Ellora Time's Manufacturing Woes

Details

Themes: Production management/ manufacturing
Period : 1991 - 2002
Organization : Ellora Time Pvt. Ltd. (Ellora)
Pub Date : 2002
Countries : India
Industry : Manufacturing

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Case Code : OPER013
Case Length : 10 Pages
Price: Rs. 300;

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Why China? Contd...

Patel revealed that he had to invest around Rs 300-400 million worth in raw material stock. As against this, a Chinese factory of equal capacity needed an investment of just Rs 60-70 million. Even after willing to invest so much in piling up raw material, factories in India faced many hardships because of erratic delivery schedules on part of the suppliers, delays in raw material imports being cleared by the ports and legal hassles with the customs, excise and sales tax officials. According to Patel, the corruption level was also much lower in China. He said, "Electricity costs Rs 2 per unit in China, less than half of what I pay in India. The supply is faultless. Exporters get around 19-27% cent subsidies and free trade zones are easy to set up. The ports clear goods speedily."

Manufacturers also found that finance was easily available in China as against India where arranging finance was an extremely difficult, complicated and costly process. Banks such as the China Industrial Bank and China Agriculture Bank not only sanction loans without much formalities, interest rates are as low as 5.5%. As against this, loans in India cost around 14-15%.

Most importantly, factory owners have to deal with a number of government departments to get their factories operational. These include the authorities looking after the Factory Act, the labour department, sales tax, customs, excise, income tax, pollution control board, the RBI, central and state ministries, licensing authorities, the RTO, supply department, clerks of revenue office, collector and the district industry center, to name a few. (Refer Exhibit II for the differences between Indian and Chinese manufacturing environments).

The China Story

Due to the favorable manufacturing environment, China's growth rate was almost double that of India's during the period 1980-2000. Also, the country attracted higher direct foreign investment than India. China's export volumes were easily five times those of India's and around 40% of these exports were products of multinational companies operating in China. China's superior performance however was not only due to cheap labour, high productivity and government subsidy issues. It was widely accepted that Chinese firms were often 'ready to try illegal methods to capture a market.' Chinese firms reportedly did not hesitate to use smuggling routes and loopholes in India's legal system.

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