Wednesday, April 29, 2015

China Is Set to Lose Manufacturing Crown


The cheap, young labor and strategic location of Myanmar, Cambodia and Laos are set to draw increasing numbers of manufacturers to Southeast Asia, which will eventually displace China for the title of "world's factory.''
The transformation will be part of the rise of the Association of Southeast Asian Nations to become the "third pillar'' of regional growth after China and India, ANZ Bank economists led by Glenn Maguire reckon. By 2030, more than half of 650 million people in Southeast Asia will be under the age of 30, part of an emerging middle class with high rates of consumption.
"We also believe Southeast Asia will take up China’s mantle of the ‘world’s factory’ over the next 10-15 years as companies move to take advantage of cheap and abundant labor in areas such as the Mekong,'' ANZ said.
What will likely assist this shift is the connection between low-cost labor in places like Myanmar, Cambodia and Laos, cost-effective manufacturers in Thailand, Vietnam, Indonesia and the Philippines, and sophisticated producers in Singapore and Malaysia. Southeast Asian nations have resolved to establish the Asean Economic Community by the end of 2015 to enable the free movement of goods, services, capital and labor between the 10 member states.
Together, the Southeast Asian nations could lift intra-regional trade to $1 trillion by 2025, ANZ estimates. Foreign direct investment into Asean from the major economies could climb to $106 billion in 2025, having already eclipsed investment into China for the first time in 2013.

"Most of Asean's member countries lie at the junction of the Pacific and Indian Oceans," ANZ noted. "The land-based members of Asean sit between the two most populous countries in the world – China and India. Access to these land and maritime routes allows Asean to participate in Asia’s expanding production network.''

Sunday, April 26, 2015

Mexico steals a march on China in car manufacturing


 
China’s manufacturing crown is slipping. Shoe, textile and electronics makers have been shifting capacity to lower cost centres such as Vietnam and Bangladesh for several years.
Foreign direct investment into China’s manufacturing sector posted a rare overall decline last year. Now there are signs that even in car manufacturing — a national strength — competitiveness is diminishing.

Data compiled by fDi Markets, an FT data service, shows that an inflection point was reached in 2013, when Mexico attracted 12.6 per cent of global foreign direct investment into the auto industry, surpassing the 12.4 per cent share that China took.Auto manufacturers are increasingly finding Mexico a more attractive location to expand production as China slips back, beset by an average 16.8 per cent rise in automotive salaries between 2009 and 2014.
Data for 2014 are not yet available but appear likely to reaffirm a trend that has been evolving since 2011, when auto investment flows to Mexico began to surge (see table).
Over the past year or so, seven Asian and European auto manufacturers have opened new Mexican assembly factories, or announced plans to do so, while others have boosted their capacity in the Latin American country, according to company announcements.
 China and Mexico: Automotive sector — market share (%)
 200520062007200820092010201120122013
China17.0616.2610.813.0615.1613.9913.5812.7112.4
Mexico1.934.283.854.355.754.535.059.0512.56
Source: fDi Markets
Based on number of inbound greenfield FDI projects
In March, VW said it would invest $1bn expanding its production of small SUVs in Mexico for export to the US. Nissan Motor, General Motors, Ford Motor and Fiat Chrysler are also boosting their Mexico operations.
Labour costs are a significant part of Mexico’s relative appeal, as pay in China has risen more sharply than in Mexico since 2009. In absolute terms, Chinese wages are now significantly higher than Mexico’s for unskilled production workers, though they remain lower for engineers and skilled workers.
An unskilled worker in a Mexican auto plant could expect to earn annual pay of $3,645 in 2014, less than an average of $5,726 a year in China, according to fDi data.
 Growth in overall annual salary costs of automotive OEM workforce* (% change) 
 200920102011201220132014Mean
Brazil4.3613.3619.92-6.68-2.23.825.43
Mexico10.06-8.936.12-0.756.1716.714.9
China14.48.9232.9322.3111.0711.2516.81
Malaysia0.67-11.4316.10.27-3.315.131.24
Thailand-8.4616.420.8710.328.2910.239.61
India13.977.6410.9-6.63-5.9312.595.42
Indonesia9.4-2.2813.18-1.482.36-18.620.43
 Source: fDi Benchmark 
 *Headcount: 700
In addition to labour considerations, Mexico’s trading alliances are far superior to China’s. Mexico has free trade agreements (FTAs) with 45 countries, including the North American Free Trade Agreement, which allows it to export products without duty into the all-important US market. China, by contrast, has only 12 FTAs (though it aims to create 20 more), so its products hit tariff barriers upon entering North American and South American markets.
None of this means that China has faded into the slow lane. Having displaced the US as the world’s largest manufacturer in 2010, it is investing feverishly in automation to sharpen up.
The International Federation of Robotics estimates that the stock of operational industrial robots in China will more than double to 428,000 by 2017, when the country is set to lead the world in installed robots.
While China may be ceding ground to Mexico in auto manufacturing for now, the race is far from over.

