Global Value Chain and

Employment in Developing
Economies

Class : A

Group 4
1. Aditya Dixit – IGTCPG27MU008
2. Nidhi Adke- IGTCPG27MU051
3. Pratik Sanap- IGTCPG27MU056
4. Sheetal Momaya- IGTCPG27MU079
5. Tushar Patil- IGTCPG27MU093
6. Vishal Patil- IGTCPG27MU099

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 INDEX

Contents
INTRODUCTION .................................................................................................................................. 1
Global Value Chain................................................................................................................................. 5
What makes GVC different? .............................................................................................................. 6
What determines countries’ GVC engagement? ................................................................................ 7
Producer and Buyer-driven Value Chains ........................................................................................... 9
Standing of India in the World.............................................................................................................. 10
Insights on India’s GVC...................................................................................................................... 12
Aerospace Industry in India and Global Value Chain .......................................................................... 14
Aerospace industry - Global .............................................................................................................. 15
Future projections: Global and Asia.................................................................................................. 15
Godrej Aerospace ............................................................................................................................. 18
TATA Aerospace & Defense .............................................................................................................. 19
Medical Device Industry and Global Value Chain ............................................................................... 21
Regulatory Regimes in Medical Device Industry by Government of India ....................................... 23
Growth by 2030 in medical device Industry ..................................................................................... 24
How will you Increase our Presence in medical device sector in GVC?............................................ 26
Impact of Heal In India ...................................................................................................................... 28
Heart Valve industry: ............................................................................................................................ 29
Key Players in Heart Valves: .............................................................................................................. 31
Market Drivers .................................................................................................................................. 32
Market opportunity: ......................................................................................................................... 35
Strategies for Heart Valves: .............................................................................................................. 36
Conclusion: ........................................................................................................................................... 38

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INTRODUCTION
Global value chains provide opportunities for developing countries to diversify their exports
and intensify their integration into the global economy. This is one of the key findings of the
“Global Value Chain Development Report” recently published by the World Trade
Organization (WTO), World Bank, and other partners. Developing countries traditionally
exported unprocessed raw materials. The leap to exporting manufacture products was
complicated because it required a full suite of complementary industries. Today, the rise of
global value chains (GVCs) enables developing countries to slot themselves into a part of the
production chain without having to produce a complete, final good.
As a result, developing countries now mostly export manufacturing value-added.
Developing countries deeply involved in GVCs have been able to leverage this involvement
to achieve rapid productivity growth, gains in modern sector employment, and impressive
rises in living standards and declines in poverty. Witnessing this rise of GVCs, stakeholders
in developing countries typically want to see their country more involved in value chains, and
moving to higher-value-added activities within the chains over time. The report identifies
some of the key factors associated with integration into GVCs. While the Government is
working to resolve the working capital blockage issue of exports caused by the GST, a
simultaneous effort is on to find new ways to export more. Active participation in global
value chains (GVCs) is one sure way. Inputs and products manufactured in GVCs account for
two-thirds of world trade. The GVC model breaks the product life-cycle into many tasks.
Participating countries complete each task sequentially under „Just in Time‟ conditions. The
iPhone is a good example to understand how GVCs work. The US prepares the iPhone design
and prototypes, while Taiwan and South Korea produce critical inputs such as integrated
circuits and processors. Final assembly takes place in China from where the iPhones are
marketed all over the world.

Small basket
Everyone understands that poor trade infrastructure increases cost and time of export
operations. But that it can also almost prohibit a country from participating in GVCs is not
sufficiently known. India‟s current export product profile confirms the poor trade
infrastructure hypothesis. To understand the impact of poor infrastructure on India‟s current
export profile, let us divide world merchandise trade of $16 trillion into two baskets, small
and large. The small basket contains products that account for 30 per cent or $4.8 trillion
worth of world trade. The large basket holds the remaining 70 per cent. A country that

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exports products that belong to the large basket will have higher chances to grow. Ironically,
70 per cent of India‟s export earnings come from the small basket products. India has a high
share of world exports in the following such products: small diamonds (19.8 per cent),
jewellery (12.9 per cent), rice (39.3 per cent), buffalo meat (19.1 per cent), and shrimps (17.7
per cent). Other major products are petroleum, cotton, yarn, ladies‟ suits, medicines, auto
components. The small size of the global basket limits the potential for future growth. Also,
most products face intense competition from low-cost countries such as Bangladesh and
Vietnam.Small basket products are tolerant of less efficient trade infrastructure. Firms export
most goods more on price than on delivery considerations. Some delay in shipment does not
result in order cancellation. An exporter may get away with offering a discount to the buyer
in most cases.

Weak global share

Then come the large basket products that contribute to 30 per cent of India‟s export earnings.
Electronics, telecom, and high-end engineering products are important large basket
items.India has a weak global export share in these commodities. Mobile phones (0.19 per
cent), integrated circuits (0.01 per cent), computers (0.04 per cent), solar-powered diodes,
transistors (0.14 per cent), LCDs (0.04 per cent).Compare these shares with India‟s 1.7 per
cent share of global merchandise exports. India has an insignificant presence in large basket
products that have become important in world trade.Most large basket products are infra
critical products whose parts are manufactured in several countries.An anchor firm manages
the process through GVCs. Fast entry/exit through port/customs is a precondition to making
such products as delay may disrupt the entire value chain. China, Japan, South Korea,
Thailand and Malaysia have become part of GVCs through the quality trade infrastructure
route. India could not as it does not meet the benchmarks for efficient entry/exit at the most
ports/customs.

