Notes on “Re-aligning global value chains” Part II

Yesterday, we took a look at how China makes it difficult for supply chains to move away from that country. That happens through a combination of mind-boggling scale and efficiency, coupled with astute moves up the ladder in terms of no longer dealing with just cheap manufacturing. Think robotics, app development, advanced and skilled manufacturing units. After that, the gravity model takes over, and well, good luck moving out of China.

Today, we ask the following question: let’s assume that all that is somehow put to the side, and a country is looking to move out of China. What are the chances this firm will come to India?

Again, we’ll use Gulzar Natarajan’s excellent article as the basis of our discussion, and foray into other parts of the internet. Let’s begin:

First, a quote from within Gulzar Natarajan’s post:

“Nomura Group Study found that in 2019, out of the fifty-six companies which shifted their production out of China, only three of these invested in India; while 26 went to Vietnam, 11 to Taiwan, and 08 to Thailand. In April 2020, Nikkei noted that out of the 1,000 firms which were planning to leave China and invest in Asian countries, only 300 of them were seriously thinking of investing in India.”

300 out of 1000 isn’t great, you might think, but it’s not bad, surely. Well, read again: it’s “seriously thinking”, not actually relocated. If you want to take a look at action, not thoughts, it is 3 out of 56. About 5%.

Why?

Let’s begin with this tweet:

And here’s (to my mind) the most interesting quote from within the editorial:

“The situation is far worse when it comes to comparisons with China in the EoDB. It takes double the time to start a business in India as compared to China, around six times as much to register property and double the time—and also in terms of the value of the contract—to enforce a contract. And, this is without even looking at the policy flip-flops that this newspaper catalogues diligently.”

The real measure of success when it comes to the Ease of Doing Business ranking is not how far we’ve come, but far we have to go. And it’s going to be a long haul.

This article, which I got from reading Gulzar Natarajan’s post, is instructive in this regard.

Sample this:

““Navigating labour laws is a total mine-field because interpretation is left to the courts and the officers and can be done in more than one way and removing an incompetent worker is not easy,” Gopal said. “I can get a divorce faster than removing a factory worker for non-performance.” In Karnataka, an employer would have to give three warning letters, a show-cause notice, have two inquiries — one external and one internal, and then terminate an employee only if the charges are proved to be serious. “Theft is considered serious but if an employee is lazy and doesn’t perform, that may not be taken as serious,” Gopal says. “In one’s own company, one cannot hire and fire.””

This article is just about furniture, but there are similar problems in every single sector in India.

To which, usually, there are two responses:

  1. Yes, but we have to start somewhere, don’t we?
  2. Yes, but we’re so much better than we were before!

Yes, sure, in response to both of these statements. But keep in mind that firms who are looking to move here are not going to ask if we’re better than we were before. They’re going to ask if we’re better than our competition today. Are we better than Vietnam, for example? What about Bangladesh? And if the answer is no, why should firms come here?

For our domestic market isn’t (yet) a good enough answer, unfortunately.

Our domestic consumption wasn’t large enough or lucrative enough for firms to locate themselves here before the pandemic – it’s obviously reduced since then.

And bureaucracy (not to mention bureaucracy-speak!) has gone up:

“On Sunday, for instance, the home ministry issued a clarification intended perhaps to limit the numbers of those who would be allowed to travel to their villages to a category called ‘genuine’ stranded migrants. The letter from the Centre to chief secretaries in the state administrations reads: “The facilitation envisaged in the aforesaid orders is meant for such distressed persons, but does not extend to those categories of persons, who are otherwise residing normally at places, other than the native places for purposes of work, etc. and who wish to visit their native places in normal course.”

I think I am reasonably good at English, but I still don’t know what this means. Even if I were to understand it, I do not know how I would go about implementing it! And that’s me, a guy who teaches using the English language for a living, and writes a blog in the English language. What chance does a manufacturer have? What chance does a non-Indian manufacturer have?

Government, in plain simple terms, has to get out of the way. Unfortunately, we seem to be heading in the opposite direction.

R Jagannathan writes in the Livemint:

“Companies compete, while governments can only enable. Governments cannot create global champions, though mercantilist countries like Japan, South Korea and China did do so at one point. What governments can do is create an enabling policy and regulatory environment that fosters economic growth and lets companies scale up. Airtel and Reliance Jio did not emerge as India’s two big telecom survivors because the government anointed them as winners. Nor did TCS, Infosys and Wipro become global outsourcing giants because of the government. They became global biggies because the policy environment for their growth was positive both in India and abroad.”

I might wish to disagree with parts of that excerpt (Studwell alert!), but I am in complete agreement with the broad message:

“The government holds the lock but not the keys to Atmanirbhar Bharat. As long as the lock is well oiled, companies will find the keys on their own.”

As of now, though, the lock is far too rusty, far too old and far too much like a pre-1991 model.

