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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Innovation in Manufacturing: Challenges for India

Sunday, March 29, 2009

A report recently produced by The Boston Consulting Group (BCG), ranks India 46th in the world for Innovation leadership in manufacturing. Singapore tops the list, followed by South Korea and Switzerland, with the United States ranked 8thProduced jointly by BCG, the National Association of Manufacturers(NAM), and The Manufacturing Institute (MI), the NAM's non-partisan research affiliate, this report presents the findings of a broad research study that looked at both the business outcomes of innovation and government's ability to encourage and support innovation through public policy.


The report was generally complimentary about Indian companies. It said that "The emergence of challengers from rapidly developing economies such as India has transformed the playing field.”  In spite of this positive, India comes in at no. 46 in the overall list and no. 15 out of the world’s top-20 countries by GDP. The report identifies four critical factors that can lead to innovation success: idea generation, structured processes, leadership, and skilled workers who must be supported by the government through effective policies.

How do these factors play out in the Indian context?  In India, manufacturing currently accounts for 18% of GDP and with the right incentives is predicted to grow to 30% by 2012. The 7th Manufacturing Summit organised by theConfederation of Indian Industry (CII) in September 2008 identified the key challenges that could prevent India from reaching this potential as: competition from other countries, continued skill development, commercialisation of domestically developed knowledge and the need to increase private R&D spending. The argument of low-cost labour doesn’t make sense when trying to play catchup with countries that have a strong manufacturing capability. China and other South East Asian “Tiger” economies have long established themselves as manufacturing destinations of choice. To compete with them, developing advanced manufacturing and engineering skills, both product and process engineering, are essential to competing effectively.

Commercialisation of domestically developed knowledge in India requires product and service packaging skills and expertise that have not been given the priority that they deserve. These skills can be acquired by working in partnership with other regions of the world, such as Cambridge, UK, where they have been fully developed and deployed, creating innovative products and services. Finally, R&D spending in India has traditionally been dominated by the government labs and research institutions. The historically weak IPR protection regime acted as a disincentive for private sector companies to invest in R&D. However, private sector spending on R&D has increased in the last few years due to a stronger IP protection regime through India’s own version of the Bayh-Dole act, competition from global players across all major industry sectors and the increasing availability of skilled researchers. With a slew of tax incentives on R&D spend announced by the Indian government, this trend can only accelerate. To effectively address the challenges of intensifying competition, limited skilled manpower, limited commercialisation expertise and low private sector spending on R&D, India must focus on innovation to become a global leader in advanced engineering and manufacturing.