CII 13th Manufacturing Summit 2014 CII-BCG Manufacturing...

CII-BCG Manufacturing Leadership Survey 2014ADDENDUM TO THE BACKGROUND NOTE

Confederation of Indian Industry

CII 13th Manufacturing Summit 2014

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep in sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes.CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India‘s development process. Founded in 1895, India‘s premier business association has over 7200 members, from the Private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 100,000 enterprises from around 242 national and regional sectoral industry bodies.With 64 offices, including 9 Centres of Excellence, in India, and 7 overseas offices in Australia, China, Egypt, France, Singapore, UK, and USA, as well as institutional partnerships with 312 counterpart organizations in 106 countries, CII serves as a reference point for Indian industry and the international business community.

The Boston Consulting Group • Confederation of Indian Industry | 1

Note to the readers

The CII-BCG Manufacturing Leadership Survey 2014 was launched to gauge thepulse of industry leaders on the current scenario and future prospects for theIndian manufacturing sector. The survey was hosted online and sent through emailto top management of CII member companies in the manufacturing sector.

The survey results, complied from 102 responses, have been selectivelyincorporated in the background note for the summit. We would like to thank allthe respondents to the survey for their valuable inputs.

The following pages contain summarised responses for select questions in thesurvey. The results have been complied from survey responses received and do notnecessarily reflect BCG's view on the subject.

Survey focused on three dimensions

Perspectives on manufacturing sector performance

Vision for Indian manufacturing

Perspectives on realizing the "Make in India" vision

2 | CII-BCG Manufacturing Leadership Survey 2014

Agenda




What has been the average annual growth of your sector's India operations in recent past?

21%

13%11%

21%

33%

9%

21%20%19%

31%

0

10

20

30

40

>10%8-10%5-8%2-5%<2%

Exhibit 1 | Recent slowdown adversely impacting the sector

Over the last five years Over the last year

5.1% 7.1%39%

19%

24%

13%

5%

24%27%

24%

17%

7%

0

10

20

30

40

>10%8-10%5-8%2-5%<2%

CEO survey responses 2013 CEO survey responses 2014

5.1% 7.6%

xx% : 2013 CEO survey average yy% : 2014 CEO survey average


What has been the average annual growth of your company's India operations in recent past?

32%

9%9%

20%

29%28%

19%

8%10%

35%

0

10

20

30

40

>10%2-5%<2% 8-10%5-8%

5.7%

5.7%55%

12%

17%

8%8%

16%19%

10%

47%

8%

0

10

20

30

40

50

60

>10%<2% 8-10%5-8%2-5%

2013 CEO survey responses 2014 CEO survey responses

5.6% 8%

Over the last five years Over the last year

Exhibit 2 | Similarly, effect of slowdown witnessed across companies


Exhibit 3 | Compared to last year, sector leaders more positive about the future

In your sector? (in % change) In your company? (in % change)

70% of the respondents expect growth over next 5 years to be

greater than last 5 years

1%

8%

21%

21%

48%

1%

2%

9%

21%

67%

020406080

<-3%

<3%

1 to 3%

Survey Responses (in %)

-1 to -3%

-1 to 1%


Do you see stronger growth over the next 5 years compared to last 5 years?

1.7%

2.4%


2.6%

1%

5%

20%

13%

60%

0%

0%

10%

13%

77%

0 20 40 60 80 100


1.9%


0%0%4%

11%

48%

37%

6%7%

15%

34%34%

4%

0

20

40

60

Share of respondents (%)

>15%10 - 15%9 - 10%7 - 9%5 - 7%<5%

2014 CEO survey responses2013 CEO survey responses

Given the recent announcements and the government's intent to drive manufacturing growth, how do you see the manufacturing sector growth in India over the next five years?

