Interview

U.S., Europe firms looking at India as alternative to China

Indian industry may well stand to gain from the fallout of the U.S.-China trade war, if the country plays its cards right, says Wheels India MD Srivats Ram. He dwells on the opportunities at hand and how challenges still remain. Excerpts:

How will the U.S.-China trade war impact Indian manufacturing?

China is significantly larger as a manufacturing base and has a bigger part of the global supply chain. However, China is now seen as not as cost competitive as it was in the past. Companies in the U.S. and Europe are looking at long-term options to build supply chain capabilities in India as an alternative to China. There is generally a move to de-risk.

The fact that U.S. and European firms are looking at options away from China is an opportunity for India. The other option they are looking at is to create a manufacturing hub in India, recreating what they did in China in the past. These are the two ways that foreign trade could potentially benefit India.

For the first time, geo-politics, as much as economics, is playing a role in global trade. An adjustment in trade relationship is happening. As long as India plays its cards right, businesses in the country will benefit. Our Prime Minister has played his cards well, both on trade and foreign relationship fronts. Infrastructure development, too, has been really good in the country in the last couple of years.

How will this affect employment?

India certainly is in a good position to take advantage of this though scale is a challenge for us to match China.

Quality is less of an issue for India. It is an opportunity for India to leverage over the next three years if we are able to scale up. We have to look at industries in India where the scale is somewhat comparable with that in China. There are enough segments which are supply chain-based to create some kind of manufacturing hub.

The government should look at job creation by expanding industries (even if multi-national firms create jobs) within India. Trade-related competition from other countries should be looked at from the point of view of creating enough employment in India. That’s when we will grow faster.

How willing are people now to work in the manufacturing industry?

Manufacturing jobs are not low-paying jobs anymore. There is some element of technology, [including a] shift towards electronics, programming and automation. These require a certain skill level. When our group started out in manufacturing, we brought people from villages to work. We trained them from scratch and developed them. Now, we set lot more qualifications and skill levels even at the operator level. Customers also expect that those who make their products are skilled. Clearly, there is an increase in the skill levels in manufacturing. Generation next is also more willing to take an open approach in the organisation. The way people view jobs is changing now. They are willing to take up jobs to meet their immediate requirement knowing that they will grow into a better job in the future. That attitude and approach help them to see this as a stepping stone. The industry is also willing to accept attrition as part of this process. Migration of people across the country is significant, including at the engineering level.

You have said industrial inflation is a challenge.

Fuel is a big inflationary factor for India because it creates a discontinuity in pricing due to rupee depreciation. Fuel prices affect the rupee in relation to the dollar. That affects landed costs of all other commodities entering the country and thereby creates a spiral of inflation. The good news is, the world economy is probably doing well after many years.

Globally, fuel consumption across the board is higher (that is a positive). For all commodities, demand is higher. But industrial inflation is a challenge.

How do you address the challenge?

Firms need to be flexible between different fuel types. On currency, we, as a company, believe that as long as we are a net exporter, we should be okay.

How do global technological changes impact the long-term decision making in terms of investments?

There are definitely changes in terms of technology. One of the most important qualities companies need to have is to be open to possibilities. When a strategy team runs through a decision process, they have to see if changes in the external environment would put its investment to naught or would the processes be flexible enough to adapt to changes.

It is no more a situation where we can predict exactly a technology that is likely to be in vogue 10 years from now or a fuel source that will play out in the future. So, the question companies need to ask is the extent to which they are flexible to be able to adapt to such changes that may come about in the future.

We are definitely looking at flexibility in approach in making long-term investments and trying to make sure that the investments we make will hold us in good stead even in if there are technology changes. Our product portfolio is quite wide ranging ... we are in different segments ... so, there is some amount of distribution of risk that has happened. And, we are open to exploring new opportunities that come our way, especially in areas where we think we have some capability.

Has the IL&FS imbroglio impacted your investment plans?

Broadly, money availability is an issue. By and large, there is risk aversion. When there is crisis, regulations tend to increase and the lenders become risk-averse. It will normalise over a period of time, but the regulations may not change favourably ... away from more regulation to less regulation anytime soon. It may take a year for the lenders to forget the issues they have faced in the current scenario.

Different companies react in different ways to come out of situations like these. Interestingly, though, we have invested more this year than in any other year in the past [the company has committed Rs. 122-crore capex programme this year]. We are seeing significant growth opportunities and there is headroom for growth at least for another year-and-a-half. And then, there may be some levelling in terms of growth.

Segments that you service had all been growing earlier. Any blips you see?

Passenger vehicles have slowed down. Car buying by first timers (switching from a two-wheeler to a car) is being postponed given the high fuel costs. Commercial vehicles are seeing some semblance of a slowdown but the belief is that it will pick up in Q4 as traditionally sales tend to maximise in the last quarter.


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