Methodology Applied
The research methodology broadly comprised two phases. The first was an extensive literature review for extracting the indicators of manufacturing, and the second was the opinion of experts on the selected indicators. The expert team comprised seven individuals from diverse backgrounds: three from academic backgrounds, two senior government officials, and two experts from an industrial background. The factors identified from the literature were given to each expert individually. The opinion for each factor was taken from each expert separately in the first round. The result for each case was compiled. In the second round, all the experts were invited for discussion. Each factor was discussed in front of the experts and a consensus was reached on most of the factors. Two factors, electricity production and kilometers of railway lines, were dropped from the study because
The Factors Chosen for the Study of Competitiveness of Manufacturing Sector
TABLE 6.2
|
Factors |
Description |
|
GDP Podobnik et al. (2012); OECD, 2013 |
The GDP indicates a country's economic performance in a specific time period. It also calculates the relative contribution of an industry sector in the economic growth of a particular country. |
|
GDP growth rate McCombie et al., 1994; Pelagidis, 2010 |
GDP growth rate indicates the changes in the economy of a country by comparing economic growth of one quarter to the last. It shows a positive rate when the economy is expanding and a negative rate when the economy is shrinking. |
|
Manufacturing value added (% of GDP) Kogut, 1985; Jaffe et al., 1995 |
Manufacturing value added of an industry sector is the difference between an industry's gross output and the cost of all its inputs. |
|
FDI Dunning, 2002; Urata and Lall, 2003; Xiaojuan, 2002 |
FDI is an investment in an industry sector by an investor from another country to access the markets and resources, to reduce production costs, and to build new facilities for the business. |
|
Ease of doing business Schueth, 2011; Jayasuriya, 2011 |
This index has been created by the World Bank Group based on the study of laws and regulations to measure regulations directly affecting businesses. It includes different parameters such as starting a business, registering property, protecting investors, getting credits, paying taxes, trading across borders, and so on, which define the ease of doing business in a particular country. |
FIGURE 6.3
The GDP of India and China. (From World Bank data, 2015.)
a consensus was not reached. Finally, five factors were considered for the study. These factors are briefly described in Table 6.2, and are listed as follows:
- • GDP
- • GDP growth rate
- • Manufacturing value added
FDI
• Ease of doing business
Figure 6.3 shows the GDP of India and China, the data for which is collected from the World Bank. The GDP of China is more than 2.5 times that of India. This clearly indicates that China has focused on infrastructure building, better network connectivity, efficient transportation, and commercial spaces, especially for the manufacturing
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sector, to raise production and exports. Hence, higher GDP is recorded in the case of China (Figure 6.4).
GDP growth rate is another factor for the competitiveness of the manufacturing sector. Currently, India's economic growth rate is similar to that of China. This reflects that India can raise its GDP and match that of China if the focus is on the manufacturing sector.
The manufacturing value added in India is half that of China. This clearly shows that there is a huge gap for manufacturing value added. India announced its manufacturing policy in 2011, where the focus is on increasing the contribution of the manufacturing sector to 25% of GDP by the end of 2022. The position of the manufacturing value added is shown in Figure 6.5. At the same time, a country like India can benefit from FDI, whereas the contribution of FDI to GDP is low compared with that of China. In the case of India, FDI is mostly in the service sector, whereas for China it's in the manufacturing sector. Foreign investment and proactive manufacturing could increase business in the manufacturing sector.
Ease of doing business is also related to the competitiveness of the manufacturing sector, and at the same time FDI is also affected. The position of FDI is shown in Figure 6.6 for India and China. A country having a higher rank is more open to business and hence
FIGURE 6.4
GDP growth rate of India and China. (From World Bank data, 2015.)
FIGURE 6.5
Comparison of manufacturing value added in terms of the percentage of GDP of India vs. China. (From World Bank data, 2015.)
FIGURE 6.6
Comparison of FDI inflow in terms of the percentage of GDP of India vs. China. (From World Bank data, 2015.)
FIGURE 6.7
Comparison of FDI inflow in terms of the percentage of GDP of India vs. China. (From World Bank data, 2015.)
eases doing business. China is considered to be a more open business environment. Clear business policies could also increase the ease of doing business in a particular country. Figure 6.7 shows the rank of India and China in terms of ease of doing business. As per year 2014 data, China is at a higher rank, and is positioned at 90, while India is at 142. The position of India has deteriorated further from the previous year.
