and ending with pr oduct
dis pos al (including r epair and r ecycling). Let us look at thes e br iefly.

T he fir s t s tep is the ex pr es s ion of a need that could be actual as in the

cas e of ‘mar ket pull’ pr oducts (clothes ’ ir oning machine), or per ceived
as in the cas e of technology- pus h pr oducts (vir tual r eality s ys tems ).
T his is conver ted to pr oduct r equir ements us ing techniques s uch as
Quality Function Deployment by mar ket r es ear cher s . T hen indus tr ial
des igner s take over and gener ate concept des igns for s hape and
function. T he engineer ing des ign team analyz es the s elected concept
to finaliz e the mater ial, geometr y and quality s pecifications . Vir tual and

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r eal pr ototypes ar e fabr icated and tes ted to validate the des ign. T his is
followed by the development of pr oduct- s pecific tooling, pr oces s plans
and manufactur ing facilities , if neces s ar y. T r ial pr oductions ar e car r ied
out to fine- tune the pr oces s par ameter s , and r egular pr oduction s tar ts .
T his involves manufactur e of components , j oining, as s embly, finis hing,
ins pection and packaging. T he pr oduct is s hipped to inter mediar ies and
eventually to the cus tomer .

T his is however , only the beginning of the r eal life of the pr oduct. T he
pr oduct is us ed for its intended (and s ometimes unintended) pur pos es ,
us ually cons uming ener gy. I t may r equir e timely maintenance and
s ometimes unex pected r epair wor k. S ome of its par ts may be r eplaced,
becaus e of functional or aes thetic r eas ons . T he owner s hip may change.
Finally, when the pr oduct has outlived its life becaus e it cannot
function any mor e or becaus e s ignificantly impr oved new pr oducts ar e
available, then it is dis car ded. I t may be dis as s embled and the
components ar e r eus ed (in another pr oduct of the s ame type),
r ecycled (another application) or s imply dumped. I n gener al, the r eal
cos t of the pr oduct (including its ener gy cons umption, maintenance,
upgr ading and impact on envir onment) may be s ever al or der s of
magnitude than its pur chas e pr ice.

1.1.2 Clas s ification s ys tem

T he tr aditional clas s ification s ys tem is bas ed on the s pecializ ations of

fir ms . T he lis t has been s tandar diz ed and adopted by var ious bodies ,
s uch as United Nations and Eur opean Union, to facilitate inter national
compar is on. T he lis t of manufactur ing s ector s includes food, tex tile,
chemical, automobiles , electr ical machiner y, telecommunication, etc.
(s ee T able 1.1).

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T he indus tr ies dominating at the time of clas s ification ex er t a
s ignificant influence compar ed to nas cent indus tr ies , which ar e tiny but
have a gr eat potential for gr owth. T hus , it is quite pos s ible that in
futur e, the s iz e of tobacco indus tr y may gr adually diminis h (owing to
gover nment r egulations and s ocial nor ms ) and mer ge in the food
pr oducts categor y. On the other hand electr ical, electr onic and
computing equipment and their s ub- categor ies (s ay, food pr oces s ing
equipment) may r apidly gr ow to claim s epar ate categor ies .

T able 1 .1 : Man u f act u r in g s ect or

Code Pr oducts
15 Food pr oducts and bever ages
16 T obacco pr oducts
17 T ex tiles
18 T ex tile pr oducts including wear ing appar el
19 Leather , leather pr oducts and footwear
20 Wood, wood pr oducts
21 Pulp, paper and paper pr oducts
22 Pr inting and publis hing
23 Coke and petr oleum pr oducts
24 Chemicals and chemical pr oducts (including phar maceutical)
25 Rubber and plas tics pr oducts
26 Other non- metallic miner al pr oducts
27 B as ic metals (fer r ous and non- fer r ous )
28 Fabr icated metal pr oducts , ex cept machiner y and equipment
29 Non- electr ical machiner y and equipment
30 Office, accounting and computing machiner y
31 Electr ical machiner y and appar atus
32 Radio, televis ion and communication equipment
33 Medical, pr ecis ion and optical equipment
34 Motor vehicles
35 Mar ine ves s els , air cr aft, s pacecr aft and r ailr oad
36 Fur nitur e pr oducts
37 Recycling
S our ce: S T AN I ndus tr y Lis t, http: //www.oecd.or g

