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India Opportunity: Servicification of Manufacturing

October 2020

India Opportunity: Servicification of Manufacturing

COVID-19 and the onset of the Fourth Industrial revolution, which embeds Artificial Intelligence and technology in all goods and services, has digitised almost all sectors in the world economy. Manufacturing has long been an essential aspect of the Indian economy, and India must incorporate these trends into the manufacturing industry to succeed in the next decade. Digitised services are often an essential part of goods in the manufacturing process, in both the production and post-production process. An example of this is aftercare support and add-on services that are provided with goods. Technology can also be used to make supply chains more efficient. This is termed as ‘servicification’ and is a vital component for Indian businesses to focus on as a competitor in the global manufacturing industry in the post-COVID era. This article helps explain servicification and why it is essential for the Indian economy.

 

The World Bank’s 2017 report ‘Trouble in the Making? The Future of Manufacturing-Led Development’ highlights the importance of servicification for India’s manufacturing sector. According to the report, the Fourth Industrial Revolution will soon be more firmly established in the world economy. At this time, businesses worldwide will look for countries with skilled workers and professionals, abundant access to advanced technology and a strong Intellectual Property Rights Regime. Therefore, India must initiate reforms on ease of doing business and infrastructure development to attract more investment. Servicification of manufacturing has been hailed as essential for competitiveness in manufacturing and India can play a major role in contributing to the global innovation ecosystem. The Indian government has already taken action to help businesses. They have announced ‘future-ready’ industrial policies which incorporate measures to embed the use of smart technologies in advanced manufacturing. This involves technology such as AI and the Internet of Things (IoT). The Department for Promotion of Industry and Internal Trade has predicted that this policy can create abundant jobs for the next two decades and attract over USD 100 billion in FDI investment Annually.

 

Liberalization of trade in services is also important to reap the benefits of the servicification of manufacturing. It has become crucial to liberalize services not just to enhance the competitiveness of the services sector itself, but also to raise productivity of manufacturing which uses services as inputs. Evidence indicates that service imports, foreign establishment of service providers and openness to trade in services are positively linked to enhanced performance in manufacturing. On the flip side, burdensome domestic regulation, and barriers to trade in services are negatively related to productivity and exports in manufacturing. Servicification of manufacturing has already improved manufacturing productivity in India. The manufacturing industry has seen a decrease in cost of production due to 3D printing and automated real-time processes. Australia, UAE and the UK also provide incentives, tax credits and grants for investing in this technology. To understand where India stands currently, a paper published by Chakrabarty et. al shows that India’s share of value-added services in aggregate manufacturing exports is higher than many countries with similar levels of development, such as Philippines and Indonesia. However, this accounts for less than 2% of its aggregate value-added services and is far less competitive than larger developing countries such as Brazil and China. Going forward, Indian businesses will need to focus on developing these technologies and incorporating them into the manufacturing industry in order to stay competitive.

 

Major areas where India has a competitive advantage in servicification are: preventive and predictive maintenance, monitoring and visualization of KPIs, and improving quality thereby reducing rejection and rework. This implies that free movement of services and natural persons is central to the competitiveness of manufacturing. India can play a huge role here owing to its twin advantage of expertise in service industry and availability of large numbers of skilled labour. India’s hourly labor wage is half compared to China and 30x lesser than the United States, and is a global leader in the IT Sector with an investment friendly policy environment. This makes India a prime destination for greenfield investments in the advanced manufacturing field, and T&A Consulting helps make this a smooth transition through its Global Market Entry services.

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