US blue-chips’ overseas sales feel impact of strong dollar


International sales at US blue-chips ranging from PepsiCo to Google are being hit by the strong dollar and the emerging markets slowdown, despite the companies enjoying a recovery at home.
Overseas revenues account for about 30 per cent of sales at S&P 500 companies, highlighting the dollar’s effects on earnings. The US currency’s first quarter rise against a basket of major currencies was its sharpest since 1981, according to Barclays.

Pepsi, the drinks and snacks group, blamed the dollar’s strength for stagnant operating profits, increasing the amount it expects the strong currency to shave off its full-year earnings per share to 11 percentage points.Currency swings weighed on technology groups’ earnings, with Google saying its first quarter revenues would have been $795m higher at constant currencies and Microsoft saying the dollar lowered its reported sales by $534m.
Consumer products group Procter & Gamble’s third-quarter sales fell nearly 8 per cent to $18.1bn, reflecting an 8 percentage point hit from the dollar. Like other US multinationals, P&G is expecting the pummelling from the strong dollar to continue, forecasting a 5-6 per cent fall in net sales for its full year to the end of June.
Several companies said they planned to mitigate the adverse currency effects by cutting costs and sourcing materials closer to the countries in which they operate.
AG Lafley, P&G’s chief executive, said: “We’ll offset foreign exchange over time through a combination of pricing, mix enhancement and cost reduction.”
The dollar’s strength has weighed on emerging markets, where the International Monetary Fund expects growth to decrease to 4.3 per cent this year, as China’s slowdown sends ripples across the global economy.
Caterpillar was among the companies reporting weaker demand for its equipment as emerging market economies continue to slow and energy companies back off from capital spending plans.
Both Pepsi and Caterpillar highlighted instability in Brazil as a cause for concern. The South American country is expected to have fallen into recession in the first quarter as a tumbling real and the Petrobras graft case exacerbate its economic woes.
Indra Nooyi, chief executive of Pepsi, said on Thursday that its Brazilian business was “still holding” but she added that the company was watching the region “very carefully”.
We can expect an appreciating dollar to eat into the sales of export-oriented firms and compress the margins of those with substantial operations abroad
- Dana Saporta, Credit Suisse
Russia’s economic woes took their toll on GM’s first-quarter earnings as the carmaker’s shrinking business in the country put a brake on profits as it took a $400m charge to cover the cost of revamping its operations.
Hershey’s hopes for China also received a blow in the first quarter after the chocolate maker missed forecasts. John P. Bilbrey, head of the company, blamed the external economic environment in Beijing for its woes.
“We can expect an appreciating dollar to eat into the sales of export-oriented firms and compress the margins of those with substantial operations abroad,” said Dana Saporta, an economist at Credit Suisse.
Earlier in the week, drinks group Coca-Cola also reported headwinds from the strong dollar, which wiped 7 percentage points from its pre-tax profit for the January to March quarter. Fast food retailer McDonald’s saw currency woes exacerbated by company-specific problems including a loss in consumer confidence as it struggles to overhaul an image tarnished by food scandals in China and Japan.

