Today the world markets are overly dependent on China for their needs, and China is the factory of the world.Companies world over are dependent on China for their goods. Main reason being that China is able to manufacture at a price at which the other world Companies are not able to manufacture or produce their Goods.
What is it that China is doing to produce goods at a cheaper rate than others. The answer does not lies in CHEAP LABOUR. The fact is that labour is still cheaper in China if you compare it with USA or EUROPE. But their are lot of other countries where labour is much cheaper than China, take INDIA for example, where labour is cheap still its nowhere in manufacturing if you compare it with China.
Advantage with China is that it has turned its labour to an asset by their skill development and today its labour is the most skilled labour that you will find anywhere in the world. This coupled with their high literacy rate of 97 percent is a boon for them. Compare this with 74 percent literacy rate of India and mostly unskilled labour force. This is the reason why more than 50 percent of our labour is still dependent on agriculture for their livlihood and agriculture sector contributes only 16 percent to our GDP.
China has developed the world,s best supply chains in the last 30 years.It has divided its country into various Industrial clusters, where large no. of industries are set up. Most of the raw materials for manufacturing goods are also available their is another advantage of China and it saves them a lot in costs.So right from extraction of raw materials to their processing, and then finally turning them in to finished product in a factory is all done in an industrial cluster where latest technology is used.Different factories are set up for different purposes. All this along with availability of cheaper raw materials lowers the manufacturing rates of finished goods.
Chinese Govt supports export houses at each and every step.To start with an manufacturing plant gets land easily at very competitive rates.Their clearance processes are streamlined and very smooth which facilitates setting up of an Industrial plant quickly. Uninterrupted supply of subsidized electricity and water is assured to the factories so that they can function to their full capability, all this saves a lot of money for the manufacturers in China thereby reducing their costs.
Chinese govt. also gives various tax benefits to its exporters which helps them in keeping their prices down.
Then next advantage for them is their great INFRASTRUCTURE which they have developed over the years , and today all their big and small towns are connected to each other via roads and rails. Lot of big and small ports have been developed along the coast and that again are connected to industrial clusters to facilitate quick transportation for exports.
These Industrial clusters coupled with infrastructure ensure quick transportation of raw materials and finished goods thereby saving on costs at each stage.
ECONOMICS OF SCALE – is another Chinese principle to keep the costs low.Their Factories manufacture everything on a very large scale. A factory which is making only few thousands of a product cant compete with a large manufacturing plant where millions of items are manufactured together.
Since China manufactures products for the world on a very large scale they are able to keep their costs much lower.
LOWER CORRUPTION AND EFFICIENT FRAMEWORK – Corruption in China is lower than many of their Asian counterparts and besides this they have developed an efficient framework and streamlined all processes to ensure faster clearances. Being a authoritarian government rule, also helps in this as their is no place for any opposition to any decision the government takes.
INNOVATION and TECHNOLOGY is another area where China is far ahead of other manufacturing nations , and it makes good use of them to lower their manufacturing costs at every stage.
Besides all above their are various UNFAIR MEANS that china uses to keep its manufacturing costs down.
CURRENCY MANIPULATION – is one of such ways under which China artificially devalues its currency Yuan. The result is Chinese products cost in dollar term reduces, so it is able to sell more and more of its products as they become more cheaper for the world market where all trade is done in dollars. Since its economy is based on exports it benefits more and more by currency manipulation.
While a responsible nation would want to develop in such a way that its environment and industries coexist with each other but not China. It has damaged its environment in the last few decades at such a rapid pace that now only Earning money by exploiting its natural resources seem to be its only motto. All the rules and regulations right from setting up a manufacturing plant to disposal of wastes from these factories is done with only monetary considerations,without giving any thought to preserve environment.
HUMAN RIGHTS VIOLATION – The workers in the manufacturing plants are exploited in various ways and no one has the right to dissent. Single party authoritarian rule in china does not permit any voice to be raised , and it being a closed society very few reports on labourers plight in China come out from their.
Increasing Productivity at any cost is the principle CHINA works on.
China saves million of dollars by STEALING TECHNOLOGY from other countries which they otherwise would have to spend if they did Research and Development to build that technology.
They have mastered the art of technology theft and then launching duplicate products in the market with similar brand name and designs but at a much lower rate than the original one. They do not care about copyright or patent for any product and you can today find cheap duplicate chinese versions of almost anything, Be it a Car or an Iphone or an expensive pair of shoes.
DUMPING is another unfair practice widely used by Chinese, wherein they dump a product in large quantities in a foreign country at prices which are lower than the price at which that product is manufactured even in China. Local manufacturing in the market is unable to compete in price with the Chinese counterpart and it forces the local industry to shut down. So as a result of dumping,China slowly captures the complete market of the foreign countries.
Now if we see in Indian Context, why we are no match to China in manufacturing in the present conditions is because of following factors.
First of all we are a Democracy, and while it has its own advantages on one hand, it comes with a set of disadvantages on the other. Take for example,for any decision to be made in India it has to pass through so many levels, that it wastes a lot of time for the parties involved.
Right from the time of acquiring a land to set up a factory, to getting various clearances.
From dealing with an inefficient and corrupt beauraucracy to opposition from various labour unions and environmental activists time gets wasted at each step.
And if any party goes to court against the industry than the industrialist has to deal with an judicial system which works like a snail, where it takes decades to get any judgement.
So it wastes a lot of time before a manufacturing plant is actually set up and as we all know TIME IS MONEY. So greater is the time wasted more are the expenses resulting in an increased manufacturing cost.
Along with this we believe and practice Humanistic industrialization where Business, Labours, Environment etc are given their due respect and have their own rights and values
All these make it very very difficult for us to compete with china in prices. So what is the way forward for us, well i feel we need to work more on our strengths, we can not manufacture everything but whatever industry we develop it has to be world class and with no dependence on China.
We need to identify those sectors that have traditionally been our strength and develop those and make them world,s best.
Take for example service industry which is our strength and it contributes significantly to our GDP so more concentrated efforts are needed to develop service sector as well.
Well a lot is being done or planned for future, but with a country of size and population that we have, everything appears to be too less.
So we need to be hopeful that government also pushes its limits and we as citizens also contribute in whatever way we can so that the dream of an self reliant,developed and a superpower INDIA becomes a reality, Sooner than Later.
Bhaskar Sankhla
Disclaimer – Views expressed are author,s own.
Bhaskar sankhla 