A comprehensive analysis of the Indian Manufacturing Sector identifying the loopholes and suggesting innovative ideas to turn around the sector and building an innovative ecosystem that feeds on itself

1. Disruptive Innovation in
Indian Manufacturing
Submitted by-
Pulkit Bohra | Pulkit Mathur| Tarun Gupta

2. Recommen-
dation
Proposed Ecosystem
Infrastructural Challen-
ges & Solutions
Manufacturing in India
Potential for Disruptive
Innovation
To assess India’s
manufacturing
competitiveness
Analysed export potential of
the Indian Manufacturing
sector
With fading labour cost
arbitrage and rising
transportation costs, cost
leadership strategy for exports
might not work
Compared the manufacturing
contribution to GDP
Analysed industry on
regional and product
category basis
Manufacturing contribution
to GDP has stagnated over
years
Interaction between the
system forces help increase
production efficiency
The proposed ecosystem
provides synergy cost
benefits and hence
promotes entrepreneurship
among SME
To identify infrastructural
challenges and ways to
overcome them
Strategic
objectives
Analysis
Insights
India is a cluster based manufacturing economy with little focus on SME’s.
Building an ecosystem leveraging the cluster based strength and focusing on SME development is the required
DISRUPTIVE Innovation in the Indian Manufacturing sector.
To identify the scope for
disruptive innovation in Indian
Manufacturing Sector
To develop a framework and
propose execution synergies
Identified growth drivers and
constraints for the sector
Identified the most critical
growth drivers for the
manufacturing sector in India
Analysed Infrastructure in
India w.r.t its importance for
manufacturing sector.
Did a ground reality check
on the effectiveness of
initiatives
Mapped the ecosystem to
see how the disruptive
innovation generates higher
returns
India is well placed to adopt a
Differentiation strategy
India can disrupt the
manufacturing ecosystem
with its clusters-based
manufacturing zones
PPP’s transfer maximum
risk to the private players
which is not a long term
strategy
Indian political
environment and policy
framework is not considered
safe by Foreign investors.
Executive Summary
Indian Manufacturing
Scenario
Disruptive Innovation
Proposed Ecosystem
Framework
Execution within
Ecosystem
Infrastructural
Challenges
2

3. Increasing labor wages in India reducing
the cost arbitrage advantage for exports
Increasing oil demand is leading to increased
fuel costs raising transportation costs
Drivers of Manufacturing in India
■ Considered a high quality
manufacturing destination
■ Favorable demographic
dividend
■ Strong technical and
engineering capability
■ Well regulated and stable
financial markets
■ Strong domestic market
Manufacturing is constrained by
■ Poor power and transport
infrastructure
■ Low employee productivity,
high illiteracy
■ Volatile governance and
regulatory environment
■ Inadequate credit flow and
rising cost of credit
■ Slow pace of reforms
“With the cost arbitrage
advantage fading away and
transportation costs rising,
India cannot adopt Cost
Leadership strategy to boost
manufacturing exports.”
“Backed up by the rising
domestic demand, Indian
manufacturing industry should
rather bank upon its strong
technical capabilities and
adopt a Differentiation
Strategy to create a niche for
itself in the international
markets.”
Executive Summary
Indian Manufacturing
Scenario
Disruptive Innovation
Proposed Ecosystem
Framework
Execution within
Ecosystem
Infrastructural
Challenges
3Sources: “National Manufacturing Policy, India, 2011; Economic 360 for India: Growth Prospects and Emerging Opportunities in the Manufacturing Industry, Frost and Sullivan, August 2011;
International Energy Agency
Manufacturing in India

4. Food Processing
Cluster,
Guwahati, Assam
Engineering Cluster, Kolkata
Auto Components Cluster Vijaywada,
AP
Pharmaceutical Cluster ,Hyderabad
Textile Cluster; Tirupur, Tamil Nadu
India’s Manufacturing strength based on clusters
Wood based Cluster :
Srinagar, Jammu & Kashmir
Textile Cluster : Panipat, Haryana
Ceramic Pottery Cluster
Khurja, UP
Food
Processing
Cluster,
Arunachal
Pradesh
Steel & Metallurgy Cluster,
Orissa
Pump, motor & Foundry Cluster;
Coimbatore Tamil Nadu
Textile Cluster :
Ludhiana Punjab
Stone Cluster :
KishanGarh,
Rajasthan
Gems, Jewelry
Cluster :
Surat, Gujarat
Chemical Cluster :
Vapi, Gujarat
Pharma/Auto
Cluster :
Pitampura, MP
Auto Components
Cluster :
Pune, Maharashtra
Aerospace & Auto Components
Cluster : Bangalore, Karnataka
Traditional Approach failure, Manufacturing
contribution to GDP has stagnated
SMEs are the way forward
• SMEs promote local entrepreneurship
• SMEs support strengthening of existing leading
enterprises
• SMEs offer huge employment potential at low capital cost
• Government incentives like Technology Acquisition and
Development Fund (TADF) would encourage use of
technology
An eco-system comprising cluster driven Indian SMEs is the required DISRUPTIVE INNOVATION in the Indian manufacturing industry
Executive Summary
Indian Manufacturing
Scenario
Disruptive Innovation
Proposed Ecosystem
Framework
Execution within
Ecosystem
Infrastructural
Challenges
4
Sources: “National Manufacturing Policy, India, 2011; Frost & Sullivan; The SME Chamber of India