85% of the respondents expect growth between 5 and 10% over next

five years versus only 65% in 2013

Exhibit 4 | Significantly higher expectation of future growth, with the vast majority expecting 5-10% growth in next 5 years

5.1% 8.1%


Exhibit 5 | Share of international revenues estimated to be low

2.6% 2.3%2.8%

2.4%1.9%

2.7%

4.8%4.3%

3.7%

3.0%

0

1

2

3

4

5

ChinaSouth AsiaSouth East Asia

Average share of revenue (%)

OtherWestern Europe

USEastern Europe

Latin America

AfricaMiddle East

What is your share of revenue coming from following geographies?


Exhibit 6 | Improving trend in ability to bring in innovation

0

20

40

60


Strongly disagree

0%

Somewhat disagree

12%

Neither agree nor disagree

20%

Somewhat agree

47%

Strongly agree

21%

0

20

40

60


Strongly disagree

1%

Somewhat disagree

5%


7%

Somewhat agree

58%

Strongly agree

28%

Product innovation Process innovation1

1. For example shop floor process innovation –cost-efficient mix of labor & automation to improve turnaround time in an assembly line

On average, do you see Indian manufacturing companies getting better at the following?

Exhibit 7 | Divided verdict in ease of attracting talent

0

10

20

30

40

50


Strongly disagree

1%

Somewhat disagree

14%


22%

Somewhat agree

43%

Strongly agree

20%

~40% respondents do not agree that companies are getting better at attracting

top talents

On average, do you see Indian manufacturing companies getting better at attracting top talent?


Exhibit 8 | Talent management remains a key challenge, specifically across leadership roles

33%

25%22%

16%

4%

0

10

20

30

40


Senior leadership rolesSales and MarketingAllied functionsShopfloor managementWorkmen

In which levels of the organization do you see the largest recruiting / retaining challenge?

Exhibit 9 | Most companies will increase focus on R&D and talent development

0

20

40

60

Somewhat disagree

Somewhat agree

14%

35%


1%

48%

Strongly agree

Strongly disagree

1%


0

20

40

60

8%

1%


Survey Responses (in %)59%

32%

Somewhat agree

Strongly agree

0%

Somewhat disagree

Strongly disagree

Will your company be investing more time and resources over the next 5 years compared to last 5 years in the following?

R&D Talent intake and development

1. For example shop floor process innovation –cost-efficient mix of labor & automation to improve TAT in an assembly line


Agenda




Exhibit 10 | Most leaders want India to grow at 9%+

What should be the target, aspirational growth rate for manufacturing in India from now till 2020?

>65%

0

10

20

30

40

>15%

Survey Responses (in%)

10 - 15%

26%

19%

7%

21%

9 - 10%

34%

29%

7 - 9%

20%17%

5 - 7%

13%9%

<5%

6%


9.9% 10.2%



2%1%

5%5%6%

8%

11%12%13%

14%

22%

0

5

10

15

20

25


OtherRubber & petroleum

Basic metals

Medical, optical and precision

equipments

Metal products

Non-metallic

products4

Electrical and

electronics machinery

Chemicals 3Textile, apparel, leather

Food products 2

Automobiles and

transport equipment 1

Which are the key sectors to drive manufacturing growth in India and abroad, up to 2020? (select top 3)

Exhibit 11 | Automobile seen as the top sector to drive growthSupported by a diversified range of products including food products, textile and apparel, chemicals and electrical and electronics machinery

1. includes parts & accessories 2. includes beverages & tobacco 3. includes pharmaceuticals 4. includes glass, cement, ceramic, building materials, etc.

