Business

Remaking Make in India

It makes little sense today to play catch-up with a Chinese model that may have worked well in its own time and place, but one which the next wave of the digital technology looks set to steam-roll into oblivion.

Credit: OXLaey, FLICKR, CC BY 2.0

Algorithms are more efficient than employees, need neither salary nor vacations and are not known to go on strike. Credit: OXLaey, FLICKR, CC BY 2.0

As Make in India sets itself the formidable task of preparing and providing employment to the one million young people that enter the country’s burgeoning work force each month, a question that needs to engage policy concerns the manufacturing cycle we are gearing up for.

The end of the last century heralded the third wave of industrialisation that led to the globalization of manufacturing. Rapid advances in information technology and global connectivity made for the seamless integration of design, the sourcing of raw materials, labour, capital and manufactured components across multiple locations. The rapidly evolving ecosystem created networked global supply chains located wherever comparative advantages made them most cost effective. The world shrank. Emerging economies betting on low labour costs became the world’s sweat shops, but prosperity also spread. So did entrepreneurship. Asia became the centrepiece of this boom and China the world’s factory. From a 5% share of the world’s manufacturing in 1995, by 2011 China’s share had climbed to 27%.

The process also saw the same low cost economies develop competitive manufacturing and management capabilities as they became part of global supply chains.  Wages in emerging economies rose, working conditions improved. Increasing prosperity began transforming them into markets for the goods they began by initially manufacturing for the developed world.

Soon, multinationals found local competition emerge even as rising wages and costs eroded the comparative advantage of offshore manufacturing destinations. Globalization may have brought in economies of scale and location but it had also added a whole host of risks beginning with protection of intellectual property to supply risks because of poor infrastructure or restive assembly lines in far off destinations.

In the forthcoming wave now, information technology is once again set to disrupt the way products are manufactured, shipped, and sold. Notably, this disruption is happening not just by way of moving manufacturing jobs back to the developed world. In March, 2015, the Guangdong government announced a three year plan to increase automation by subsidizing the purchase of robots. By July, Changying Precision Technology Company in Dongguan city, had set up an unmanned factory run almost entirely by robots to manufacture parts for cell phones. The factory now reports fewer defects besides productivity gains while the number of workers dropped from 650 to 60.

Closer home, whether it is Maruti in Manesar, Ford in Sanand, or Hyundai in Chennai – all report an increasing number of robots on their assembly lines.

Removing the human

But robotics is not just about industrial bots substituting humans on the assembly line. Think of the automated call centres that routinely answer you when you access your banking or utility services. Far greater potential lies in robotic process automation wherein all services that can be automated to function without human intervention are already being automated.

Digital technology is constantly cutting not just the cost of technology but processes – reducing dependence on supporting infrastructure and people. Algorithms are more efficient than employees, need neither salary nor vacations and are not known to go on strike.

Therefore the need to rethink Make in India. Having been in catatonia through most of the third wave of manufacturing, it makes little sense today in playing catch-up with a Chinese model that may have worked well in its own time and place, but one which the next wave of the digital looks set to steam-roll into oblivion.  The emphasis on Economic Corridors, Industrial zones, with a smattering of smart cities thrown in for politically correct good measure, may not be enough if it limits itself to replicating a Chinese model of manufacturing led growth which is already a thing of the past. The rethink is necessary because of the planning and co-ordination required between skilling and educating India’s youth for the coming onslaught.

As both manufacturing and services more and more integrate robotics, 3D printing, the internet of things comes into its own – the need to outsource to regions with low cost labour is off set by the far lower supply chain risks of local manufacturing. Economies of scale lose their relevance. Future manufacturing sees greater advantage in decentralization which places it closer to the consumer. Robotics aided additive manufacturing can customize products to individual needs at costs only marginally higher than mass produced batches, and the cost difference is shrinking. The smart manufacturing facility of the future provides flexible assembly lines that can be re-programmed. The age of mass production, yields to mass customization. In the new automated factory of the future the manufacturing itself becomes a service.

Luddites and the familiar prophets of doom may forecast mass unemployment with unforeseen social strife as the inevitable consequence. However, their anguish would be as anachronistic as the Dandekar’s Committee’s 1972 recommendations on restricting the use of computer’s in industry and Government departments in order to save jobs.

Technological advances will alter the kind of jobs available, abolish several, but also create a whole host of new ones that would be unimaginable in the past. In the final analysis, even in the brave new world the race will still be for high value job creation.

White collar, no longer safe

Yes there would be disruption. Skill gaps would widen. Whereas the earlier wave of transformation impacted artisans, craftsmen and the like, this time, as per a Pew centre Research report released in 2014, the impact would be felt not just by the blue collar workers but a whole host white collar jobs. The report on The Future of Jobs, brought out this January by the World Economic Forum, also warns that the emerging manufacturing landscape would cause widespread disruption to business models as well as labour markets. This would happen not in the remote future, but within the next five years. The  skill sets needed to thrive in the new landscape would change completely. The report indicates that as many as 7.1 million jobs could be lost through redundancy, automation or disintermediation, with the greatest losses in white-collar office and administrative roles. It is not just about  driverless cars, robots make for superior security gateways, are better at moving and warehousing products, and algorithms run on quantum computers are faster at trading desks.

More importantly the disruption would not have even geographic spread. There would be a disconcerting mismatch between locations where jobs were being created and where they were being lost.  In the new value creation ecosystem, the competition to attract the best skilled workers would only get fiercer.  Matching demand to supply and retaining the skilled workers would become ever more challenging.

For a country geared to prepare the work force of the future it becomes extremely important to transform its skilling and educational institutions, the content, the form, the pedagogy, for a world where the most valuable assets will be flexible set of liquid skills and the ability and readiness to rapidly adapt and learn new ones. Gone may be the times for narrow highly specialized skill sets in a new world where the new worker needs the confidence and the cognitive ability to learn across disciplines, cope with loads of information, identify patterns and connections, dice and splice and recombine ideas. Forget geeks glued to game consoles, he and she will need more, not less of advanced social and relational skills.

We have the putty. The question is, can we make the material?

Sunjoy Joshi is Director, Observer Research Foundation