Steering past China

Toyota chose India to supply gear boxes for its overseas SUVs, but we still feel China is superior

How do you think China will deal with all the labour unrest we’re seeing nowadays, the huge bad debts of banks, and the allegations of it massively cooking its statistics, I asked CII ex-president Arun Bharat Ram at dinner the other day. Bharat Ram, along with other colleagues, has visited China several times in recent months with a view to studying its competitiveness.

There’s a problem, he shrugged, but China will fix it. He then went into a description of the by now excessively-publicised manner in which China was solving its problems, the scorching pace of growth in not just the Shenzens, but even in other areas.

Like most conversations with Bharat Ram, this one also promised to develop into an interesting one, except we were constantly interrupted by a series of sceptical, alternating with irritated, looks from a fellow diner, Dr Surinder Kapur who runs Sona Steering Systems, the firm which makes the equipment that allows us to steer most of the cars on the Indian roads today, from Maruti to Hyundai, and more.

Anyway, someone came to meet Bharat Ram, and he left, leaving Kapur free to vent his spleen. What a loser, I thought, I’m sure he’s being hit, like so many CII members, by cheaper Chinese steering systems. Well, here’s what Kapur had to say.

People keep talking about how the manufacturing sector’s finished in India and how firms are moving to China, Kapur said, but do you know that just two weeks ago, Toyota announced the setting up of a facility, near Bangalore, to manufacture 160,000 gearboxes that are to be shipped abroad for use in many of its world-wide plants manufacturing Utility Vehicles (UVs). Toyota set up this plant in India after various countries like India, China and Thailand ‘bid’ for it. India won the bid, as it was the most competitive. Toyota’s management in Bangalore told us, Kapur said, that besides the fact that the cost of manufacture is lower in India (it is?), other factors which gave India the edge were the engineering skill base, the abundant machine tool availability and the industrial infrastructure that allows purchase of most raw materials. (Kapur, should know, for he’s supplying one component for the gear box, and is naturally proud of the fact that India’s won a big one.)

Nor, by the way, is this just some flash in the pan, some God-ordained compensatory measure to make up for the scores of investors who’ve left India in recent months. Just last week, Hyundai India announced its Korean parent had decided to use India as a base for export for Santros globally, clearly for the same reasons as Toyota — that India’s a competitive producer. Around half of Ford’s production of Ikons in India are exported.

And, as a measure of its tremendous acceptability over the past five years when it was exporting the Zen, Maruti Udyog is now exporting the Alto VX to European markets like Germany and Switzerland — it has 16,000 orders right now. That’s right, all the Suzuki-Altos you’ll see in Europe are those made in India — India is the sole manufacturing base in the world for the Alto.

Maruti’s production quality, by the way, Suzuki’s feisty founder Osamu told me some months ago, is still nowhere near the Japanese levels. What about China, I asked him, how does their quality match with India’s? Well, Suzuki doesn’t allow the Chinese units to export anything!

Examples such as this, we all know, can be multiplied several times. So why the gloom about China, and the overall sense of despondence? Clearly, there are two things happening here. If you look around you, in the country’s markets, you’ll find them flooded with all manner of Chinese goods, right from the pichkaris you used on Holi to the locks on your suitcase. And you do have even the Rahul Bajajs talking of producing low-end motorcycles in China. So clearly one section of Indian industry is being hit by China.

On the other hand, at the slightly higher-end of the market, where the quality of manufacturing is slightly more sophisticated, India’s still some years ahead of rivals like China. Of course, given the pace at which China’s developing, and its ruthless efficiency (remember how the first thing Zhu Rongji’s team did in Mumbai was to go and compare prices in India with Chinese goods?), this advantage could be reduced very soon.

For now, however, India’s got a great window of opportunity. Till some weeks ago, when the Israelis grabbed all mindspace by looking all set to kill Yasser Arafat, most top newspapers /magazines globally carried articles doubting the authenticity of Chinese data. Most also quoted University of Pittsburgh scholar Thomas Rawski as estimating China’s growth was around half the official figure — between 1997 and 2000, for instance, Chinese GDP officially grew by around 25 per cent, yet energy consumption fell around 13 per cent! Linked to this, were scores of news-items of labour unrest, of huge unemployment, of workers agitating about not being paid for years, and of the huge debt time bomb that could take China’s banks down when it finally explodes. Let’s make the most of this opportunity, shall we? Of course, that also means putting our own house together, kick-starting the stalled reforms process, and ensuring that events like Gujarat don’t re-occur.

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