T he above clas s ification as s umes ver tical integr ation in any s ector . I n
r eality, any given s ector r equir es a high level of s pecializ ation for
var ious activities s uch as pr oduct des ign, pr oduction equipment
development, pr oces s planning and mar keting. On the other hand,
ther e is incr eas ing s imilar ity between the methodologies and
technologies us ed for s uch s pecializ ed activities even acr os s s ector s .

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For ex ample, computer - aided tools (s uch as vir tual r eality vis ualiz ation
and finite element analys is ) and mar ket r es ear ch tools (s uch as quality
function deployment) can be us ed for wood pr oducts , plas tics pr oducts
and metal pr oducts , which s pan differ ent manufactur ing s ector s . T his
calls for a differ ent clas s ification s ys tem bas ed on s pecializ ation in
ter ms of activity (or pr oces s ) r ather than the pr oduct.

Another development is that s er vice fir ms ar e talking about their

pr oducts (s uch as a new ins ur ance s cheme), and manufactur ing fir ms
ar e offer ing their pr oducts as s er vices . An ex ample of the latter is that
an end- us er may pur chas e a computer or a photocopier as a s er vice
ins tead of as a pr oduct. T he manufactur er deliver s the machine,
maintains it (including upgr ading) and eventually takes it away (buy
back options ) when the us er wants it no mor e. I n futur e, all pr oducts
and s er vices may be lumped together as s er vices . A par ticular s er vice
may compr is e a s er ies of s teps involving pr oducts and s er vices .

Depending on the needs of the end- us er , the pr oducts and s er vices

can be clas s ified as (a) bas ic needs : r equir ed for maintaining life with
bar e neces s ities s uch as food, appar el, s helter , commuting and
communication; (b) comfor ts : to impr ove the s tandar d of living,
including automatic food pr oces s ing equipment, r efr iger ator s , air
conditioner s , televis ion, mus ic s ys tems , etc.; and (c) lux ur ies : to
impr ove the quality of life, s uch as decor ative items .

T he pr oducts may als o be clas s ified bas ed on the type of r es our ces and
the level of technology involved: (a) labor - intens ive natur al pr oducts ,
s uch as miner als and far m pr oduce, (b) s kill- intens ive low technology
pr oducts s uch as s hoes and tex tiles , (c) mater ial- intens ive
inter mediate technology pr oducts s uch as automobile components , and
(d) high capital and technology intens ive pr oducts s uch as r obots .

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Another clas s ification can be bas ed on the type of us er (s ay, by age
and gender ) and level of us er (individual, family and activity gr oup). A
thir d s ys tem can be bas ed on the number of levels fr om the end- us er .
T hus fer tiliz er manufactur er s cater to the needs of far mer s , who in tur n
pr oduce agr icultur al pr oducts , which ar e in tur n pr oces s ed by food-
pr oces s ing fir ms into the final pr oduct, cons umed by end- us er s .

T he above developments : s pecializ ed activities within any s ector ,

pr oduct complex ity and level of technology involved, and us er - centr ic
s olutions (pr oducts or s er vices ) may lead to entir ely new s ys tems of
indus tr y clas s ification in futur e.

1.1.3 Relations hip with other s ector s

Economic activities can als o be viewed as pr imar y, s econdar y and

ter tiar y. Pr imar y activities include cultivation and ex ploitation of
natur al r es our ces ; i.e., agr icultur e, for es tr y, fis hing, lives tock, mining,
quar r ying and oil- ex plor ation. T he s econdar y s ector es s entially
cons titutes manufactur ing activities , which take the output of pr imar y
indus tr ies and conver t them to cons umer and capital goods . Finally,
ter tiar y s ector cons titutes s er vice activities of the economy (T able 1.2).

