By Natasha Jha Bhaskar
Manufacturing has been in a state of transition for decades. Lower tariffs, changing technologies and the outsourcing of tasks to low-cost economies have constantly redefined the realities of this sector. The latest COVID-19 crisis has further exposed the vulnerabilities of the manufacturing sector. Countries around the world are realising the need to diversify production, and the concentration of risk in China’s manufacturing sector has disrupted exports and global supply chains.
The initial cracks were visible with rising input costs and US-China trade wars, however, with the current crisis, nations and organisations have started to take action to move their manufacturing out of China and are investing heavily to make it happen. Japan has allocated an economic stimulus package of $2.2 billion to help its manufacturing firms shift production out of China. South Korean companies too are working on an exit strategy to move out of China and into India. The message is clear: the world is rethinking its strategy of putting all their manufacturing eggs in one basket.
Australia’s over-reliance and dependence on Chinese manufacturing and exports has been a matter of debate for a long time. The two-way trade between Australia and China sits at more than $200 billion, while the two-way trade between Australia and India was just $30 billion in 2019. Can the current crisis be an opportunity for Australia and India to redefine their manufacturing sectors, and to align their strengths?
Exploring India–Australia cooperation in advanced manufacturing
India’s story in manufacturing has largely been one of being a domestic production and consumption-focussed nation, far away from being an export–led nation creating globally competitive goods. The ‘Make in India’ initiative, launched in September 2014, aims to promote India as an investment destination and a global hub for technologically advanced manufacturing, design and innovation, aimed at increasing the share of manufacturing in the country’s GDP to 25 per cent from approximately 15 per cent currently, and to create a 100 million additional jobs in the manufacturing sector by 2022. It has identified 25 sectors, 13 of these are in automobiles, auto components, aviation, biotechnology, chemicals, defence manufacturing, electrical machinery, electronic system design and manufacturing, food processing, leather, oil and gas, pharmaceuticals and textiles. Whilst the rest belong to the services and infrastructure such as construction, IT and BPM, media and entertainment, mining, ports, railways, renewable energy, roads and highways, space, thermal power, tourism & hospitality and wellness.
World Bank data show manufacturing’s share of the economy in Australia has shrunk to its lowest level in more than 30 years to 6 per cent of GDP. At its peak in the late 1950s, manufacturing accounted for almost 30 per cent of GDP. As rebooting Australian manufacturing is high on the agenda, there is also an understanding that it is difficult to compete with low-cost competitors overseas. However, Australia’s advanced manufacturing has a competitive advantage. Advanced manufacturing is a broad set of enabling technologies, processes and practices that industry sectors can use to improve their productivity and competitiveness. It includes a number of digital technologies collectively known as Industry 4.0. Some examples of advanced manufacturing technologies are: additive manufacturing (3D printing), robotics and automation, advanced materials, artificial intelligence and machine learning, nanotechnologies and biotechnologies.
Australia’s advanced manufacturing accounts for around half of Australia’s A$100 billion plus annual manufacturing output and is one of the fastest growing export sectors. Part of this success is due to cross-fertilisation between R&D institutions and the manufacturing sector. India can explore synergies with Australia in advanced manufacturing as part of ‘Make in India 2.0’ (which includes segments such as robotics, genomics, chemical feedstock and electrical storage). Advanced manufacturing technologies today are vital to gain global competitiveness in cost, speed, innovation and quality. Australia’s strength lies in high-value, low-volume manufacturing with emphasis on design, research and development, and innovation in the production process.
The global manufacturing industry is at the cusp of major technological transformation, and Australia and India can be dependable partners in this journey. India’s need for global competitiveness in the manufacturing sector can be matched with Australia’s innovation and capabilities in advanced manufacturing. India could equally supplement Australia’s need for cheaper production costs and high-volume needs. Australia can expand at two levels. First, manufacturing in India, in a cost-competitive environment due to the ample availability of raw materials, cheaper production cost and labour, could be the key for Australian companies to expand their footprint to other parts of the world. ‘Designed in Australia – Made in India’ can be the new focus area for this partnership. Second, Australia’s advanced manufacturing offers great opportunities to Indian manufacturers to access new technologies. The changing operational dynamics in the COVID-19 scenario have pressured businesses to de-risk all segments of operations, hence the transition to industry 4.0 and automation has also become important.
Interestingly, the recent demand for Hydroxychloroquine (HCQ) and paracetamol from over 30 nations including the US, UK and Israel from India, despite limited clinical evidence that the anti-malarial drug is effective in COVID-19 treatment, brought India’s manufacturing capacity to the forefront. The Indian Pharmaceutical Association said India manufactures 70 per cent of the world’s HCQ supply, and an estimated 200 million 200mg HCQ tablets can be produced by Indian factories (who are, by in large, USFDA, CE and TGA approved) every month.
The Indian pharmaceutical industry is already at the forefront of the government of India’s ‘Make in India’ initiative. The pharma sector has come a long way, from import-dependence before the 1970s to today where India is the third largest pharmaceuticals industry in the world by volume. Out of the top 20 global generic companies, eight are from India. With deep technical expertise, innovative processes, and high market responsiveness, Australia is well positioned to support and partner with India in advanced manufacturing, particularly in the medical technology, biotechnology and pharmaceutical (MTP) sector. A report by the Institute for Integrated Economic Research Australia, writes ‘Australia imports over 90 per cent of medicines and is at the end of a very long global supply chain, making the nation vulnerable to supply chain disruptions.’ India can fill this gap for Australia. The need to raise the game and move up the value chain by boosting productivity, refining product-development approaches, and by taming supply-chain complexity is essential for Australia.
However, this will also require reforms and identifying processes within India, which are restrictive and hindering the domestic manufacturing sector’s growth currently. There is a need to focus on –
- Land, labour and infrastructure barriers that affect productivity.
- Identifying potential end-user markets. The capital goods sector is expected to become the frontrunner in adopting advanced manufacturing concepts followed by intermediate goods, basic goods, and consumer goods.
- Maximising the potential of Special Economic Zones to drive manufacturing.
The future of manufacturing depends on operating seamlessly across all channels, including manufacturing, inventory, supply chain, marketing, sales and distribution. Core to changes will be a symbiosis between traditional and advanced manufacturing. Co-create, co-innovate and co-produce should be the way forward for the Australia-India relationship in manufacturing.
Natasha Jha Bhaskar is General Manager at Newland Global Group and a contributor to the Lowy Institute’s The Interpreter and the Observer Research Foundation. This article first appeared at the ORF’s Expert Speak page and has been reproduced with permission. Read the original here.
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