5. Challenges in the
Indian Context
• Infrastructure Deficit:
Power and Transport
• Land Acquisition delays
• Delay in environmental
clearances
• Archaic Laws: Labor
related issues
• Multi -tier regulatory
system and complex
structures
Advantages of such
an Ecosystem
• Development of Small
and Medium Enterprises
(SMEs)
• Easier and focused
Implementation of
industrial training and
other skill up-gradation
measures
• Rationalisation and
simplification of
business regulations
• Impetus to technology
development
Forces that will Drive the Cluster-based SMEs Manufacturing Zones
“Manufacturers are highly supportive of clusters that provide infrastructure and land use on the basis of zoning, clean and
energy-efficient technology, necessary social infrastructure, skill development facilities, etc., to provide a productive environment
to persons transitioning from the primary sector to the secondary and tertiary sectors.”
Executive Summary
Indian Manufacturing
Scenario
Disruptive Innovation
Proposed Ecosystem
Framework
Execution within
Ecosystem
Infrastructural
Challenges
5
Sources: Team Iguanas analysis; Point of View, National Manufacturing Policy, PwC India

6. Executing “Disruptive Innovation” at each node of the proposed ecosystem
Reinventing
BRAND INDIA
1
Cash Flow Expenditure
of SME
Income To
SME
•Direct Finance
•Indirect Finance
•Guarantee Schemes
Investment
Market Size
TrainingOrg. LearningPerformance
HR Payment
Product Quality
Market Share
Customer
Reputation to
SME
Create Niche
Market
•Supplier certainty
•Low transportation cost
•Synergy benefit
Resources
Government
Policies
Capabilities
Growth
Drivers
Taxation
Finances
R&D
Innovation
Education
Raw
Materials
Human
Infrastructure Technology
Efficient
Process
Best Practices
Transport-
Power Cost
Innovating Trade Policies-
Securing Markets through
Internationalization &
impetus to domestic
procurement
3
Implementing Big Data
Exploring Cloud Based ERP
Solutions & Automation for
efficiency
2
Gov. Policies –
Leveraging Corporate
Cash; Priority sector
status; use of VC; setting
up SME stock exchange
5
Skilling Local Labor
– inviting PPPs under
NSDC
8
Labor Reforms
Improve labor
attractiveness
relative to capital
6
Innovating with synergies
to reduce transportation
cost, inventory cost – thus
lowering cost of Raw
Material
4
Integrating Green
Technologies
to gain Carbon Credits
7
Sources: “Kameyama Model for SME Sector Development 2003”; “Regnier Report 2006”; “Crisil SME Insight Vol 2”; “National Manufacturing Policy 2011”; “WEF Manufacturing for Growth 2003”
Executive Summary
Indian Manufacturing
Scenario
Disruptive Innovation
Proposed Ecosystem
Framework
Execution within
Ecosystem
Infrastructural
Challenges
6

7. Infrastructure challenges in Manufacturing Sector
Importance of Infrastructure
70,548 Km of NH (2% of network carries 40% of traffic):
only 17% Four-lane; 53% Two-lane; and 30% Single-
lane
Highways
Inadequate berths, rail / road connectivity and draft are
constraints
Old technology; saturated routes: slow average speeds
(freight: 22 kmph; passengers: 50 kmph); low payload
to Fare ratio (2.5)
14% peaking deficit and 11% energy shortage; 27%
T&D losses; absence of competition; and inadequate
private investment
Ports
Railways
Power
“A truck carrying goods from Gurgaon to Mumbai has to pass through 36 checkpoints and takes up to 10
days to reach its destination.”
 It has a multiplier effect: With 1% increase in infrastructure
spending household access to safe water increases by 0.3%,
paved roads by 0.8%, power 1.5% and telecommunications
1.7%. (World Bank, 1999)
 1% increase in road investment is associated with a 0.3%
drop in poverty incidence over five years. (ADB Study)
Why to develop Where to develop
1 2
3
Focus on development of infrastructure in the identified 3 zones
will help India strengthen its manufacturing capability.
Executive Summary
Indian Manufacturing
Scenario
Disruptive Innovation
Proposed Ecosystem
Framework
Execution within
Ecosystem
Infrastructural
Challenges
7
Sources: Infrastructure in India, PwC India, Fulfilling the promise of India's manufacturing sector, McKinsey Quarterly