His tor ical patter ns of economic development indicate that in the initial
s tages of development of a countr y, a lar ge pr opor tion of national
income is der ived fr om the pr imar y s ector and als o the labor for ce is
heavily dependent on the pr imar y s ector . As an economy moves on to
the indus tr ializ ation pr oces s (due to incr eas ed pr oductivity in pr imar y
s ector ), manufactur ing s ector s tar ts gr owing and the labor r eleas ed
fr om pr imar y s ector is abs or bed into manufactur ing or s econdar y
s ector . Concomitant to this , the contr ibution of manufactur ing s ector to
national income als o incr eas es . When the manufactur ing s ector
develops and is on its way to matur ity, it gener ates demand for

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s er vices and in the final s tage of development it is the s er vice s ector
that becomes a maj or contr ibutor to both national income and
employment. T hus , the development pr oces s fir s t s atis fies the
commodity needs of human beings and it is only when thes e needs ar e
met, the s er vice needs s tar t emanating.

T able 1 .2 : S ect or al clas s if icat ion

Code S er vices
01- 05 Agr icultur e, hunting, for es tr y and fis hing
10- 14 Mining and quar r ying
15- 37 Man u f act u r in g
40- 41 Electr icity, gas and water s upply
45 Cons tr uction
50- 52 Wholes ale and r etail tr ade
55 Res taur ants and hotels
60- 63 T r ans por t and s tor age
64 Pos t and telecommunication
65- 67 Financial inter mediation and ins ur ance
70- 74 Real es tate, r enting and bus ines s s er vices
75 Public adminis tr ation and defens e
80 Education
85 Health and s ocial wor k
90- 93 Other community, s ocial and per s onal s er vices
S our ce: S T AN I ndus tr y Lis t, http: //www.oecd.or g

I ndia’s development patter n has differ ed fr om the his tor ically obs er ved
development patter n (s ee T able 1.3). I n I ndia, though s er vice s ector
has become the maj or contr ibutor to national income (due to the
availability of highly s killed per s onnel and r elative s car city of capital), a
s ignificant pr opor tion of labor for ce has s till not found j obs in
s econdar y and ter tiar y s ector s and ther efor e has to depend on pr imar y
s ector . I n 1999- 2000, Out of about 400 million wor ker s employed in
I ndian economy, 60% wer e employed in agr icultur al s ector , 12% in
manufactur ing s ector and 28% in s er vice s ector [Economic S ur vey,
2001- 02].

T he high pr opor tion of population engaged in a s ingle s ector and its

contr ibution to national income has ar ous ed concer n in s ever al
quar ter s . A glance at I ndian (pos t- independence) his tor y r eveals that

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planning pr oces s accor ded high pr ior ity to the indus tr ial s ector and
cur r ently the emphas is is on the s er vice s ector . Attention to
agr icultur al s ector was paid, as and when it became a dir e neces s ity.
While we have been getting our s elves or ganiz ed in pr imar y pr oduction,
the technology changed at r apid pace, and all of a s udden we found
our s elves taking a leap to the ter tiar y s ector , s tealing a few decades
fr om the manufactur ing s ector .

T able 1 .3 : S ect or al con t r ibu t ion t o GD P ( per cen t age s h ar e)

1951- 52 to 1985- 86 to
S ector 1999- 2000
1955- 56 1989- 90
1. Agr icultur e 54.9 32.8 23.2
2. Manufactur ing 11.9 20.0 17.1
2.1 Regis ter ed mfg 5.5 12.1 11.3
2.2 Unr egis ter ed mfg 6.4 7.9 5.8
3 Res idual (s er vices ) 33.2 47.2 59.7
S our ce: http: //planningcommis s ion.nic.in, National Accounts S tatis tics , CS O.