Falling PC demand puts heat on Microsoft



Sagging demand for new PCs hit Microsoft’s earnings in the first quarter this year, adding to pressure on the company to show it can move faster in overhauling its business for the cloud.
However, the US software company still managed to handle the weakness in its core market better than expected in the latest period, leading to a 3.8 per cent rebound in its shares in after-market trading on Thursday.

Margins have also fallen as Microsoft’s business has shifted to become more dependent on hardware sales and cloud services, which are less profitable than its traditional software licensing revenues.With the stronger dollar also weighing on reported results, Microsoft’s revenues grew 6 per cent to $21.7bn. Wall Street analysts had expected revenues of around $21.1bn.
As a result, operating profits fell 5 per cent and net income was down 9 per cent in the latest quarter, the third of Microsoft’s fiscal year. Earnings per share of 61 cents were down from 68 cents a year before, though still well ahead of Wall Street expectations of 51 cents.
Cloud revenues, meanwhile, grew strongly as customers switched to a new online version of Office and demand picked up for Azure, the company’s cloud software platform. Revenues from cloud services rose 106 per cent, continuing the trend of recent quarters.
Satya Nadella, chief executive, claimed the figures showed the company was “well on our way to transforming our products and businesses across all of Microsoft.” Much of the company’s cloud revenue represented new business for Microsoft rather than simply a replacement for lost software sales, with more than half of Azure sales falling into this category, he said, adding: “These are people who never bought a server from us.”
Tech research firm Gartner had already estimated that PC shipments fell nearly 6 per cent in the first three months of this year, as a temporary jump in demand caused by the end of support for the Windows XP operating system last year had run its course.
The impact was particularly noticeable in Microsoft’s consumer devices and software licensing segment in the latest quarter, where revenues were down 25 per cent to $3.5bn as sales of Windows and Office declined.
Despite rapid growth in cloud revenues, they still represent only around 7 per cent of Microsoft’s overall business. That has left Wall Street nervous about how well the company will be able to weather a decline in its core software business as customers move faster to the cloud.

Amazon tops forecasts with 15% sales rise



Amazon has disclosed that its fast-growing technology subsidiary, Amazon Web Services, is also one of its most profitable businesses, a revelation that will increase competition among tech companies sparring for dominance in the cloud.
Amazon Web Services reported sales of $1.6bn in the first quarter, up 50 per cent from the previous year. The subsidiary has the highest margins of any Amazon segment, with an operating income margin of 17 per cent.

The ecommerce group overall beat expectations with $22.7bn in net sales in the first quarter, up 15 per cent from the year prior. Growth in its tech subsidiary helped compensate for a strong dollar and weak sales growth outside the US.
Amazon’s retail operations were hit by a strong dollar in the first quarter, particularly international retail, which saw growth slow to 14 per cent in currency-adjusted terms. The company has been investing heavily to increase its sales outside the US, with mixed success.
The company reported a loss of 12 cents per share, in line with expectations, due in part to charges for stock-based compensation and amortisation expenses.
AWS rents out computing infrastructure and software to IT professionals, which is in increasing demand as companies move from on-premise data centres to cloud offerings. It is the biggest public cloud provider in the world by usage, although it faces growing competition from GoogleMicrosoft andIBM.
AWS was just 7 per cent of Amazon’s net sales last quarter, but company executives say it could one day overtake the company’s retail operations to be Amazon’s biggest business.
“Amazon Web Services is a $5bn business and still growing fast — in fact it’s accelerating,” said chief executive Jeff Bezos, referring to usage rates. “Born a decade ago, AWS is a good example of how we approach ideas and risk-taking at Amazon.”
The AWS numbers, which were disclosed for the first time on Thursday, also highlighted Amazon’s heavy investment in the business. Last year Amazon spent some $4.2bn on property and equipment additions for AWS, including capex as well as assets acquired under capital leases, nearly twice as much as the prior year.
Tom Szkutak, chief financial officer, said: “We are deploying a large amount of capital for AWS because growth is so strong.” He pointed out that the usage growth, which has been roughly doubling annually, has driven the increase in capital spending.
Lydia Leong, analyst at Gartner, said the profitability of AWS was a surprise.
“A lot of people have looked at cloud computing, and at what Amazon and Microsoft and Google are doing, and asked, how can they make money given the prices they are charging?,” said Ms Leong. “The positive operating margins speak to the fact that this is a business that benefits from economy of scale, and it has dynamics that are more similar to software markets than hardware markets.”
AWS has cut prices nearly 50 times since inception as it seeks to win market share versus Microsoft and Google.