8. “57% of goods in India are transported by road (the most inefficient, expensive and emissions-intensive mode of
transport), the figure in China is just 22%”. It is estimated that addressing this deficit can enhance growth in India’s
manufacturing sector by 3% annually”
How to develop – Overcoming Challenges
Fixing PPP’s Boosting FDI
Actively
Discourage
aggressive bid
Restrict Post
Bid
Negotiations
Don’t ask
private players
to take bets on
un foreseeable
events
Strengthening political
commitment
Improving long-
term planning,
project
prioritization, and
project
governance
Developing
reliable regulatory
frameworks
Ground Reality
Vivekanand Bridge: 640 crores, JV of
PASCIG and L & T. NHAI GRANT 120
crores. Revenues in 2011 , 50% of that
projected
Tata Power's 2,400 MW Mundra
power project is just one of the many
affected by having to import costly
coal. Forced to import coal, and not
able to raise tariffs to pass on higher
fuel costs to consumers under the
terms of its tariff agreement, it faces
annual losses of around Rs 1,900
crore.
Case Study 1
Case Study 2
Executive Summary
Indian Manufacturing
Scenario
Disruptive Innovation
Proposed Ecosystem
Framework
Execution within
Ecosystem
Infrastructural
Challenges
8
Sources: The Global Infrastructure Challenge, BCG; DMICDC website

9. Appendix

10. 4th Largest
Market
Export:
petroleum,
Machinery.
Jewelry,
electronic
goods, non-
ferrous metals
Import: organic
chemicals,
electronic
goods
Bilateral cooperation through Joint
Action Plan (JAP)
Export: Textiles, Gems & Jewellery
Import: Engineering Products,
Chemicals & Minerals
The United States
continues to be
one of the largest
trading
partners of India.
Exports:
chemicals,
textiles, gems and
jewellery.
Imports:
specialized
machinery,
medical and
surgical
equipment, and
organic chemicals.
Bilateral relations exist in
terms of trade of gems
and jewellery, engineering
goods, textiles, apparels,
chemicals, manufacture of
metals, fabrics, machinery,
and instruments.
Under the framework of Most Favored
Nations (MFN), main exports to China
include ores, iron and steel, organic
chemicals, and cotton.
• Main imports are electrical machinery
and equipment, nuclear reactors, mineral
fuels, and oils.
USA
EU
UAE China
Singapore
0
1
2
3
4
5
6
7
8
9
Economy
Labor
Infrastructure
Education
Domestic
Demand
Business
Environment
2004
2010
2014
Barring Labor Cost, India is slated to
become more competitive in every other
area.
Key trade agreements & Export/Import details (India)
Competitiveness in Indian Manufacturing
Industry based on Key Industry Drivers
Latest developments in Manufacturing Industry (India)
Sources: Mckinsey Global Institute Analysis, Frost & Sullivan

11. Innovation needs EcosystemFailed Innovations
Execution Focus
Execution Focus
+ Co-innovation
+ Adoption Chain
Successful Innovations
Delivering the right product to
beat the competition
Michelin tires failed to sell
tools to mechanics required
for their path breaking
technology
Sony eReaders failed to deal
with legal challenges e-
books would pose for
authors & publishers
Hollywood decided to bring
digital cinema to movie
theatres; failed to confront
the conversion costs
Delivering the right product to
beat the competition
+ Who else needs to innovate
to complement my innovation
+ Adoption of my innovation so
that end customer can assess
the Value Proposition
Li & Fung dissected the entire
supply chain to add value at all
nodes and then pulled it back
together
Apple iPod kicked off
because Jobs waited until
broadband was ready to
support music data transfers
Boeing’s Dreamliner is
manufactured with
components 22 countries –
Best Quality, Least Costs
1 2
Sustainable Innovation needs Ecosystem
Sources: Innovation, sustainability & complexity, ATKEARNEY

12. India is moving up the ladder but the challenge to make manufacturing companies successful still remains.
Sources: Fulfilling the promise of India's manufacturing sector, McKinsey Quarterly , Global Manufacturing, Mckinsey Global Institute