For the development of a nation, all s ector s have to move in tandem

with each other . One could ar gue that, we ar e s elf s ufficient in
agr icultur e and ar e making good money in s er vice s ector and what is
wr ong about it? I f S wis s can live on watches , why can't we on I T
enabled s er vices ? T o ans wer this ques tion we need to look how the
thr ee s ector s inter act with each other . Agr icultur e is becoming mor e
and mor e technology or iented and as the level of pr os per ity of our
countr y incr eas es , the human intens ivenes s is becoming incr eas ingly
cos tlier . For the agr icultur e to gr ow, we need mor e value addition.
S ugar cane pr oduction needs to be complemented by s ugar factor ies .
S unflower ex por t alone does not pay enough, the population and its
ex pectations have incr eas ed: we need s unflower oil ex tr actor s , and s o
for th. Any impr ovement in the efficiency of pr imar y s ector fr ees a
por tion of human capital hither to dependent on it. For s uch capital to
be involved in pr oductivity of the nation, ther e is a need for cr eation of
oppor tunities , which can be found in higher levels of indus tr ies .

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S er vice s ector is a cons umer or iented s ector and r elies heavily on the
domes tic or for eign demand to s us tain its elf. A big por tion of domes tic
demand cons is ts mainly fr om thos e by ur ban middle to upper clas s ,
which is only a s mall por tion of I ndia and hence, gr owth of s er vice
s ector needs to s uppor t r ather than be r egar ded as a s ubs titute for
I ndian manufactur ing indus tr y. S er vice s ector br eeds on r obus t
pr imar y and s econdar y s ector for any economy that under lines the
impor tance of manufactur ing indus tr y. An es timated 70% of s er vice
s ector wor ldwide depends on the manufactur ing s ector .

1 .2 D evelopm en t an d var iou s f or m s of w ealt h

B efor e we ex plor e the r elations hip between manufactur ing activities

and mater ial wealth cr eation, let us ex amine the definition of wealth.
T he notion of wealth as pr opos ed by Adam S mith (1756), widely
accepted until r ecently, encompas s es only a par t of mater ial wealth in
the for m of goods . T he ultimate goal of wealth – ens ur ing the
pr os per ity and well being of cur r ent as well as futur e gener ations – is
often clouded by over - emphas is on mater ial wealth, often at the cos t
of other for ms of wealth. Mater ial pr os per ity and wealth cannot pr ovide
s olutions to human pr oblems and in fact, thes e may pos e a thr eat to
the ver y s ur vival of human beings in the long r un. I n view of this , the
concept of s us tainable development has gained cur r ency over mater ial
pr os per ity. S us tainable development is defined as ens ur ing a better
quality of life for ever yone, now and for gener ations to come. I t implies
meeting the needs of the pr es ent without compr omis ing the ability of
futur e gener ations to meet their own needs . Key elements include
effective pr otection of the envir onment and maintenance of high and
s table levels of economic gr owth and employment. I n a s imilar vein,
the Endogenous Gr owth theor y pos tulates link between economic
gr owth (mater ial wealth) and human capital, technology and phys ical
capital as inputs in the gr owth pr oces s .

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T her e is an obvious need to evolve a better per ception of development
pr oces s (outcome), which s hould encompas s the links between
mater ial, natur al, intellectual and cultur al wealth (inputs ). Mater ial
wealth is the mos t vis ible for m of wealth and can be meas ur ed in
ter ms of the cur r ent as s ets and futur e pur chas ing capacity. On the
other hand, natur al wealth has to be conver ted into mater ial wealth
thr ough manufactur ing activity. I t is her e that the conflict and
imbalance between the mater ial wealth and pr es er vation of natur al
wealth becomes the focal pr oblem in developmental pr oces s .
I ntellectual wealth or human capital has to be embodied into
manufactur ing activities for income and mater ial wealth gener ation.
Finally, cultur al wealth pr ovides the foundation and envir onment to
cr eate and s us tain intellectual and other for ms of wealth.