0510152025


14%

10%

Technology

23%

4%

Sufficient natural resources

Entrepreneurial businesses/ large number of SMEs22%

Surplus and quality engineering talent

Low-cost labor17%

10%

Frugal engineering approach(jugaad)

Process capability/ quality

What do you believe is the biggest competitive advantage for Indian manufacturing? (select top 3)

0 5 10 15 20 25

15%

9%

21%

13%

14%

23%


4%

Exhibit 12 | Engineering talent & SMEs still seen as top two competitive advantages for India



051015202530

12%

Technology13%

Natural resources17%

Quality engineering talent

Entrepreneurship (large # of SMEs)7%

Process capability9%

Frugal engineering (’Jugaad’)

13%

Low-cost labor30%


Which of the competitive advantages is not sustainable / atserious risk up to 2020? (select top 3)

0 5 10 15 20 25 30 35


10%

12%

14%

15%

31%

7%

9%

Exhibit 13 | Labor considered to be the least sustainable advantage for India manufacturing


Exhibit 14 | Various ambitions for India manufacturing, led by a will to become a top-quality manufacturer

7%

15%

19%

21%

37%

0 10 20 30 40


What would you like Indian manufacturing to be known for by 2020?

'Technology and process leader in select manufacturing sectors' - E.g. Thailand

'Global leader in low-cost innovation ( jugaad)'

'Most preferred country for low-cost manufacturing' - the next China

'Most preferred country for top-quality manufacturing' - the next Germany

Other


Exhibit 15 | Future growth drivers expected to be across domestic and exports

What would be the key demand-side driver for manufacturing growth in India for the next 5 years?

56%

41%40%

51%

9%

43%50%

7%3%0

20

40

60


ExportsBoth Domestic and ExportsDomestic

201420132012

Exhibit 16 | Over 90% of sector leaders aspire to take India's share of world exports from 1.6% to more than 2.5%

What would be your aspiration for India's share in global exports in 2020 (currently 1.6%)?

Note: 1.6% represents India's share of global merchandise exports in 2014

>90%

16%

20%20%

23%

19%

3%

20%

23%

13%

34%

10%

0%0

10

20

30

40


>5%4-5%3-4%2.5-3%2-2.5%1-5-2%

2014 CEO survey responses2013 CEO survey responses

3.6%3.5%



Exhibit 17 | Higher export aspiration across Asia, Middle East, Africa and Latin America

0

2

4

6

8 +2.0%

+1.7%

+2.0%

+2.6%

+3.0%+2.4%

+2.6%+2.7%

Other

4.4%

+1.6%+1.7%

Average share of revenue (%)

2.7%

Western Europe

6.9%

4.8%

US

6.1%

4.3%

Eastern Europe

3.8%

1.9%

Latin America

5.0%

2.4%

5.7%

3.0%

Africa

5.8%

2.8%

Middle East

6.1%

3.7%

China

3.9%

2.3%

South Asia

5.2%

2.6%

South East Asia

5 year targetCurrent

What is your share/ your target share of revenue coming from following geographies?

xx% : Above 2.1%xx% : Below 2%

Exhibit 18 | China and South East Asian countries seen as the biggest competitors for India in export markets

0

10

20

30

40

0%

Africa

1%

Middle East

2%

USA

7%

Latin American countries

South East Asian countries

13%

26%

China

35%

Others


East European countries

7%

European countries

5%

South Asian

countries

3%

60%

Which countries will be our biggest competitors in the export markets, between now and 2020?(select top 3)


Exhibit 19 | Increasing impact of digital and technology trends in manufacturing sector

1%

13%

86%

0

20

40

60

80

100


NoSomewhatYes

Do you see an in increasing impact of digital / technology trends in manufacturing sector?

Exhibit 20 | Digital advancement to impact manufacturing more than market-oriented activities

0

10

20

30

40

50

60

70

Other

3%

Optimize pricing


Enable real time demand management

68%

Optimize product delivery

33%

Foster innovation

63%

138%

Increase productivity

158%

103%

Reduce new product

development life-cycle

103%

Improve product quality

120%

Enable real time

manufacturing and stock

management

How does digital/ technology impact manufacturing industry the most? (Select top 3 choices)

Mixed activities (market and factory)Market-oriented activities Factory oriented activities


Exhibit 21 | Auto, electrical & electronics machinery and medical equipment expected to be the most impacted by digital trend