Made-in-China cars steer course abroad



Over the coming weeks, a few Volvo cars will begin a historic journey from southwestern China to the US. The Swedish company’s S60L sedans will be transported by truck to Shanghai’s port, loaded on to car carriers for shipment across the Pacific, and finally rolled off in Los Angeles.
Manufactured at Volvo’s new plant in Chengdu, the first made-in-China passenger cars purpose-built for export to the US are a reminder of how far the country — like Japan and South Korea before it — has come in global manufacturing terms.

China has evolved from a supplier of low-cost, labour-intensive products to an exporter of what Ralf Speth, chief executive of Jaguar Land Rover, calls “the most complex consumer product on earth”.
“China will probably follow the path we have seen with Japan and Korea but will do it faster,” HÃ¥kan Samuelsson, Volvo’s chief executive, said at this week’s Auto Shanghai, one of China’s two annual premier car shows. “I would say 2020 is realistic to see Chinese cars on the global market.”
Unlike Volvo, a unit of Chinese carmaker Geely, most multinational car executives are reluctant to talk about China as a possible future export platform for their companies.
That is in part because they do not want to compete against sister units overseas and would also have to share their export earnings with their Chinese joint venture partners. Chinese government rules cap foreign ownership of automotive factories at 50 per cent.
But with huge capacity investments in China coming on line just as annual economic growth falls to a “new normal” of below 7 per cent, the question about whether that capacity should be used for exports is not going away.
Jacques Daniel, head of Renault’s China business, says his overseas colleagues raise the export issue frequently. “The question is often asked by our colleagues at Renault because they are afraid we are going to export,” Mr Daniel says. “But with such a big market here, all our energy should be focused on China.”
Renault is a late-comer to China, the world’s largest car market with more than 20m units sold last year. The French company will not open its first factory in the country until early 2016. The joint venture with Dongfeng Motor in Wuhan will have an initial capacity of just 150,000 units.
At the other end of the spectrum GM and Volkswagen, the top two automakers in China, will have a combined manufacturing capacity of almost 10m units in their most important market by 2018. GM is in the midst of a five-year $14bn China investment drive that will increase capacity 25 per cent this year alone.
Both companies believe that even such huge capacity increases can be absorbed by China alone. “We want to build where we sell,” Mary Barr, GM’s chief executive, said at an Auto Shanghai briefing. “It’s still important to make sure we have the capacity for the domestic market.”
“At the moment we’ve seen most of the capacity only supporting the local market because the local market has been running fast,” adds Ian Robertson, director at BMW, noting that exporting from China is “something we haven’t taken a decision on yet”.
Major new factories in central and western China, chart
Volvo’s Mr Samuelsson, meanwhile, says that although his company is proud to play a “pioneering” role in China’s emergence as an automotive exporter, he emphasises that the exports of Chengdu-made vehicles to the US is a “niche” effort.
This year Volvo will ship no more than 2,000 S60L sedans to the US, with that number rising to about 5,000 over the next few years. The majority of Volvo cars sold in America will continue to be exported from its plants in Sweden and Belgium, or will be built by at a new factory it intends to open in the US.
The S60L was originally developed with a longer wheelbase, providing more back-seat legroom for a generation of wealthy Chinese car buyers who preferred to be chauffeured. Volvo believes the roomier vehicle will also appeal to American families.
Capacity utilisation rate for JVs remains high
As long as China’s domestic market grows fast enough to absorb multinational car companies’ capacity expansions, the real test of the country’s automotive export prowess will be international acceptance of Chinese brands in developed markets such as Europe and the US.
So far, even well-regarded Chinese companies such as SUV-maker Great Wall Motor have exported primarily to developing — and often volatile — markets such as Iran, Russia and Ukraine.
But that is changing. Clemens Wasner at consultancy EFS points to the award-winning CS75 SUV developed by Chang’an Auto, which is also Ford’s primary China joint venture partner. “Design-wise it’s already done very well on the likeability scale,” says Mr Wasner. “With a few tweaks you could sell this, let’s say, on the periphery of the EU.”
“The local brands will become more international,” agrees BMW’s Mr Robertson. “And over the longer term the China car industry will become part of a more global supply as well.”
...........................................
GM uses China as Southeast Asia foothold
While GM says it has too much domestic demand to handle in China to contemplate exporting from the country, it is using one of its Chinese joint ventures to establish a beachhead in Southeast Asia — a region traditionally dominated by Japanese automakers, writes Tom Mitchell in Shanghai.
The US carmaker confirmed in February that SAIC-GM-Wuling (SGMW), a joint venture with Shanghai’s SAIC Motor and Wuling Motor, would build a factory in Indonesia to produce Wuling-brand vehicles for sale across Southeast Asia.