All types of wealth ar e complementar y to each other and ever y nation

mus t s tr ive to achieve a balance among them. Nations with imbalance
and dis pr opor tionality in differ ent for ms of wealth may find it difficult
to s ur vive in the long r un, both individually and collectively. Due to
complementar ity (or imper fect s ubs titutability) of var ious for ms of
wealth, nations that ar e mater ially r ich and cultur ally poor , or natur ally
r ich but intellectually poor may find it difficult to pr ogr es s with the help
of fair and democr atic means . Let us look at thes e four types of wealth
in s ome mor e detail, in par ticular , the factor s that influence their
gener ation and us e.

1.2.1 Mater ial wealth

Mater ial wealth is r elated mainly to r eal income gener ation both at
pr es ent and in futur e. Another char acter is tic of mater ial wealth is that
it is pr oduced by human effor t. I n this for m of wealth, ther efor e, we
include the s tock of capital, infr as tr uctur e, commodities pr oduced
ear lier and of cour s e the r eal national income cur r ently pr oduced. T he

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s tock of mater ial wealth is impor tant as it deter mines a nation’s
pur chas ing and bor r owing power in a globaliz ed wor ld.

T he public and pr ivate infr as tr uctur e is the mos t vis ible for m of
mater ial wealth. T his includes : (1) infr as tr uctur e for tr ans por t of water
fr om var ious s our ces for human and indus tr ial cons umption, as well as
effluent or r ecycling facilities , (2) capacity to gener ate ener gy s uch as
hydr o, ther mal, s olar , wind and nuclear , (3) means of tr ans por tation
s uch as highways and r ailr oads , s ea por ts and air por ts , (4)
communication devices (acces s ibility and bandwidth of land and mobile
phones , facs imile, r adio, televis ion, etc.), (5) hous ing, bus ines s par ks
and indus tr ial es tates , and (6) pr ovis ion of s ocial s er vices (health,
education, banking, etc. at both bas ic and advanced level).

A countr y with high levels of mater ial wealth and high levels of
s pending can boos t its own economy as well as other s ’ by pr omoting
cons umer is m. I nter es tingly, s uch nations als o appear have a high
bor r owing capacity, which fur ther fuels the economy in s hor t to
medium ter m. T his may however , ‘bur n out’ other types of wealth,
detr imental in the long r un.

T he two s our ces of finance (inter nal and ex ter nal) mus t be balanced
with r es pect to the two s inks : pur chas e of pr oducts for immediate
cons umption and inves tment towar d manufactur ing activities leading
to futur e wealth gener ation. Us e of inter nal r es our ces for immediate
cons umption is a fas t and s hor t- ter m catalys t for acceler ating the
economy, but it wor ks differ ently in countr ies with cons umer is t and
s aving attitudes . Guiding the inves tment of inter nal r es our ces for
futur e wealth gener ation pr oces s es , s uch as manufactur ing facilities
along with the neces s ar y infr as tr uctur e and s uppor t s tr uctur e, mus t be
the top pr ior ity of ever y Gover nment. I n contr as t, ex ter nal bor r owing

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for immediate cons umption on avoidable pr oducts that do not
contr ibute to cr eation of any type of wealth s hould be r es is ted.

1.2.2. Natur al wealth

T he natur al r es our ces ar e thos e r es our ces available to a nation by

vir tue of its geogr aphical location, and can contr ibute to cr eation of
wealth of one or mor e types . Natur al r es our ces , pr imar ily, include
mater ials and ener gy. Ex amples of natur al mater ial r es our ces include
s oil (fer tility), for es ts (wood, flower s , her bs , etc.) and miner als
(fer r ous and non- fer r ous metals , cer amics , pr ecious s tones , natur al
polymer s and compos ites ). Natur al ener gy s our ces include water and
s unlight, bes ides coke, coal, cr ude oil, natur al gas and nuclear fuel.
S ome r es our ces may take both for ms . For ex ample, water is an input
for far ming and manufactur ing activities , as well as a s our ce of ener gy
(fr om potential or kinetic, to electr icity).

T o the above lis t, we mus t add natur al climate as a r es our ce. A climate
with an aver age temper atur e and humidity clos e to human comfor t
levels pr omotes var ious activities for cr eation of other for ms of wealth.
I t als o minimiz es the ex penditur e of var ious r es our ces to cr eate an
ar tificial climate in is olated enclos ur es conducive to habitation or wor k.

