June 23, 2017 Yes Institute

Success, the ‘ZED’ way

  1. Author: Mr. Rana Kapoor, MD & CEO – YES BANK, Chairman – YES Global Institute

The ‘Make in India’ initiative unveiled by Prime Minister Narendra Modi in 2014, provided the much-needed boost to the languishing manufacturing sector and also an overarching framework for long pending structural reforms. Supply side interventions including FDI reforms, ease of doing business, scaling up physical infrastructure and competitive federalism are all being addressed under this initiative.

While the ‘Make in India’ program has been incessantly analysed by economic commentators, the relatively less talked about the initiative is the effort to align with “zero defect, zero effect” (ZED). The ZED focus of the program is not only the most arduous to achieve but also most durable in its impact on overall competitiveness.

A survey conducted by Statista-Dalia Research in 52 countries showed that ‘Made in Germany’ products were perceived as the best among 49 countries analysed followed by Switzerland and EU reflecting the inherent strength of their manufacturing engines. Interestingly, China was ranked last (49th) in terms of quality perception. India only fared marginally better at 42nd position.

Silver lining

Nonetheless the silver lining for India is that no other Asian country is listed in the rankings, presenting an opportunity. Despite the two-decade lead taken by China in unleashing its manufacturing prowess, it continues to be at the bottom in the battle for perceived quality.

Enhancing the quality quotient of ‘Made in India’ is a huge challenge as well as an opportunity for India’s manufacturing push. The Global Manufacturing Competitiveness Index published by Deloitte Touche and the Council on Global Competitiveness indicated the rise of the “Mighty Five”—Malaysia, India, Thailand, Indonesia and Vietnam. Indian manufacturing stakeholders should be acutely aware of the following in this regard.

First, Chinese factory wages have trebled over the past decade and are almost at par with eastern Eurozone countries. Low-cost production jobs are now moving to countries in South/South-East Asia. India could potentially be one of the countries to benefit from this realignment.

“Zero defect, zero effect” program is most arduous to achieve but also most durable

Second, about 131.29 million people are employed in as many as 58.5 million establishments in our country, according to the sixth economic census, 2016 reflecting the ultra fragmentation of our manufacturing base. The baby steps taken by some States in labour reforms need to be scaled up to remove the hurdles for micro units in achieving the scale of operations. Only reasonable sized enterprises shall have the economies of scale to compete globally.

Finally, while low-cost manufacturing is important for India, a comprehensive policy on value-addition to transform the economy is needed. Existing competitive edge in sectors like textilesneeds to be supplemented with focused strategies under the ZED philosophy (certification, productivity, technological depth, energy efficiency and IPR).

While Government’s immediate concern is job creation , it has to be kept in mind that unless India starts competing on quality and technology, healthy moats around manufacturing can’t be created. The initiatives under ZED Model, National Productivity Council and QCI need to be amplified multi-fold for achieving quality consciousness at the MSME level.