India's economy, now with muscle
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Proving the cars meet high standards
At first, Hyundai had difficulty persuading outsiders that its India operations weren't substandard. European dealers wanted a discount on cars made in India. Surely, they reasoned, the cars would be shoddy, and it was only fair to trim the price for Europe's more discerning consumers.
Now, that is changing.
Then, at Hyundai's bidding, they came to take a look at the plant. No one asked for a discount again.
In fact, the plant has been so successful that Hyundai recently decided to make India its "export hub for small cars to the rest of the world," says Lheem. The facility is adding a second factory on the campus to double its capacity to 600,000 cars a year - half for India, and half for export.
Nearby, 16 Korean suppliers have sprung up to support Hyundai's operations - providing everything from brake pedals to wheel axles. Fifteen more will arrive when the second factory opens.
This is the "halo effect," with supporting industries establishing satellite factories near a main plant. "It's one of the biggest influences in the economy, and it's one reason countries like the motor-car industry so much," says Garel Rhys, an auto-industry expert at Cardiff Business School in Wales.
The 'Detroit of India'
It's also one reason that Chennai has come to call itself the "Detroit of India" with an affection for the Motor City that only a Tigers fan would know. In addition to hosting Hyundai, Ford, and BMW factories, Chennai has become the hub for an Indian auto-parts industry forecast to grow to $25 billion in 2015 from $10 billion in production this year.
Each of these halo companies offers more jobs, as is evident in the Hwashin factory nearby, where Indian workers weld fenders and hoods amid showers of sparks.
In contrast to the climate- controlled coolness of the Hyundai production floor, where a white- fingered glove could swab the floor without complaint, Hwashin is a riot of activity and a cacophony of crashing steel.
It is the sound and sweat of industry, and these are 885 jobs that India needs. More than half of India's 1.2 billion people are age 25 or under, and in order to keep up with the demographic wave to come, India needs to add as many as 8 million jobs a year.
India's youth is both a blessing and a challenge. The young demographic contrasts with China's, where the one-child policy has yielded an older work force less attractive to foreign investors.
Yet the employment pressures it creates cannot be solved by IT alone. By leaping straight from a premodern agrarian economy to a white- collar service economy, India essentially skipped an economic step: It never built a blue-collar industrial base. Today, 70 percent of Indians are still employed in agriculture.
So when the economy grew by 6 percent from 1995 to 2005, the growth passed them over. During this time, poverty in India fell by only 0.8 percent, according to a study by the National Sample Survey Organization here.
Manufacturing is the only sector that can begin to fill the gap, adding about 4 million jobs a year, says Mr. Mangaleswaran of McKinsey. "You can't take [people] off a farm and put them in a call center," he says. "But you can put them in a factory."
Ready pools of workers
At Hyundai, they come from as many as 30 miles away, filing off buses that line up nose-to-tail like expectant schoolchildren. With its low-cost work force and abundant natural resources, India has much good to recommend it to manufacturers along with the problems of infrastructure and access.
But the government appears to be placing its greatest faith in the small-car industry, reducing the excise tax on small cars to 16 percent from 24 percent earlier this year.
"With 1 billion people to feed, you cannot depend on services," says Sugato Sen, director of the Society of Indian Automobile Manufacturers in New Delhi.
"You need manufacturing, which the government realizes," he says, "and the auto industry is one industry that can really make a contribution."
| Nokia calling? Yes, we'll answer. |
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When Nokia decided it was time to build a factory in India, a curious thing happened: Many of its calls to explore investment went unanswered.
In many parts of the world, the prospect of securing the world's largest cellphone maker would turn local politicians into game-show hosts, offering ever-sweeter deals in hopes of winning the economic sweepstakes.
Here, it often didn't warrant a call back. From states that did respond, Nokia execs were confronted with India's intense desire to have every single document stamped - and in triplicate.
Then Nokia called the offices of the southern Indian state of Tamil Nadu. Government officials called back immediately and set up a meeting. Not long after, Nokia signed on the dotted line, and their plant opened faster than any in the company's history.
As a globalizing India attempts to unwind itself from a bureaucracy bestowed by the British and then allowed to run amok for decades, Tamil Nadu has become a model.
India still has more red tape than any country in South Asia, according to the International Finance Corp., and it is in the bottom quarter of that organization's list of easiest places to do business. But Tamil Nadu is top among a handful of states here that are taking the boldest steps to become business-friendly, executives and experts say.
"These states have learned the tricks now," says T.S.R. Subramanian, a former adviser at the International Trade Center in Geneva.
The tricks are not that revolutionary. The state has stayed ahead of the nation's electricity crunch, meaning it can supply relatively reliable power - unlike northern states. It has built highways and modernized its port. And it has attacked red tape with industrial-size scissors.
Typically, foreign firms need clearance from about 70 offices and authorities to even open their business. This can take three months or more. Like several other states, Tamil Nadu has instituted so-called single-window clearances - a one-stop shop for every business-licensing need.
These are some of the reasons that Indian automaker Mahindra chose Tamil Nadu when it wanted to set up an industrial park with special tax breaks and better infrastructure. The venture has attracted BMW, as well as Indian high-tech giant Infosys, which built the world's largest software-development campus here.
"Projects of this nature require the support of the state governments to enhance credibility and also ensure smooth, hassle-free operations," writes Anita Arjundas, chief operating officer of Mahindra World City outside Chennai, in an e-mail.
Another measure of Tamil Nadu's success is a new stretch of highway that unspools from Chennai to the Nokia plant in Sriperumbudur. The marvel is not the road itself, but the scenery. The 30-minute drive takes travelers past no less than 10 engineering colleges - one of which looks curiously like the Taj Mahal. A landmark decision a decade ago to begin privatizing education has led to 660 industrial-training institutes, 250 engineering colleges, and 234 polytechnic schools.
"The caliber of the talent pool" was a primary reason that Dell decided to build its first India factory here, says Rajan Anandan, vice president of Dell India.
Yet it was Tamil Nadu's responsiveness that clinched the deal. When Dell voiced concerns that its land parcel was too small for partner firms - which supply keyboards, monitors, and more - officials "allocated a chunk of land," says Mr. Anandan.
The government hasn't always been so take-charge. "We're focused on going after investors now," says K. Rajaraman, a state secretary for industry, "not just waiting for them to come to us." Which means when Nokia calls, Tamil Nadu listens. To be sure, says Jukka Lehtelä, Nokia's Indian operations manager, he could have set up shop elsewhere. "But how well?" he asks. "That is the question: how much you want to hit your head against the wall."
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