1%2%2%3%

4%

7%9%9%

16%

21%

27%

0

10

20

30

Rubber & petroleum


Electrical and


Automobiles and

transport equipment

ChemicalsFood products

Medical, optical and precision

equipments

OtherBasic metals

Non-metallic products

Metal products

Textile, apparel, leather

In what areas do you see the impact of digital/ technology trends the most? (select at least 2 choices)

Agenda





Exhibit 23 | Polity and ability of PM / central vision to be translated into right policies seen as key challenges

0 10 20 30 40


Manufacturing Over Capacity

5%

1%

20%

Demand Slowdown

Currency Fluctuations 7%

High Cost of Capital 8%

Raising Labor Costs 10%

Infrastructural Constraints 16%

Unstable Polity

Restrictive Regulations 33%

2013 CEO survey responses

0 20 40 60 80


Manufacturing over capacity 5%

Demand slowdown 9%

Instability of bureaucracy to implement industry-friendl 21%

High cost of capital 22%

Currency fluctuations 21%

Infrastructure constraints 24%

Rising labor costs 29%

Low/ no innovation 40%

53%

Unstable polity 73%

2014 CEO survey responses

What do you foresee as the biggest challenge for manufacturing growth in India over the next five years?(select top 2)

Note: Other challenges listed include availability of skilled manpower labor reforms, labor availability , skill shortage, competition from low cost countries like China and Vietnam, global economic and political uncertainty, higher taxes and duties, lack of comprehensive, consistent and stable policy framework, no real cost competitiveness due to energy, taxes, freight transaction, taxes, ...

Lack of translation of centralvision into the right policies


Exhibit 22 | Industry views both policy as well as implementation reforms as key drivers for growth

2%2%

12%

84%

0

20

40

60

80

100


Minimal change across conceptualization &

implementation

Significant change in conceptualization

Significant change inimplementation

Significant change in conceptualization & implementation

What is the magnitude of change required in policy conceptualization and implementation to support manufacturing growth in India?


Exhibit 24 | Strong confidence in the "Make in India" campaign

44%49%

6%0

10

20

30

40

50

Somewhat confidentHighly confident Not confident


How confident are you in the ability of the "Make in India" campaign to becoming a reality?

0 10 20 30 40 50 60

8%

9%

9%

Driving labour reforms

9%Political stability

12%

15%

State-of-art infrastructure to support manufacturing 18%


Others 2%

Incentives 5%

Concerted help to SME sector to drive innovation 6%

Reducing burden of compliance 8%

Incentivized high-tech imports and R&D investment

Changing manufacturing policies around incentives and support (e.g. tax incentives) to industry

Aggressively marketing/ re-branding Indian manufacturing image in international scene

Deeper linkage and coordination between central and state departments

What are the top requirements towards making "Make in India" a reality? (rank top 2)

Exhibit 26 | Infrastructure, labor reforms and support to industry seen as top three priorities


Appendix – Respondent profiles

Exhibit 27 | Respondents spread across all industries including diversified businesses

5%

1%1%2%

3%4%

6%8%

9%

12%

21%

29%

0

10

20

30

Not filledFood products

Textile, apparel, leather

Rubber & petroleum

Electrical and


Basic metals

Chemicals (includes

pharmaceuticals)

Metal products

Non-metallic products

Diversified businesses

OtherAutomobiles and

transport equipment


Includes construction equipment, gems and jewellery plastics, ...

Please specify the (major) sector of operation for your company


Exhibit 28 | Most respondents having a global footprint while manufacturing only in India

21%

45%

18%

11%

0

10

20

30

40

50

Sales in India, manufacturing in India

Sales in multiple countries, manufacturing only in India

Sales in India, manufacturing in multiple countries (incl


Other

Please specify your company's footprint (Indian / global)

Exhibit 29 | Respondents across various company sizes with majority from businesses of more than 1,000 Crores revenue

3%

9%

13%

3%4%

70

10

5

0


Not filled>1000 Crores<100 Crores

69%

500 - 1000 Crores200 - 500 Crores100 - 200 Crores

What is the size of your company's India operations? (in terms of annual turnover in Rs. Cr.)


