The Modi government has laid much stress on its “Make in India“ campaign. After all, he won the election by promising jobs galore through rapid indus trial growth.
However, industrial jobs are not growing fast anywhere in the world. Modern technology is increasingly mechanizing industries, and manufacturing requires ever fewer workers per unit of output. Many US industries have moved to China seeking lower wages. Yet US companies overall are flourishing, brimful of innovation. Much of US innovation is in services (as with Facebook, Google or Amazon). But it also includes Apple, the new manufacturing giant of the world.
Virtually all its products are assembled in China, from components made in several countries. Obama, like Modi, would like Apple to do more manufacturing at home.
I would say that Apple phones are made in the US, and merely manufactured in China. Historically, making and manufacturing meant the same thing. But not any more.
When Apple started selling smartphones for $300, China’s share from assembly was just $7. Apple got $150 of the value through innovation, marketing and profits. The remaining value was split among component suppliers, transporters, and other minor partners.
If Apple gets $150 of a phone’s value and China gets only $7, is the phone really made in China? No, I would say it is made in the US, and merely manufactured in China. The key parts of making goods is shifting to innovation design and marketing, not manufacturing components or assembling them. What matters is value capture, not just manufacture.
Indian companies have begun replicating Apple’s approach. Micromax has ousted Samsung as India’s top cellphone seller. Other Indian cellphone companies (Karbonn, Lava) are using the same approach. They design their phones, which are then manufactured and imported from China. As in Apple’s case, one could argue that Micromax’s cellphones are really made in India, and merely manufactured in China.
Micromax has to constantly innovate to thrive in a business where customers buy new cellphones every two-three years. Old global giants like Nokia and Motorola have been beaten in this frenetic race for innovation. Big Indian companies like Tata and Ambani are nowhere in the picture. Brash new Indian youngsters have beaten global cellphone giants by focusing on the special needs of Indian customers, and meeting them at a price that big brands cannot match.
Rahul Sharma, a co-founder of Micromax, relates that during a trip to Berhampur, he passed a small town that had no electricity, yet had a pay-phone shop. The shopkeeper said he charged his phones using a truck battery during the day, and every night took the battery to a nearby town to get it recharged. Sharma thought, why not produce a cellphone with a battery life of one month, which could beat all others in rural areas with uncertain electric supply? As an experiment, Micromax produced 10,000 such cellphones. They sold out in no time. Thus began its dizzy rise.
Later, Sharma noticed that many migrant workers in cities were using two SIM cards, one for the city and another for rural homes. So, Mircomax pioneered cellphones with two SIM cards on the same platform. It was a runaway hit, soon imitated by others. Micromax is now betting on new ways to connect with the masses, offering translation and transliteration into regional languages in messaging. It also offers access to App Bazaar with 10,000 apps in local languages, a first by any handset maker in India.
Companies like Micromax, Karbonn and Lava may one day start assembling phones in India if Modi creates conditions that are conducive. Even so, going by Apple’s experience, this may add very modestly to their share of value capture. Brash youngsters are storming new areas facilitated by the internet. Flipkart, India’s leading e-commerce company, has sales of $3 billion and a market valuation of $2 billion, more than the combined value of all Indian brick-and-mortar retail chains. Others like Snapdeal are following suit. Hungama dominates the e-music space. Ola has come up in the cab-booking area. The sky-high valuations of these companies by investors may sink in due course: that happened to many companies during the dotcom boom and bust. But those that survive have the potential to grow into giants, just as Infosys and Wipro did in software. Such new companies will gradually dominate the 21st century .
Let’s be clear, traditional manufacturing is not dying. It will grow in volume and employment for a long time. The newcomers occupy only a small part of the economic space today. In traditional industries, “make“ and “manufacture“ may remain synonymous. But let us prepare for a future where, increasingly, “manufacture“ will be just a small part of “make“.