Indian manufacturers facing competition succesfully


Liberalization of imports has been another factor in the intensification of competition. In fact, import liberalization has intensified the competition in two distinct ways. First, in some cases with the liberal import of raw material, domestic production of the concerned product went up; and with the increased availability, competition naturally increased. Second and this applies to a larger number of cases the imported products clashed directly with the relevant domestic products.

The development covered all types of goods namely capital goods, intermediate products and consumer products. It was in capital goods that domestic products had to face the stiffest competition from imports. Imported capital goods became very attractive to the Indian user. They were generally cheaper and better. Now they became all the more attractive with the hassles associated with imports removed and duties slashed considerably. In intermediate goods too, similar competition has been taking place, as products are made in India are substantially costlier compared to imported products.

Indian producers face many handicaps: There are many reasons for the higher cost of the ‘made in India products’. Historically, Indian manufacturers have been facing several handicap compared to producers elsewhere. Their capital costs are higher, mainly because of the high import duties on capital goods and the high interest rates ruling in the country.

Raw material costs are also higher in most cases, as Indian prices of these materials are usually higher than international prices. Even when Indian manufacturer used imported raw material for production, their material costs are not on par with those of their counterparts in the exporting countries. To add to this, manufacturers in India has to pay excise duties and taxes on the end products, while the importer of the same product did not have to.

In the earlier days, domestic users of the products could not take advantage of the lower international prices due to the prevailing restrictions on imports and the high tariff walls; they had no alternative but to stay with the indigenous products. Now, they can readily switch over to imported products.

With import liberalization continuing and with the negative list of imports becoming progressively leaner and the tariffs progressively lesser, the competition from imported goods is becoming more intense with each passing day.

Competition in consumer products too:

Even in consumer products, competition from imported products is now on the increase. First, they have become available either through imports in the finished form or through assembling in India. Second, Indian consumers have started patronizing the imported products to the extent they have become available. Domestic manufacturers of such products have been caught napping, as they cannot match the price-quality profile of the imported goods.

With the removal of Quantitative Restrictionss, consumer goods imports have been opened up fully. The Exim Policy for 2000-01 removed QRs on 714 tems of consumer goods and the one for 2001-02 removed them on the remaining items.

Imported consumer products remain attractive despite duties: In the beginning there was a perception that the relatively high tariffs imposed on imported consumer products would make them unattractive. This expectation has been belied. In a majority of the cases, Indian consumers perceived the prices of the imported consumer products as reasonable. Imported products have been selling in the Indian market at the same price at which they are available elsewhere.

This is so because the high duty structure ruling in India is more than offset by the high trade margins in most of the developed countries from where the products are imported. There, the trade margins range from 50 to 100%. Thus, despite the high duties, imported products are reasonably priced in the Indian marketplace.

In the last 5 years the Indian manufacturers are able to compete effectively in most of the items including Capital and consumer goods. This is because the Indian manufacturer has understood the advantage of large volumes which give a specific cost benefit. Even if some inputs are required to be imported the Indian purchaser is able to negotiate highly competitive prices with the foreign suppliers that too on long term contract basis. The Indian supplier is now able to upgrade the quality of his goods to international standards taking advantage of imported equipments post liberalization.

Reliance Industries and Reliance Infocom are some of the best examples of companies able to export products like petroleum products and even telecom equipments because their plants are installed with capacities matching any large international company. They are able to compete with foreign suppliers’ rates in petroleum products, fiber intermediates and even finished products like Polyester Filament yarns within the country by keeping the prices lesser than international on landed cost basis. The difference which benefits Indian customer they call it ‘comfort factor’. This strategy is preventing Indian users seeking any imports.

In the arena of Business Process Outsourcing excepting 1 or 2 Asian countries nobody can compete with India. There are larger software companies like Infosys, Satyam Computers, Wipro who have literally captured major business from advanced countries. The business of computer applications/software from medium and small U.S. Companies and other advanced countries are grabbed by proprietary companies like Sphere IDC, Mumbai.

Polyester business has fully shifted from Europe to South and South East Asia where India plays a dominant role. In Pharmaceuticals India is already having an edge. It is a matter of time that there will be more exports from India and Indian producers may not have to worry about any threats from Imported goods.