India: Links for 11th November, 2019

  1. “The dominance of just one commodity on the riparian trade routes, and their termination in Narayanganj makes one thing clear — New Delhi hasn’t succeeded in expanding the Indo-Bangladesh Protocol (IBP) routes, devised way back in 1972, as a viable transit for the landlocked Northeast. Renewed efforts in this direction, however, are now underway.”
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    Unlocking the potential of the Northeast via riverine networks. Bangladesh is key.
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  2. “In 2019, the government said, “There is no conclusive data available in the country to establish direct correlation of death/disease exclusively due to air pollution.” There is an unmistakable sameness in the narrative of successive regimes — notwithstanding the facts presented in a series of studies. Starting with the United Front, NDA I, UPA I, UPA II and NDA II have all chosen almost the same words to question the correlation between morbidity and mortality. It is almost as if morbidity is an acceptable state of living for Indians. ”
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    A searing takedown of all round apathy when it comes to the most classical pure public good of them all: air.
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  3. “The challenge is worth repeating: without government munificence and promoter willingness to invest for the long term, Vodafone Idea is really the most vulnerable company in the private sector triumvirate that includes Jio and Airtel. If one had to bet on which one will blink first, one has to bet on Vodafone Idea, or at least one of its two promoters.”
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    Vodafone is in trouble. By extension, so is India’s telecom sector.
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  4. ““A student who comes up with ideas for a pulley brake to draw water in a village uses science to think critically and solve problems,” he adds. “Engaging with even such simple mechanisms on your own is better than building a robot based on instructions.” In fact, the NCERT’s 2017 National Achievement Survey — which found that 44% of students in Grade 3 failed to solve daily problems using maths, a figure that jumped to 62% among Grade 8 students — only proves Agnihotri’s statement.”
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    Learning needs to be made more effective, and less rote based in India. I cannot emphasize this statement enough.
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  5. “Any history of Indian science thus has to also try to discern how a technical and scientific culture began to withdraw, look inwards instead of growing and expanding its prowess. What social constraints—caste, language, patronage, political upheaval—led to this quiescence of Indian sciences?”
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    A fascinating, and on balance painfully short introduction to a history of science in India.

RoW: Links for 23rd October, 2019

Five books that I have read about our neighboring countries that helped me understand them a little bit better. If you ‘re looking for books to read during the holidays, this list might help:

  1. From a while ago, and set many decades ago, but I loved reading The Glass Palace. Anything by Amitav Ghosh is worth your time, I’d say, but this helped me learn more about Myanmar.
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  2. Samanth Subramanian is a magnificent writer, and that is not hyperbole. In this book, This Divided Island, he brings us a raw, disturbing and depressing account of Sril Lanka today, and how it is divided, perhaps beyond repair, on grounds of ethnic and religious conflict. He doesn’t pull his punches, but more: he doesn’t take sides. If you are looking to understand Sri Lanka today, this is the book to read.
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  3. How did Bangladesh come to be Bangladesh? What was Pakistan’s role in it? What was India’s? What was – and this might come as a surprise to some – the USA’s? The Blood Telegram answers these questions, and more besides, in a always interesting read about the war of 1971.
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  4. And two recommendations about Pakistan. The first is a book by Stephen Cohen: The Idea of Pakistan. Is Pakistan an army with a country or the other way around? Why? Will this change in the future. What is (or what used to be) the political calculus of the United States of America when it came to Pakistan? This book answers these questions, and then some.
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  5. And finally, Pakistan: A Hard Country, by Anatol Leivin. A Ukraininan journalist who has spent some time in the country, and is equally horrified and fascinated by it. Somewhat sympathetic in its treatment, it still helped me understand the country a little bit better – without, of course and unfortunately, ever having been there.