“Indonesia makes perfect sense because Wuling really has a competitive product in the low-cost segment,” says Clemens Wasner, a Tokyo-based automotive analyst with EFS. “It also shows that without a strong partner with expertise in low-cost vehicles, it’s almost impossible for a non-Japanese foreigner to penetrate Southeast Asia.”The Wuling brand has been particularly successful in relatively less wealthy, “lower tier” Chinese cities. “When you look at Indonesia and you look at SGMW’s product line, there’s a good match,” Mary Barra, GM’s chief executive, said at Auto Shanghai.

GM earlier this year pulled the plug on its sole Indonesian vehicle factory after failing to gain ground on Japanese rivals.
When SGMW does begin manufacturing in Indonesia, it is likely to encounter competition from another Chinese rival. Dongfeng Motor, based in Wuhan, last year paid €800m for a 14 per cent stake in France’s Peugeot, with which it already had a successful China joint venture.
One of the partnership’s stated goals is to pursue export opportunities in Southeast Asia — and possibly further afield as well. “The reason Dongfeng invested in Peugeot was to get China as an export base,” says Janet Lewis at Macquarie Securities.
“You could also in future see cars designed for the China market exported as they won’t be made elsewhere,” Ms Lewis adds, citing the potential popularity of BMW’s China-made long wheelbase sedans in markets such as the Middle East.

Friday, April 24, 2015

On-demand delivery the next battlefield in competition: Bain & Co.


