“Two years back, Indian companies were crying foul over the tons of Chinese goods flooding the Indian markets because they feared their businesses would be hit badly. But nothing of that sort seems to have happened.”
BOMBAY, 24 February 2003 — The mention of China conjures up the Great Wall, noisy dragons, feng shui, red paper lanterns and masses of people on bicycles. But you don’t expect Diwali and kurta pyjamas. However, they are becoming a reality as China has become the latest buzz in the Indian corporate world, with companies making a beeline for the world’s most populous country.
Two years back, Indian companies were crying foul over the tons of Chinese goods flooding the Indian markets because they feared their businesses would be hit badly. But nothing of that sort seems to have happened. In fact, Indian companies have learnt to take on the Chinese.
Take JK Tires. They have joined forces with Chinese tire manufacturer to produce LCV and truck tires which are sold by JK under its own brand name in several parts of the world. JK is extremely happy with its Chinese connection, which has helped the company produce tires at 20 percent less cost than in India.
Also, the company is now using its capacity in India to produce radial tires, thus saving itself from incurring fresh costs on expansion. JK expects its global business to be worth around Rs. 8.00 billion in the next three years, and half of that will come from China.
Harish Kumar, chairman of Delhi-based Maharaja Appliances is taking Mandarin lessons several times a week. Why? Kumar imports 20 percent of his components from China because they’re at least 50 percent cheaper than in India, which helps him sell his products in the Indian market at attractive prices.
Bajaj Auto is on the lookout for a partner in China to make two-wheelers. It has a Herculean task at hand as there are currently 400 vehicle manufacturers in China and it has to go for the right one.
Bharat Forge has got together with European major Renault Vehicle Industry, a large heavy trucks manufacturer, to supply flexible beams to the company’s Chinese plant. It is also providing engine components to a Chinese auto company. The biggest problem with Chinese products is lack of quality. The tremendous growth in volume in the auto sector has not been matched by equivalent technological upgrades. This is where Bharat Forge comes in: Providing quality.
The picture tube manufacturer Samtel imports glass shells from China and exports black-and-white television picture tubes back to the country. China has a glass shell manufacturing capacity of 40 million annually, with large-sized plants and prices at least 4 to 5 percent cheaper than in India. At the same time, Samtel is providing the Chinese with better quality picture tubes, and that too at lower cost.
India’s largest hospitality chain, the Tata-controlled Taj group of hotels, is eyeing premium properties in China. The Taj group is looking at an entry before the Olympics next year. Several other Tata companies are also looking at China seriously. These include Tata Consultancy Services, Tata Engineering and Voltas.
Tata Consultancy Services (TCS) was in fact the first Indian IT company to set up base in China. Recently it recruited almost 250 engineers from Shanghai University for its China facility in one of the largest ever recruitment drives by an Indian company at a foreign university.
TCS seek to develop China as a base to service the Asia Pacific region with markets such as Korea, Japan and Taiwan the key focus.
Many companies have realized that sourcing components from China is the best way to cut their costs and improve their profit margins. AC maker Voltas has a joint venture with US major Fedders International in India. And thanks to this joint venture, Voltas is now sourcing rotary compressors for its room ACs from the Fedders plant in China, which is 5 percent cheaper.
Bajaj Electricals has gone in with China’s Midea, the world’s largest fan maker, which produces 17.5 million fans compared to a total Indian market of 1.5 million. Midea makes the fans in China according to Bajaj’s specifications and then Bajaj jointly brands the fans and sells them using their large distribution network in India. The Indian company saves 15 percent of its cost.
China is cheaper than India due to various factors. Their real interest rates for a five-year loan are at around 4.9 percent while India’s are at about seven percent. Average import duties in China hover around 13 percent but around 24 percent in India. The lead-time for exports or imports in China is 2-3 weeks while it is 6-12 weeks in India.