AS THE DRAGON DIES:

A Younger India Is Flexing Its Industrial Brawn (KEITH BRADSHER, 9/01/06, NY Times)

India’s annual growth in manufacturing output, at 9 percent and accelerating, is close to catching growth in services, at 10 percent. Exports of manufactured goods to the United States are now rising faster in percentage terms than China’s, although from a much smaller base. More than two-thirds of foreign investment in the last year has gone into manufacturing in India, not services. [...]

[I]n interviews at 18 Indian factories and other businesses in 10 cities and villages scattered across the length and breadth of the nation, the picture that emerges is of a country being driven by advances in manufacturing to a much brisker pace of economic growth.

A prime reason India is now developing into the world’s next big industrial power is that a number of global manufacturers are already looking ahead to a serious demographic squeeze facing China. Because of China’s “one child” policy, family sizes have been shrinking there since the 1980’s, so fewer young people will be available soon for factory labor.

India is not expected to pass China in total population until 2030. But India will have more young workers aged 20 to 24 by 2013; the International Labor Organization predicts that by 2020, India will have 116 million workers in this age bracket to China’s 94 million.

India’s young population will also make it a huge and growing market for years to come, while the engineering skills and English skills of its educated elite will make it competitive across a wide range of industries. So even though India remains a difficult place to do business, several multinationals have been placing big bets on India in hopes of taking advantage of this shifting global dynamic.

General Motors and Motorola are preparing to build plants in western and southern India. Posco of South Korea and Mittal Steel of the Netherlands have each announced plans to erect giant steel mills in eastern India, where Reliance of India will soon construct one of the world’s largest coal-fired power plants.

They are finding India’s labor force well suited to their goals.

MORE:
"China Has Become too Expensive": SPIEGEL spoke to Philips CEO Gerard Kleisterlee about the importance of the European semi-conductor industry, the future of consumer electronics and the ways in which globalization is impacting the Dutch electronics giant. During the past 30 years, Philips has outsourced much of its manufacturing and shrunken its workforce from 400,000 to 160,000. (der Spiegel)

SPIEGEL: But still: Doesn't your abandonment of the chip industry mean you're also abandoning the possibility of distinguishing yourself from competitors?

Kleisterlee: No, the general availability of chips doesn't lead to a leveling of the playing field. There is just a shift in the relations between competitors. In the case of TV sets, for example, picture quality and the operation system are becoming increasingly important. Those are things we know about. They remain our strong point irrespective of whether the basic chip is produced in our factory or by a subcontractor. And then of course design plays an increasingly important role.

SPIEGEL: So the new technology is becoming increasingly less important?

Kleisterlee: I'm convinced of it -- unless it's unique. What the consumer wants most of all is emotions. He buys the high quality product that looks good and fits his life style. He doesn't care where it was made and what its components are.

SPIEGEL: But then wouldn't it be best for you to convert all of Philips into a marketing company?

Kleisterlee: That's exactly what we've done in the area of consumer electronics. And I'm firmly convinced the competition there will follow our example soon, because there's no other way to go about that business.

SPIEGEL: What's the new strategy?

Kleisterlee: In recent years, we've outsourced almost all of our production in this unit. We only have eight factories in the consumer electronics sector now -- and we keep those mainly for logistical reasons. About 90 percent of the appliances are produced entirely by subcontractors, based on our specific requests. That means we're more flexible than all of our competitors.

SPIEGEL: So strictly speaking Philips is just a trading company, as far as the consumer electronics sector is concerned?

Kleisterlee: No. We're still much more than a trading company. We run a think tank that develops product concepts and gets them onto the market with the help of subcontractors. What distinguishes us from a trading company or a no-name producer is the creative achievement of our engineers, designers and marketing experts.

SPIEGEL: Some 30 years ago, Philips employed more than 400,000 people -- now it employs only about 160,000. Only 15,000 people are employed in the consumer electronics branch, the one with the highest turnover. Will this downward trend accelerate, with production being shifted to low-wage countries or outsourced?

Kleisterlee: Wait a moment. The comparison you're drawing gives the wrong impression. Most of the jobs lost at Philips during the last 30 years weren't in production. They were service-related. We had our own plant security, our own cafeterias, our own despatch department, an IT department and so on. These jobs haven't disappeared -- they've just been outsourced. They've moved to other companies, which have specialized on these services.

SPIEGEL: But at the same time more than 100 factories were shut down. Are other branches facing the same fate as your consumer electronics branch?

Kleisterlee: No. And it's pointless fighting yesterday's battles. Globalization began 30 years ago in the consumer electronics sector. Ever since then, production has moved from one low-wage country to the next. Some of our subcontractors are already moving their plants from China to Vietnam, because China has become too expensive. We're not playing that game anymore -- and it's no longer necessary to do so either.