Water ways (r iver s ), long coas tline for s eapor ts and a ter r ain s uitable
for laying highways and r ailr oads als o add to the natur al wealth, by
br inging down the cos t of tr ans por tation of people, r aw mater ials and
finis hed pr oducts .

1.2.3 I ntellectual wealth

I ntellectual capital r efer s to the collection of innovative ideas that can

potentially lead to cr eation of wealth. I deas ar e pr imar ily gener ated by

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people. T hr ee factor s affecting the intellectual capital of a nation ar e:
(1) the number of innovative people, (2) their efficacy and efficiency
for idea- gener ation, and (3) the mechanis m for s tor ing and ex changing
innovative ideas .

T he number of innovative people depends on four factor s : the s ys tem

of education and tr aining (inter nal s our ces ), their abs or ption or
employment in other activities (inter nal s inks ), their movement to
other nations or ‘br ain- dr ain’ (ex ter nal s inks ), and the influx of
innovative people (ex ter nal s our ces ). T he movement can be tempor ar y
vis its or long- ter m immigr ation.

T he efficacy of innovative people implies the quality of ideas , wher eas

efficiency implies the quantity or number of ideas . B oth ar e impor tant.
T hey ar e influenced by the wor king envir onment (fr eedom to think and
minimal nois e/dis tur bance of all types ), networ king (for cons tr uctive
cr iticis m and cr os s - fer tiliz ation of ideas ) and motivation (financial
incentives as well as s ocial r ecognition).

At pr es ent, the mechanis m for s tor ing and ex changing innovative ideas
is pr imar ily pr ovided by the legal fr amewor k for intellectual pr oper ty
r ights (I PR), including patents , copyr ights and tr ademar ks . By
obtaining a patent or copyr ight, the innovator or author is as s ur ed the
r ight to commer cializ e and pr ofit fr om his wor k (by own s elf or by
gr anting the licens e to other s ) for a r eas onable per iod. T his als o
ens ur es that limited r es our ces ar e not s pent for ‘r einventing the
wheel’; a patented idea wor k may tr igger other ideas ; and the idea is
not los t to humanity with the demis e of the innovator . I t can be s een
(T able 1.4) that ther e is a s har p inequality between the patents filed
and gr anted acr os s the developed and developing countr ies . T he futur e
dis tr ibution of income will be gr eatly influenced by patenting and

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hence, ther e is an ur gent need for developing countr ies to s et up
ins titutional mechanis ms to deal with this r ecent phenomenon.

Related is s ues ar e the enfor cement and s ocial acceptance of the I PR

fr amewor k, within a countr y as well as acr os s countr ies . T his has to be
at all thr ee levels : Gover nment level (for mulating appr opr iate I PR laws
and ens ur ing their enfor cement), manufactur er ’s level (honor ing the
I PR laws and r egulations ) and us er level (pur chas e of pr oducts and
s er vices confor ming to I PR laws ).

T able 1 .4 : P at en t s f iled an d gr an t ed in s elect ed cou n t r ies in 1 9 9 8

Countr y Patent Applications Patents gr anted

Res idents Non- T otal Res idents Non- T otal
r es idents r es idents
Japan 360338 77037 437375 125704 15744 141448
US A 141342 121445 262787 80292 67228 147520
Ger many 67790 134981 202771 19271 32414 51685
K or ea 50714 71036 121750 35900 16990 52890
China 14004 68285 82289 1653 3082 4735
I ndia 2111 7997 10108 592 1119 1711
S our ce: Wor ld I ntellectual Pr oper ty Or ganiz ation, http: //www.wipo.int/ips tats /en

T he s ocial acceptance of I PR laws is gr eatly influenced by the level of

education as well as the value to end- us er . Many people ar e s imply
ignor ant of I PR laws . S econdly, a pr oduct or s er vice s hould not be
pr iced without due cons ider ation to the need, number and aver age
pur chas ing power of end- us er s within a r egion. A high r atio of pr ice to
value gener ally leads to potential violation of I PR laws .

