“India the Most Favourable Destination for Manufacturing But Our Quality Standards a Pre-requisite”

Mr. Eiji Sakai, Director, Hioki India

Mr. Eiji Sakai, Director, Hioki India

While a slew of enabling and incentivised measures taken by the Union government of India, state governments and Industry in the recent years to promote investments in India and making it the most efficient and profitable manufacturing hub in Asia have started to show results, many companies are still in the process of weighing all possible pros and cons before expanding or shifting base to India.

In a conversation with Ranjan Srivastava of EFY Group, Mr. Eiji Sakai, Director of Hioki India who has been based here researching the Indian market for Hioki’s expansion for the last one year, says that India is undoubtedly the most favourable destination today for manufacturing and its market size even has the potential of overtaking China. However, the enabling environment created to suit manufacturing and attract foreign investors ought to be communicated to a wider spectrum with more visibility.

Hioki Corporation, approximately with an annual turnover of USD 155 millions has its main factory site at the outskirts of Ueda in Nagano in Japan with all of their departments including development and production. They have their sales/trading offices all over the world though and are keen on exploring possibilities to find an off shore manufacturing unit.

Below is the edited version of the interview with Mr. Sakai.

EFY: Please share some background of your organization’s ventures and operations in India.

Hioki was established in Japan in 1935 when Japan became the manufacturing hub for the world. Our company makes quality testing and measurement equipments for Electrical and Electronics components for which the market was very big in Japan. So we initially concentrated in Japan. Now the Japanese market is saturated, we started looking out for global market. In global market, India is a big potential market in terms of consumers.

We are committed to producing quality products that we cannot compromise on. There are so many quality check processes in place in our Japanese manufacturing unit, that makes it tough for us to think we can produce the same quality elsewhere and compete with local manufacturers. Because in other places, quality checks are not as stringent and costly as we have.

Therefore, Hioki opened their trading and sales offices all over the world to sell their products without compromising on quality. Accordingly, it opened a joint venture in India in 2010 to do business. But the problem is same product is available in local market at a lower price because of lack of quality processes cost.

EFY: So you came to India as a trading destination. What will it take you to make it a manufacturing destination, because if you can invest even a lesser amount than you do in Japan because of human resources available here and highly incentivised policies of the government, you can produce the same quality products here?

Hioki has one manufacturing unit in Japan that produces high quality products. We do want to go out and explore other destinations but are afraid and apprehensive if we will be able to produce same quality products elsewhere. As we will expand, the demand will be more and so will be the competition. The question is if we will be able to maintain the same standards.

EFY: When you do decide to go out for manufacturing, what are the top destinations you have in mind?

Of course you cannot go to the Gulf or Africa or Russia to open a plant. In Asia, there are only two destinations we can think of: India and China. In Asia, if we go to other countries like Malasia, Singapore, Thailand, Taiwan, Philippines etc for manufacturing, the import duty will be same for Indian market that we are looking at as a bigger consumer market. So there is no point opening plants in these countries for consumption in India or China. Also, there are issues related to regulations in China. It’s market is also becoming saturated that makes India a naturally the most favorable destination, as it has a huge and happening consumer market.

EFY: Can you give some figures with regard to India’s and China’s share to your total business?

India contributes about 1% to the total business of Hioki, while China contributes about 10%.

EFY: Can you explain the difference and can these figures change for India?

China was the first destination for Japanese companies who started venturing outside. Hioki’s consumer being factories only, we also went there first to follow the market that had shifted to China.

But today we do feel that India will become a bigger market than China. China took almost 15 years to reach this 10% figure. We are hopeful that India will reach there in 5 years or less.

EFY: You have been in India for close to three years now. Is getting into manufacturing under deliberations and at what stage? Can you put a timeline to any such move, given you do think it is the most favourable destination?

We would not like to give a timeline but it is definitely under consideration. India is definitely one of our top priorities to invest more in.

EFY: What are the possible impediments?

Our products are made of different parts that is available in Japan. They all go through at least 10 different quality check processes. These quality checks by the way are done manually and not by the machine and all people involved in quality are fully calibrated. We are not yet confident of building the same kind of quality check control mechanism if we go outside. Even if we succeed in building the same quality mechanism, we are not sure if we will find the market for that because of availability of cheaper products locally. We are however planning to overcome these issues.

EFY: Apart from your own apprehensions on the issue of quality standards, what are the other hurdles for you to come to India?

First of all, we are in the process of building a market network for our products. Once we are sure of the consumption of our products, we will venture into manufacturing.  We also need to understand the internal dynamics of Indian market beforehand. That is why we are currently here to research the market for that.

Apart from that, India has still not become the parts manufacturing hub particularly in the electronics components. The parts like resistors, transistors, diodes etc that constitute IC (Integrated Circuits) Hioki uses for manufacturing is available in Japan and not so much in India. Censors that we use extensively too are not abundantly available in India. We are so dependent on those parts makers in Japan that we had to pay a heavy price in the aftermath of the disastrous earthquake and Tsunami in 2011 when our suppliers were affected in Fukushima and we ran out of suppliers. After that, Hioki began creating the supplier base outside Japan also.

We are also in the process of studying rules and  regulations in India. Some of the research on the total cost of manufacturing in India is still being carried out and studied.

However, the biggest pluses for India as a potential manufacturing destination remain its size and cheaper cost of human resources.

EFY: How are you researching about rules, regulations and policies in India? Any first-hand observation or remarks you would like to make?

We in association with our partner Khandela Electronics are doing the research on policies. I do want to say here that the policies, no matter how lucrative they are, needs to be more visible and communicated to the stakeholders. For example, our head office in Japan should know what part of India has the most conducive policy for an investment.

We do hear that the bureaucratic system is not in the best of shapes here and there is a lot of corruption. It is the perception outside that enormity of rules and regulations make the environment difficult for investors in India. We as a company certainly do not want to research on the lengthy paperwork. We would rather put those efforts in our production.

EFY: Last but not the least, when can we expect to see India becoming Hioki’s manufacturing hub from trading destination?

The plan is in place, the work in progress. As soon as we sort out some of the apprehensions, we would proceed further. We want to make a fool-proof decision. But it would be unwise not to tap the enormous potential India throws as a manufacturing destination.

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