SAMURAIS WALK OUT ON INDIA, INC.
If you are still trying to figure out what's wrong with the
world's second-largest consumer electronics maker, Sony -
which has decided to review manufacturing in India at a time
when other MNCs are talking expansion - here's the bigger
picture.
Japanese
consumer electronics giants have been bidding sayonara to
production in India in the recent past, with big names like
Daikin, Hitachi, Matsushita and now Sony, either trimming
or stopping manufacturing operations in India in lieu of imports
or local sourcing.
First,
it was airconditioner-maker Daikin which stopped manufacturing.
This was followed by Hitachi, which consolidated its manufacturing
operations by shutting down one plant out of two and shifted
part-production to an OEM supplier.
Over
a period, Matsushita Electric (Panasonic) has also gradually
cut down production in India, with the most recent being its
decision to discontinue production of audio products.
Further,
a Japanese company was recently negotiating with a local colour
television giant to sell its production unit, but talks have
failed.
If
the Samurais are marching out, experts term this as strategic
consolidation by these companies, keeping in mind that in
the long-term imports will be cheaper, especially after the
proposed free trade agreement (FTA) with Thailand becomes
operational.
A
Sony India insider explains that with huge installed capacities
in Thailand, imports to India have a cost advantage and look
more viable in the next two years.
Says
an official of the Consumer Electronics and TV Manufactures'
Association (Cetma): "The cost differential for inputs
in CTVs between Thailand and India is already 7% as Thailand
offers duty exemptions on picture tubes and other inputs.
The
problem in the import route could be to do with logistics
- shipments via sea will take over a week. If inventory is
high, it will result in huge warehousing costs." But
due to low volumes, managing this problem may not be a difficult
task.
As
against Thailand, Japanese electronics companies have invested
a pittance in India, which reflects in the low existing production
capacity. For instance, Sony has invested just Rs 80 crore
in total, till date in its Dharuhera factory in Haryana.
The
low investment statistics follow the marginal presence of
Japanese brands in the Indian durables market. This has been
due to the resilience of the Indian brands to the MNC influx,
along with turbo-charged competition from the Koreans.
That
left the Japanese firms with two options - cut production
costs (which is becoming more difficult due to low scale of
manufacturing) or look for a cheaper sourcing hub. Talks of
an FTA with Thailand has, therefore, come as a blessing.
Incidentally,
Thailand has emerged as one of the biggest production bases
for Japanese companies in the world, along with China.
The
impact of the impending Indo-Thai FTA can be gauged from an
internal assessment by LG Electronics India showing that by
'06, over half its local production will have to be sourced
from excise-free zones (EFZs) for it to become cost-competitive
against imports from Thailand.
Already,
companies have started shifting production units to states
like Jammu & Kashmir, Himachal Pradesh, Uttaranchal and
in locations like Kutch in Gujarat, which are offering duty
exemptions for long periods.
