While trying to understand how MSMEs can grow fast and create jobs – India’s foremost economic challenge we came across a remarkable example. Mr Jain, owner of an apparel firm from Mumbai turned a modest Rs 15 crore operation into a Rs 250-crore powerhouse in less than eight years. When we asked him how he did it, Mr Jain told us “a large retailer approached us. Their vision was to diversify their supply chain, and they offered us not just business but a roadmap, with volume guarantees and technical support.” This collaboration has been a game-changer, with nearly half of the firm’s 16-fold growth attributed to this single partnership.
“Their commitment gave us the confidence and capability to scale our operations in ways we had never imagined,” he reflected. Mr. Jain’s experience is a testament to the transformative potential of global partnerships, and he is not alone. We have seen this pattern repeat time and again, in India and globally. It exemplifies how collaborations with large multinational firms can drive unprecedented growth for smaller firms, setting the stage for economic prosperity. While our popular economic discourse lionises MSMEs as the engines of Indian economic growth, it under-appreciates, and even demonises large firms. Global firms such as IKEA, Nike, Uniqlo, Apple, Samsung and Tesla can, on their own, create supply chains in a nation where none exist.
If we want to create large-scale employment to drive economic prosperity, we need to appreciate the transformative role that large firms play and create strategies for these firms to significantly invest in India. Let’s take the example of Suzuki. In the early 1980s when Suzuki entered India, we lacked high quality automotive manufacturing capabilities. India didn’t have an automotive vendor base that could deliver reliable quality, or quantity. Since then, the company has invested in over 18 JVs for component manufacturing, built a vendor base of nearly 400 domestic and 70 international suppliers and achieved over 95 per cent localization.
In the process, it turned companies like Motherson, once a small wiring manufacturer, into a $ 9 billion global automotive component giant. Additionally, Suzuki’s success helped provide confidence to other large auto manufacturers such as Hyundai and Honda to invest in India. In the last 40 years, Indian brands such as Tata Motors and Mahindra Auto have also benefited from creation of this automotive ecosystem and now capture a significant share of the Indian passenger vehicle market. Further, the Indian auto sector has also shown early signs of global competitiveness with India exporting nearly 800,000 units of commercial and passenger vehicles in FY2023. When a large global firm decides to source from a particular country, it does so typically after several on-theground visits, analysis and internal discussion and debate.
Their massive capital and human resources allow them to take a long-term view. Their contribution comes in three different ways: firstly, they provide backstop volume guarantees helping seed investment, then they help in scaling the ecosystem by developing a robust vendor base and finally, as these value chains are created, they organically attract other global firms, leading to a sustainable high-growth phase. This experience is not unique to India; we have seen similar effects world over. Just in the last decade Samsung has successfully transformed the Vietnam economy.
In 2010, Vietnam had negligible electronics exports. Between 2010 and 2020, Samsung invested $20 billion plus in Vietnam, leveraging it for the manufacture of mobile phones, consumer electronics, and components. Today, Vietnam has become a global hub for electronics manufacturing exporting over $150 billion. A similar transformation is presently underway in the Indian electronics sector, where volume guarantees by Apple are transforming the mobile phone manufacturing ecosystem. This growth is also starting to show broader ecosystem effects across the electronics manufacturing ecosystem. Apple is not only helping India build domestic mobile manufacturing capabilities, given investments by local champions such as the Tata group, but is also likely to provide confidence to players such as Dell and HP. The next stage in the evolution of Indian electronics should be a migration of global supply chains for subassemblies and components.
But it is important to recognize that shifting supply chains is costly and risky. And the only way to attract global brands is to provide a reliable and globally competitive business environment. This involves not only achieving global competitiveness in regulatory aspects such as labour regulations but also enhancing the governance ecosystem and ensuring long-term policy stability. And while geopolitics has opened a door for India, unless we are able to attract these large global firms within the next two or three years, we are likely to lose out on this opportunity to countries such as Vietnam, Malaysia and Mexico. For India to succeed and achieve rapid economic growth, both Industry Associations and the Government need to come together to attract and anchor large firms. We need to establish a dedicated team under the direct leadership of the Prime Minister and negotiate directly with Global CEOs of these large firms to move to India.
This can even take the form of a dedicated Mission. Government action needs to be supported by Industry Associations who can provide on-ground support to seed investments though local partnerships. If India can successfully demonstrate global scale in a few sectors, we can create over 200 million jobs helping us achieve our Viksit Bharat Ambition.
(The writers are, respectively, Team Lead Strategy at the Foundation for Economic Development and CEO at Kusumgar.)