Links for 26th April, 2019

  1. “The world economy desperately needs a plan for “peaceful coexistence” between the United States and China. Both sides need to accept the other’s right to develop under its own terms. The US must not try to reshape the Chinese economy in its image of a capitalist market economy, and China must recognize America’s concerns regarding employment and technology leakages, and accept the occasional limits on access to US markets implied by these concerns.”
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    Dani Rodrik explains the need for, as he puts it, peaceful coexistence – between China and the USA. My money is on this not happening: history, current affairs and game theory are my reasons for being less than optimistic.
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  2. “Yes, there was arsenic in Bangladesh’s wells, and it may have posed a health threat. But in areas where people were encouraged to switch away from the wells, child mortality jumped by a horrifying 45 percent — and adult mortality increased too. It turns out that the alternatives to the wells, for most people in Bangladesh, were all worse — surface water contaminated with waterborne diseases, or extended storage of water in the home, which is also a major disease risk.”
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    Unintended consequences is one of the most underrated phrases in economics.
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  3. “Only one of Murdoch’s adult children would win the ultimate prize of running the world’s most powerful media empire, but all four of them would ultimately have an equal say in the direction of its future: Murdoch had structured both of his companies, 21st Century Fox and News Corp, so that the Murdoch Family Trust held a controlling interest in them. He held four of the trust’s eight votes, while each of his adult children had only one. He could never be outvoted. But he had also stipulated that once he was gone, his votes would disappear and all the decision-making power would revert to the children. This meant that his death could set off a power struggle that would dwarf anything the family had seen while he was alive and very possibly reorder the political landscape across the English-speaking world.”
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    A very long, but very entertaining and informative read about the Murdoch family – its rise, its stumbles and its influence on the world today. Be warned, this is only the first part – but the entire thing is a great read.
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  4. “There has been a lot of churn in the Sensex over the decades. Corporate power in India seems to be more fragile than usually understood. Only a handful of companies such as Tata Motors, Hindustan Unilever, Mahindra & Mahindra, ITC, and Larsen & Toubro have managed to hold their place in the index. Many of the older industrial houses such as the Thapar group, the Walchand group and the Kirloskar group have slipped out of the benchmark index. Even the real estate and infrastructure giants who had a strong presence in the Sensex a decade ago — Jaiprakash Associates, Reliance Infrastructure and DLF, for example — are no longer in the index.”
    Niranjan Rajadhakshya writes in Livemint about the churn in the Sensex. Worth reading for the chart alone that appears midway through the article.
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  5. “The government has tried to change ideas about death through directives and incentives. In 2016, officials issued guidelines for encouraging more burials within nature, rather than delineating plots for tombs and memorials. In a revised law on funeral management in September, the central government called on local governments to provide financial support for public cemeteries, which would be cheaper for residents.”
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    An interesting read about the burial problem in China, and what they’re doing about it.

Links for 18th March, 2019

  1. “So although the leaders of Bangladesh and India have similar goals, the difference in the country’s development models is making for an interesting experiment. Countries in Africa hoping to follow these two South Asian giants’ growth trajectories should be watching keenly. If Bangladesh grows faster, it will suggest that manufacturing, starting with textiles, is still the ticket to industrialization; but if Bangladesh falters and India sustains its growth, it will imply that poor countries should look to services first.”
    Noah Smith compares and contrasts India’s developmental trajectory with that of Bangaldesh’s. This is a topic with great relevance for anybody who is a student of India’s recent economic history.
  2. “The phenomenon of the modern economic crisis, however, consists of the world abruptly discovering that the surpluses we thought we had — and in many cases pre-emptively consumed — don’t really exist. And the reason they don’t exist is because the new modes of industry or technology we deployed (and convinced ourselves were economic) were in fact not economic after all.”
    Izabella Kaminska traces the etymology of the word “economy”, and highlights how the word has meant different things over time – and reaches a less than pleasant conclusion about the digital economy.
  3. “Born in 1845, Nobin was always prone to experimentation. A failed attempt saw him being kicked out of work with a local confectioner. He set up his own shop to attempt the rosogolla, but was soon mired in debt as the sweet would keep crumbling. In 1868, he figured that the trick lay in the right consistency of sugar syrup—not too thick—to hold it together. But commerce was the last thing on his mind and he would distribute the rosogolla at local addas. Till a Marwari timber merchant who was driving by stopped at his shop for his son to have water, and the father and son were given the sweet to taste. They loved it and, almost fortuitously, rosogolla was extricated out of a neighbourhood and introduced to the community at large. “It may sound ironical but the popularisation and commercialisation of the rosogolla came through a non-Bengali,” says Dhiman.”
    If a tree falls in a forest… Put another way, did a Marwari invent the rosogulla? In a lovely article in Forbes magazine, a loving biography of the rosogulla.
  4. “In sum, the structure of the economy—and the key driver of structural change and growth—has moved from the agricultural sector to the service sector for both Haryana and all India. For Jats, who have been historically associated with land and agriculture, this shift has profound significance.”
    Markets and Mandals is a useful way to think of the issue that Christophe Jaffrelot highlights in this paper in the EPW – the article may be paywalled for some of you. But it worth trying to dig out the issue and read it – a good introduction to the subject.
  5. “Dubai, on the other hand, is a surreal alternate universe version of Las Vegas if Nevada were a Muslim country, right down to the desolate desert setting. The Dubai fountains, a giant choreographed-to-music attraction in front of the Burj Khalifa, was even designed by the same person who did the Bellagio fountains. Instead of casinos there are uber-fancy malls, and instead of prostitutes there are Victoria’s Secrets with no softly-pornographic ads or any lingerie on display at all, but in either place you will be blinded by opulence and easily parted with your money.”
    Travel notes from a visit to the UAE – a useful way to think about the UAE, and Dubai in particular. My own sense is that it is certainly worth a visit, but probably not more than that.