1.2.4 Cultur al wealth

T he cultur al wealth r efer s to the tr aditions (pr oces s es ) as well as the

output (pr oducts ) of cultur al activities over s ever al gener ations .

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Cultur al tr aditions define the r oles of people bas ed on their
char acter is tics s uch as age, gender and family of bir th. T hey als o
define the r elations hips among family, fr iends and colleagues , as well
as attitude towar ds other s .

Cultur al activities s uch as ar t, cr aft and ar chitectur e lead to pr oducts .

Ar ts include fine ar ts (s uch as painting and s culptur e) and per for ming
ar ts (s uch as mus ic, dance, plays and movies ). Cr afts ar e meant for
pr oducing ex clus ive or cus tom made pr oducts or decor ations for
pr oducts . Ar chitectur e deals with cr eation of enclos ur es and
monuments for habitation, wor k, education, healthcar e, s ocial and
r eligious pur pos es . T he ‘manufactur e’ of cultur al pr oducts is becoming
an impor tant par t of the economy.

T he cultur al tr aditions and activities dir ectly influence the phys ical,
mental and s ocial char acter is tics of the people, at individual, gr oup and
national level. Mental and s ocial char acter is tics s uch as innovation-
ability, per s ever ance, leader s hip, teamwor k, competitivenes s , r is k-
taking, ethics and r es pect for other s , dir ectly affect the capability to
gener ate and s us tain all types of wealth. T hes e char acter is tics ar e
continuous ly s haped by education, tr aining and inter action with other
cultur es .

As dis cus s ed above, the total wealth of a nation does not include only
the mater ial wealth, but als o natur al, intellectual and cultur al wealth. A
few countr ies including I ndia ar e bles s ed with all types of wealth. I t is
impor tant to r ealiz e their contr ibution to manufactur ing activities in
or der to cr eate a pos itive cycle leading to fur ther cr eation of wealth of
all types . T his is fur ther ex plor ed nex t.

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1 .3 R ole in w ealt h cr eat ion

T her e ar e thr ee s tr ong r eas ons for all nations to ens ur e a healthy
manufactur ing indus tr y. Fir s t: the indus tr y pr ovides an ar r ay of
pr oducts to end- us er s , fulfilling their bas ic needs neces s ar y for s ur vival
and pr oviding comfor ts and lux ur ies neces s ar y for impr oving the
s tandar d of living. I f a countr y does not pr oduce cer tain pr oducts , it
will have to impor t them fr om other s that do.

S econdly, manufactur ing is a for ce multiplier : it can cr eate pr oductive

employment for the labor for ce. I t als o pr omotes gr owth of agr icultur al
and s er vices s ector s : by cr eating demand for their pr oducts and
s er vices , and ther eby cr eating even mor e j obs , leading to fur ther
gener ation of wealth.

T hir d, manufactur ing is of s tr ategic impor tance to any nation,

es pecially thos e as pir ing to be leader s . T hey can and s hould focus on
all s ector s of manufactur ing. T his helps in building up s elf- s ufficiency,
as well as over all development neces s ar y for anticipating and catching
futur e technological waves , which could emer ge in unfor es een ar eas .
Countr ies with fewer r es our ces can focus on a limited number of high
value s ector s , and tr ade them for other pr oducts and s er vices with
other countr ies .

T hus manufactur ing activities fulfill phys ical needs of end- us er s , cr eate
employment, build up s tr ategic competence and gener ate s ur plus
wealth thr ough ex por ts for futur e development. Manufactur ing has
been the engine of gr owth for all maj or nations including US A, Japan
and Ger many. China and Kor ea clear ly s taked their development on
the manufactur ing s ector , which was encour aged to gr ow at over 10%
per year , compar ed to about 5% for I ndia. I n 1980 the r atio of China’s
GDP to I ndia’s was les s than 1, in 1990 it cr os s ed 1, and by 2000 it

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ex ceeded 2. T he gr owth of manufactur ing als o gr eatly contr ibuted to
impr oved s tandar ds of living; the penetr ation of cons umer goods s uch
as televis ions , was hing machines and air conditioner s is today 5- 20
times higher in China than that in I ndia.