NOTE TO THE READER

AcknowledgementsWe would also like to thank all 102 respondents to the CII-BCG Manufacturing Leadership Survey 2014 for their valuable inputs including:

Mr Anuj BhagwatiDirector, A.T.E. Private Limited

Mr K. SundarExecutive Director, ABI showatech India Limited

Mr M.L.S. RaoDirector & Chief Executive, Addison & Co Limited

Mr Rajiv DubeDirector, Aditya Birla Group

Mr M. R. ShankarHead of Purchase, Akzo Nobel India Limited

Mr Rajiv RajgopalDirector, Decorative Paints, Akzo Nobel India Limited

Mr Rajive SahariaPresident, Trucks, Ashok Leyland Limited

Mr Kawaldeep SahniSr Vice President, Bhushan Steel Limited

Mr Prasad BXVSenior Vice President, Biocon Limited

Mr K SrinivasanManaging Director, Carborundum Universal Limited

Mr C K RanganathanChairman & Managing Director, Cavinkare Pvt. Limited

Mr Ajay S. ShriramCFO, DCM Shriram Limited

Mr Jitendra Kumar JainChairman & Sr. Managing Director, DCM Shriram Limited

Mr Umesh AsaikarExecutive Director, Deepak Nitrite Limited

Mr Pramod Kumar AgrawalChairman, Derewala industries Limited

Mr Satish MehtaChief Executive Officer, Emcure Pharamaceuticals Limited

Mr K SrinivasanManaging Director, Emerald Jewel Industry India Limited

Mr Blaise CostabirManaging Director, GMI Zarhak Moulders Private Limited

Mr A. K. PandeyChief Strategy Officer - Airports, GMR Group

Mr Anil LingayatExecutive Vice President & Business Head, Godrej & Boyce Mfg. Co. Limited

Mr D. E. Byramjee,COO, Godrej & Boyce Mfg. Co. Limited

Mr K G ShuklaExecutive Director & President, Godrej & Boyce Mfg. Co. Limited

Mr P.D. LamAssociate Vice President, Godrej & Boyce Mfg. Co. Limited

Mr Rajesh AlrejaBusiness Head & EVice President for MHE division, Godrej & Boyce Mfg. Co. Limited

Mr Channabasappa MugaliManager Business planning, Harita Fehrer Limited

Mr Rajendra S ShahChairman, Harsha Engineers Limited

Mr Arun SurekaDirector, Hartex Rubber Pvt Limited

Mr K VaidyanathanCOO, HEG Limited

Mr Pankaj MunjalCo-Chairman & Managing Director, Hero Cycles Limited

Mr N K RamaswamyCEO, Hydro S&S Industries Limited

Mr SarangarajanVice President, Hyundai Motor India

Mr Sunil DuggalDy. CEO, HZL

Mr Vilas KamatGeneral Manager, IFB Industries Limited

Mr Bhagwandas BhojwaniManaging Director & CEO, Imerys Minerals India Pvt Limited

Ms Kalpana SuryavanshiExecutive Secretary to Chairman, Indiana Gratings Pvt. Limited

Mr K. L. DhingraChairman & Managing Director, ITI Limited

Mr Bagavathy AppanEVice President - India Operations, JCB India Limited

Mr Subir ChowdhuryVice President — Procurement, JCB India Limited

Mr Rohit RainaHead Corporate Affairs, Jindal Stainless Limited

Mr P. K. MuruganSenior Vice President, JSW Steel Limited

Mr Anil GuptaChairman, Kei industries Limited

Mr Aniket KulkarniGeneral Manager, Kirloskar Brothers Limited



Mr Sanjay KirloskarManaging Director, Kirloskar Brothers Limited

Mr Antony CherukaraVice President, Kirloskar Oil Engines Limited

Mr Rajit GoshA Vice President, KOEL

Mr Koji TsuyuguchiCorporate Officer, Indian Business Development Dept, Krosaki Harima Corporattion