Peter Guarraia, partner at consultancy firm Bain and Co. and senior leader in the firm’s global performance improvement practice, has advised companies across the world on how to build supply chain and logistics as a competitive strategy. With more than 20 years of management consulting experience, Guarraia has worked on a range of issues, from supply chain optimization to manufacturing, production efficiency and merger integration. He spoke in an interview about how Indian companies should focus on digitization to build their supply chain and keep an eye out for on demand delivery, the next big thing in e-commerce. Edited excerpts:
How are we doing on supply chain and logistics efficiency in India? The number that sticks to mind is the supply chain cost of 13% of gross domestic product. Are we doing well on that front?
You are not doing well versus other countries. In terms of talent, you’ve got some talent but obviously you need more supply chain talent. You could do with twice as many. Thinking about logistics, just moving things from state to state is still quite difficult. Those are two big issues. But there are a lot of changes taking place. So the changing tax regime, the way the government of India is thinking about the ‘Make In India’ campaign, these are going to make India as a much more attractive place to do business. From a global perspective, most multinational companies look at India and say, that’s a market I want to be in. The opportunity is there so they are willing to put up with the short-term supply chain challenges.
What are your clients in India telling you?
Really, what they are looking at is how do I optimize my performance for the future? And the topic we are raising is digitization of supply chain. There are companies here which are going to leapfrog to where companies are in the United States. Why? Because they aren’t tied to an existing asset base, existing supply chain processes. Given the emerging trends in supply chain, you can actually go from emerging market type of characteristics to world-class characteristics very quickly.
Like?
Through finding a third-party partner. Or by applying some software tools in the market, whether it is Big Data analytics or mobile applications or tracking technology. Our clients in India are saying, ‘I want to take advantage of this, how do I do it?’
Is the solution to better supply chain investment in information technology (IT)?
Yes. But it is not that simple. Business-to-business supply chain exists. What you are seeing now is business-to-consumers market evolving so rapidly, our business clients are saying, how do I become more likeAmazon? Or like Domino’s Pizza—where I can order a pizza, and I can track that pizza from making it to the oven to the front door. Can I do that with my industrial product?
Which obviously can be done on a mobile phone?
The answer is ‘yes’ and ‘no’. And I apologize for giving a two-part answer. The ‘yes’ part first. At the most basic level, you can use SMS to collect very simple bits of data and make very robust decisions about supply chain. However if you start to get more and more sophisticated, there are effective tools like Big Data analytics which allow you to proactively think where you should be placing your inventory, how you should be configuring your network. There are tracking software tools that allow you to track a product from manufacturing to distributor to the customer.
All these things exist and can be implemented very quickly. The pace of change is incredibly quick. So it used to take three months to get a server. Now you can just call Amazon analytics and in 5 minutes you have a server running for you. The complexity in the system—and this is the ‘no’ part—there are two problems companies face. They don’t have the expertise in the company to run all this technology. So you have all these data flowing in, what do you make of it? So you have all these decisions to make, who makes it? The second point is: the technology that exists out there is unproven, it has been deployed and people have made it work in certain situations but it is not what I would call battlefield-tested. So you can actually end up spending a lot on a solution that doesn’t allow you to do what you want to.
Can companies do this by themselves? Especially small companies, or say start-ups in the e-commerce business, because they seem to have that ambition.
There are a lot of people out there who believe they can make logistics and supply chain their strategic, competitive weapon. I think the reality is when you talk about Amazon. That level of infrastructure and customization capability is very hard to replicate. And if you think you are going to replicate that as a small entrepreneurial company, you either have a very narrow, targeted set of products or a very narrow, targeted set of customers.
If you want to open the market up as broadly as possible, be it products or services or customers, it probably makes sense for you to use a third-party logistics provider who can give you the benefits of scale very quickly. If you are looking for an Amazon-like experience and you have the scale and resources to build out the capabilities—that’s IT, logistics, processes, management team—by all means you should do that because it will allow you to differentiate the market.
So do you think it will be easy to build out a delivery company in India today?
I think it is attractive, not easy. That’s the beauty of India. It is a very large, diverse market and if you are focused on delivering a high-quality service, then you can do it. It would be much harder to do that in the United States because the barriers to entry are so high.
Just on the point of delivery, we are seeing more people talk about on-demand delivery and same day. Are the days of waiting for two or three days gone?
Absolutely. I actually think this will be more advanced here than in the United States and the reason is because Mumbai and Delhi has a much dense environment. And the cost of labour here, relative to product, is much lower than in the United States. Having a UPS or FedEx guy carrying products from door to door is prohibitively expensive. Here, you can find the labour to do that and do it very efficiently.
On-demand delivery is going to be the next battlefield in competition. If you look at Amazon in the US, it is picking out every major municipality and starting to think how to put hubs in every one of them for same-day delivery. What they are doing is pre-positioning inventory, so they know or suspect things that have a lot of demand and they will push that inventory to the municipality. It is not like you can get a TV or a washing machine but for some critical things, same-day delivery is the way to go.
How is the supply chain space going to look like in India five years down the line? Modelling a scenario is something that Bain is really good at.
So here’s what I think; one region will look much more like another. So I think you will have same-day delivery here, you will have autonomous warehouses here with robotic pick and pack, a much more transparent supply chain where customers and manufacturers can track goods back and forth. Will you be world-class? No. But you will be a lot closer to the US and any other Western European country.
Any drones?
I don’t know about drone delivery. I don’t know if it is going to even work in the US. It is an interesting side show; I don’t see it as an economically viable way of doing it. Except in the most dense markets, and maybe there, but not because the power-to-weight ratio isn’t there.