At pr es ent, accor ding to the Wor ld B ank, the total value added in
manufactur ing activities wor ldwide is over US $ 5 tr illion, accounting for
22% of the wor ld economy.

Let us als o ex amine the r elation between manufactur ing and other
types of wealth.

As manufactur ing activities become mor e and mor e efficient – owing to

competition and s cientific r es ear ch – thes e cons ume les s r aw mater ial
(giving high yield) and ener gy per pr oduct. Des igner s ar e cons tantly
s hr inking the s iz e of pr oducts thr ough s hape optimiz ation and
miniatur iz ation techniques , which fur ther r educe mater ial cons umption.
Reus e, r efur bis hment, r eplacement, r eplenis hment and r ecycling
techniques , along with development of eco- fr iendly mater ials and
pr oces s es will gr adually r educe the negative impact on natur e.

Unfor tunately, the r apid pace of commer cial innovation (in which
pr oducts ar e des igned to become obs olete in a ver y s hor t per iod, often
within weeks ) not only bewilder s end- us er s – who have to lear n how to
us e a new device all over again – but als o offs ets the above gains .
For tunately, end- us er s ar e now demanding natur e- fr iendly pr oducts ,
and for cing manufactur er s to take the pr oducts back after their us eful
life. T his will pus h manufactur er s to accumulate minor innovations into
longer - las ting pr oducts , us e r ecyclable mater ials and adopt natur e-
fr iendly manufactur ing techniques .

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T he intellectual s timulation of conceptualiz ing and cr eating a new
pr oduct to fulfill the needs of fellow human beings is s upr eme. T his is
fuelled by the competitive s pir it to make mor e pr oducts , and make
them better , fas ter and cheaper . T hes e ar e often achieved by
es tablis hing and funding academic and r es ear ch or ganiz ations , which
tr igger new ideas and cr eate mor e entr epr eneur s . T he chain r eaction
r apidly builds up the intellectual wealth of a nation.

Only a few hundr ed year s back (and even now in many developing
countr ies ), a family s pent all the time ‘manufactur ing’ its own food,
clothing, s helter and tools . T he lar ge- s cale manufactur e of pr oducts
has helped in fulfilling vir tually ever y phys ical need of humans . T his
gives the people of developed nations potentially mor e leis ur e time for
cultur al activities . S econdly, the financial wealth gained by
manufactur ing activities and ex por t gives a higher pur chas ing power .
T his implies that people of developed nations need to wor k fewer hour s
than thos e in developing nations for pur chas ing the s ame pr oducts .
However , the per ceived need for mor e pr oducts (including lux ur y
items ) and s ocial pr es s ur es , dr ive mos t people to s pend the har d-
s aved leis ur e time als o at wor k for ear ning mor e. T his vicious cycle can
be br oken only by r ealiz ing that the total wealth compr is es not only
mater ial, but als o natur al, intellectual and cultur al wealth, as
mentioned ear lier .

I n s ummar y, manufactur ing can be defined as the s et of activities

leading to and including the tr ans for mation of mater ials into phys ical
pr oducts needed by end- us er s or inter mediar ies us ing pr oductivity-
enhancing tools , machines and methods . I n contr as t, s er vice activities
do not include phys ical tr ans for mation of mater ials , but ar e es s ential
for s uppor ting manufactur ing activities . Manufactur ing and wealth need
to be s een and defined in their entir ety. We s ee that ther e is a s tr ong

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two- way r elation between the two. A pos itive cycle will lead to gr adual
s tr engthening of both manufactur ing activities and wealth of a nation.
I ndia is bles s ed with natur al, intellectual and cultur al wealth; thes e
need to be pr oper ly har nes s ed to develop a r es pons ible and
s us tainable manufactur ing indus tr y that becomes a r ole model for the
r es t of the wor ld.

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