Automation can make India global manufacturing hub: Aroop Zutshi, President & MD, Frost & Sullivan

Aroop Zutshi, global president & managing partner, Frost & Sullivan, lives out of his suitcase. Responsible for the day-to-day operations and performance of the offices, Zutshi has played a pivotal role in expanding the businesses of the consulting and market research firm across 32 countries with more than 40 office locations.

He works with Fortune 500 companies in designing their growth strategies by evaluating new opportunities for growth. In an interview with Sumit Moitra, Zutshi shares his perspective on emerging countries, the mega trends sweeping the economies and how Frost & Sullivan sees India.

Q. A recent Frost & Sullivan research report titled 'The Future of United States' talks about how social, technological, political and economic forces will reshape the business and lifestyle patterns of society in that country. How do you see Asia, especially India, getting impacted by such changes?

A. What we believe is that the future of the US, which is and would continue to remain the largest economy of the world, has important bearing on Asia. Given that now there is a formal agreement – the Trans-Pacific Partnership – signed between the US and several countries in Asia-Pacific including Malaysia and Indonesia, what we believe is that for the agreement to work and benefit partners, it has to be a two-way street. Companies in the US will have opportunities in the Asian markets, likewise Asian countries would get access to the US market. And as a result of this, the trade between the US and Asia-Pac would rise multi-fold. This would mean that standards in these Asian economies with respect to safety, quality and environment need to go up for them to participate in the US market. We are also saying that the future of the US would be a mixed bag – there would be challenges and also incredible opportunities. Since the US is huge, every player coming from outside has to – at multiple locations – have any impact. Again, each state in the US has its own separate regulation which every player has to respect. You also have to understand how the social fabric of the country is changing. For example, with the size of the millennials, who are between the age group 25-30, increasing, they would be the dominant consumer of product and services. Today, they account for 27% of the population. So, products and services would increasingly have to be designed to meet their needs. Also, the US would be a land of quantification where everything would be monitored and measured. It's a goldmine for those providing data analytics. So, we are advising out clients in Asia to understand all these elements – social trends, quantification and lot many factors.

Q. And if Donald Trump gets elected as the President, the decision-making process of the US government may get radically changed. That would be another to watch out for.

A. It's a possibility. However, it's very easy for a candidate, who is new to the system, to offer radical views. Mr Trump, on his own, doesn't have a track record. So it's easy for him to make statements. Some of the issues raised by him are real like illegal immigration, but the solutions aren't quite practical.

Q. When you talk about future of the US, and the future of Asia linked to that, how do you place China into that context?

A. The reason why the Trans-Pacific Partnership happened was to counter China's impact in the Asia Pacific, where the US now wants to have a much bigger role, economically as well as militarily. So, China is feeling the pressure, particularly with the backdrop of rising cost of production there forcing many manufacturers to shift to low-cost destinations like Vietnam, Bangladesh, Cambodia. And many US companies are returning back to near-shoring, and as a consequence, Mexico has turned into the biggest beneficiary. Many of the plants of US and Europe have moved from China to Mexico.

Q. Frost & Sullivan has been advising large companies on which market and which geographies to target. What about start-ups?

A. With the understanding of geographies and markets and technologies, we have started mentoring start-ups. When you come to us with an idea, we look at it with a 360-degree perspective and fine-tune the idea accordingly. Then, we help to identify the customer segment, which is the single biggest component. Many start-ups fail just because they fail to focus on customers in their hurry to develop products. So, apart from finding out what you are trying to disrupt and what problem you are trying to solve, you also need to find what the customers are willing to pay. Raising of capital is also another area where we help including choosing the right kind of investment vehicle.

Q. Do you have plans to incubate start-ups here?

A. Our incubation centre is now in California's Bay area where there are about 40 companies and we are now full. We don't have plans to incubate start-ups in a similar way here, but, maybe, at some point in future we might come up with a centre in Argentina. Remember, the government there changed and with the new government coming in, a lot of things are getting transparent and transferring money out of the country is getting easier while currency is getting stabilised. With this, we hope to create an enabling ecosystem.

Q. Like Argentina, what are the economies you see which are reinventing themselves in the current global environment in a positive way and thereby making them attractive to foreign investments?

A. If you look at South East Asia, two countries that I find attractive, in terms of outsourcing opportunities, are Malaysia and Philippines. Both of them have their unique attractiveness, but the one which will make tremendous progress is Malaysia. They have created special economic zones all throughout the country. Of particular significance and the one having the most impact is Iskandar Development region at Johor in Southern Malaysia, a completely greenfield city that they have created from scratch. It will be a smart city for knowledge-based economy. They recently commissioned a global business support centre, a major outsourcing centre, where I was there recently during the inauguration. They want knowledge jobs to come there and it has already begun. Malaysia would definitely be one of the biggest competing forces in this part of the globe. The other one is Philippines, though they are way behind. There the government has been stable only for the last few years and their level of investments and commitments are not at the level of Malaysia's. So, they will take time.

Q. Coming to India, Frost & Sullivan's research on the world's top 100 countries for growth, innovation and leadership puts India on the number 1 ranking, something which was highlighted extensively during the Make in India campaign by the government. You also brought out a white paper on need for smart manufacturing with automation. How do you see manufacturing taking off here?

A. Manufacturing is obviously important, and if you go to any advanced country, anywhere between 15-20% of the GDP is accounted for by manufacturing. India, where the ratio is at 15%, should try to bring it up at 20-25%. But what we are saying is that going for low-cost manufacturing – making things cheaper – is not the way. For India to have a stake in long-term manufacturing, investments should be made in automation. And this means that there would be lesser job creation: where there could be 100,000 jobs, fraction of that might get generated. But it's better to participate in that automated environment than leveraging cheap labour because very soon somebody would produce cheaper, better and faster than you. That's not a game you want to play.

Q. Recently, there was a news report about a lone techie in Tokyo creating a humanoid Scarlett Johansson lookalike robot in his garage using parts which mostly came from his home 3D printer. Is this the future of manufacturing and production development?

A. Absolutely. We are seeing two major disruptions in manufacturing. The first, like you said, is 3D printing. What we are seeing now are the initial glimpses of the possibilities. The example you gave shows the power of 3D technology. As time progresses, we would see the phenomenon of desktop manufacturing. Every household would be manufacturing something. Second is what we call Manufacturing 4.0. There IT, automation and telecom, all will come together, creating a new standard. This will completely automate your shop floor end-to-end including supply chain where every piece of equipment would be sensorised. You can control every piece of equipment, and feed data into it. This whole ecosystem is now being created by the Germans and is now fast gaining popularity across the globe. So, the whole process, right from product planning to development to shipment and logistics would get unified and controlled.