Mr N V VenkatasubramanianChief Executive, L&T Valves Limited

Mr Shivesh K SinhaChairman, Lafarge Mining

Mr R RajendranDirector Finance, Lakshmi machine works Limited

Mr Rajesh Jejurikar,Chief Executive - Farm Equipment & Two Wheeler Division & Member of the Grouip Executive Board, Mahindra & Mahindra Limited

Mr Galla Vijay NaiduCEO, Mangal Industries Limited

Mr. M. M. SinghChief Mentor, Maruti Suzuki India Limited

Mr Pankaj JhunjhunwalaManaging Director, Maxim Infrastructure & Real Estate Pvt. Limited

Mr Suresh Kumar PoddarChairman & MD, Mayur Uniquoters Limited

Mr Arun MalhotraFinance Head, Nagata India Private Limtied

Mr C K BirlaChairman, National Engineering Industries Limited

Mr Frederic Fabre / Shashikant VaidyanathanIndia-Pacific Regional Manager, PCA Motors Private Limited

Mr Vikram PanditExecutive Vice President, Praj Industries Limited

Mr Ashok WadhawanGroup President, Punj Lloyd Group

Mr P S Rao, PresidentRane brake lining Limited

Mr Rajesh SaradaA Vice President, Reliance CementCompany Pvt Limited

Mr Sukumar NarasimhanS Vice President, Reliance Industries Limited

Mr Toshihiko SanoCEO & Managing Director, Renault Nissan Automotive India Pvt Limited,

Mr Dilip SawhneyMD — India, Rockwell Automation

Mr Harsh GoenkaChairman, RPG Enterprises

Mr Shankar KrishnanGroup head - strategy, shapoorji pallonji group

Mr Ajay K DixitCEO Energy Management, Siemens Limited, India

Mr Rajeev BudhirajaVice President, SMIPL

Mr Sunder RajanPresident, Sona Koyo Steering Systems Limited

Mr Ashish BharatramManaging Director, SRF Limited

Mr P RamnathCEO, Sterlite Copper

Mr Ranaveer SinhaManaging Director, Tata Hitachi Construction Machinery Co. Limited

Mr Avinash GuptaHead Spare Parts and Aggregates, Tata Motors Limited

Mr Girish WaghSr. Vice President PPPM-PVBU, Tata Motors Limited

Mr Rino RajVice President, Tata Sons

Mr Abraham G StephanosManaging Director, Tata Steel Processing And Distribution Limited

Mr Tarun DagaManaging Director, The Tinplate Company Of India Limited

Mr Ashish VaishnavGeneral Manager, Cooling SBU, Thermax Limited

Mr Indra KumarGlobal Program Manager, Timken

Mr Jun ShimodaManaging cordinator, Toyota Kirloskar Motor

Mr Naveen SoniVice President, Toyota Kirloskar Motor Pvt Limited

Mr P. B. PandaE Vice President, TRL Krosaki Refractories Limited

Mr P. K NaikVice President, TRL Krosaki Refractories Limited

Mr Sharad Kumar SharmaVice President, TRL Krosaki Refractories Limited

Mr Soumyadip RoyCOO, TRL Krosaki Refractories Limited

Mr Prabir RayExecutive President, UltraTech Cement

Mr Rajesh R GandhiCMD, Vadilal Industries Limited

Mr B. SrinivasSenior vice president, VE commercial vehicles Limited

Ms G Saroja VivekanandManaging Director, Visaka Industries Limited

Mr Rajan ShringarpureManaging Director, Vishay Components India Pvt. Limited

Mr A M MuralidharanChief Operating Officer- Domestic Projects Group, Voltas Limited

Mr M. GopikrishanaPresident, Voltas Limited

Mr V. ThiagarajanGeneral Manager (TQM & Six Sigma), Wabco India Limited

© The Boston Consulting Group, Inc. 2014. All rights reserved.

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