Indian companies may go green to meet power needs by 2020


Indian companies could soon figure among the likes of global firms such as Nestle, Mars, Philips and Ikea that plan to switch to green energy sources as part of the RE100 initiative, under which 100 large firms will rely exclusively on solar, wind, biomass or small hydro plants for their power requirements by 2020.

RE100, convened by international non-profit agency The Climate Group and sustainability firm CDP, has 15 members at present, including Elion Resources Group, one of China's top private enterprises, which has committed to rely entirely on renewable energy by 2030.

"We are talking to a number of Indian companies and will announce a name in two weeks' time," Mark Kenber, CEO of The Climate Group told ET. According to Kenber, there are a number of reasons for focusing the campaign on India, the primary one being that companies suffer disruption of business activities due to power cuts and end up paying a lot more for expensive back-ups. "By investing in thirdparty power purchase agreements or installing their own power sources, companies get to lock up not only long-term electricity prices, which helps them save, but also earn returns from their clean installations, as is happening in China," Kenber added.

A new report, 'China Analysis 2015', by The Climate Group points out that the (Chinese) central government increasingly sees the opportunity for stimulating businesses — the biggest end-users of energy — and has introduced a number of incentive schemes for renewable energy investment that are already attracting interest.

Indian companies may go green to meet power needs by 2020

RE100's founding partner, Ikea, has committed to producing renewable energy equivalent to at least 70% of its consumption by 2015 and to producing as much renewable energy as it consumes by 2020.

This includes the energy used by the company's own manufacturing operations. By 2013, half of IKEA's stores in China had gone solar, with yearly electric energy production now topping 1.6 million kWh.

Several companies in China, including L'Oreal and P&G, have taken the initiative to secure renewable electricity through agreements with their local electricity providers.

"China has provided support for the demand side of the energy equation by giving subsidies to corporates for in-house power generation. The returns are between 5% and 20 per cent. Companies do it purely for economic reasons," he said, adding that when policy and incentives are put in place, businesses respond. Certain cities and regions are also pioneering new forms of purchasing contracts that provide companies with opportunities to source green electricity directly from the grid, says the report.

China, the world's leading investor in renewable energy, increased its investment to $89.5 billion in 2014, up 32 per cent from that in the previous year. This was nearly 73 per cent more than the United States, the next largest investor.

Just like China, Kenber said, India too should put more emphasis on the demand side, by providing companies with more subsidies for their own production, as opposed to only supply side or large utility scale projects.

Large companies worse off as tractor sales continue to decline


Clouds of gloom loom over the domestic tractor industry, as 2014-15 closed with a double-digit sales decline. Moreover, Wednesday’s monsoon forecast point at below-average rainfall in India during 2015 would be detrimental to agriculture and rural demand, including tractor sales.
A huge 30% year-on-year sales decline in March marked the sixth consecutive month of pathetic sales. Noticeably, large companies like Mahindra and Mahindra Ltd (M&M), TAFE Ltd and Escorts Ltd posted higher declines than the smaller ones like Sonalika, which clocked growth on low volumes.
The trend was similar for the full fiscal year, with tractor sales contracting by about 13% from a year ago. M&M and TAFE underperformed the industry’s average, posting a drop of about 14%.
It was the steep 25% sales drop in the central region of the country that spoilt the party, while the decline was not so steep in other regions. This does not bode well for manufacturers’ fortunes as weak demand led to higher discounts and sales incentives, which hurt profit margins.
Analysts expect the decline in sales to continue even in the first quarter of the current fiscal year. A report by Karvy Stock Broking Ltd that hints at a flat sales growth even for the year to March points out, “Majority of the players expect more or less flat volume for fiscal 2016 with negative bias amid crop destruction, lower minimum support price and ongoing slowdown in rural economy.”
Extending the gloomy picture will be the weak monsoon. Given that the country’s agriculture was already hurt in 2014-15 by lower than expected and erratic rains, the ability to withstand another year of weak monsoon will be less, with larger impact on farm incomes and rural demand and consumption.