 How India can benefit from global value chains

At the recent G20 summit at St Petersburg, world leaders were presented a report on the
growing importance of global value chains (GVCs) to international trade, investment,
development and jobs. The report highlights the proliferation of global production
networks, and the growth potential for countries that can enhance value chain
participation.
It throws up interesting statistical links between trade and growth. First among these is
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 the link between use of imported inputs and intermediate goods in exports. Analysis of
trade in value added (TiVA), a statistical estimation of value added in producing goods
and services, indicates that between 1995 and 2009 the domestic content in share of
exports decreased in most G20 economies, though the extent varies due to factors such as
the size of the country, economic structure, and composition of export basket.
 Second is the rising share of services in export-value added, including of manufactured
goods. Average services content of exports for G20 economies has increased to 42% in
2009, and is about 50% for US, UK, India, and EU as a whole. Value created by services
as intermediate inputs is over 30% of the total value added in manufactured goods.
 Third, the income derived from foreign final demand (or exports of value added) has
increased by 106% between 1995 and 2009, with a key redistribution towards emerging
economies. Their share in world exports of value added has increased from 21% in 1995
to 34% in 2009. In China, it has multiplied by 6, in India by 5, and in Brazil by about 3.

Finally, the report says how multinational enterprises impact the patterns of value added in
GVCs. MNE-coordinated GVCs account for approx 80% of global trade. Also, countries with
a higher level of FDI relative to their economies have a higher level of participation in GVCs
as well as higher domestic value added. Economies with the fastest growing GVC
participation have GDP per capita growth rates, about 2% higher than the average

The Indian medical device industry

The medical device industry in India is presently valued at USD 5.2 Billion and is growing at
15.8% CAGR.1 Currently, India is counted among the top 20 global medical devices market
and is the 4th largest medical devices market in Asia after Japan, China and South Korea2
and is poised to grow to USD 50 billion by 2025 as per some industry estimates.3 The
medical device market is dominated by imported products, which comprise of around 80% of
total sales.4 The domestic companies are largely involved in manufacturing low-end products
for local and as well as international consumption. Lately, many multinational companies
have established local presence by acquiring established domestic companies or starting a
new business. The Indian medical device market offers a great opportunity not only of its
size, but also because of encouraging policies and regulations that the Government has
introduced to give a fillip to the medical device industry. For instance, the government has
overhauled the regulatory framework for medical device in 2017 and has brought it at par

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with international norms by introducing the concept of „risk-based‟ regulation. The regulatory
licenses issued for import, manufacture or sale of medical devices have been made perpetual
in nature to cut down on unnecessary and time-consuming paper-work, in a bid to increase
ease of doing business in India. Foreign direct investment in medical device manufacturing
sector is permitted without any prior approval from the government, allowing business to
quickly scale-up existing operations by infusing capital or engage in time-sensitive strategic
acquisitions.

Highlights of the Report

 More than two-thirds of world trade now occurs through global value chains (GVCs).
 Over the last two decades, GVCs have reduced trade barriers, lowered the costs of
transportation, created jobs for workers and driven significant economic growth in
developing countries.
 Technological advancements pose both opportunities and risks for countries participating
in GVCs.
 To prepare their countries for a digital future, governments need to promote policies that
are conducive to investment, that build the skills of local manufacturers and that nurture
relationships between technology providers and local producers

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 Global Value Chain

 Companies used to make things primarily in one country. That has all changed. Today, a
single finished product often results from manufacturing and assembly in multiple
countries, with each step in the process adding value to the end product.

 Through GVCs, countries trade more than products; they trade know-how, and make
things together. Imports of goods and services matter as much as exports to successful
GVCs.

 GVCs integrate the know-how of lead firms and suppliers of key components along stages
of production and in multiple offshore locations. The international, inter-firm flow of
know-how is the key distinguishing feature of GVCs.

 How countries engage with GVCs determines how much they benefit from them.

 GVCs are a powerful driver of productivity growth, job creation, and increased living
standards.

 Countries that embrace them grow faster, import skills and technology, and boost
employment.

 With GVC-driven development, countries generate growth by moving to higher-value-

added tasks and by embedding more technology and know-how in all their agriculture,
manufacturing, and services production. GVCs provide countries the opportunity to leap-
frog their development process.

 There are different ways to analyse the global economy. One is to view it through the lens
of growth and structural change in individual economies, developed and developing.

 A second is to use the lens of global value chains, complex network structure of flow of
goods, services, capital and technology across national borders. Both are useful and
complementary to one another.

 Global value chains can also be understood as networks of functionally interrelated

producers and buyers that are engaged on a global scale in processes of value creation as
products pass across borders and between different actors in the chain.

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 The importance of global value chains will continue to increase in our increasingly
interdependent economic world, and the need to have a better understanding of all of its
implications, including in particular for trade policy, is a critical task for policymakers to
improve the competitiveness of their country in the global value chain.

 An example of a global value chain is the textile and apparel industry. Designs are done
by Brands in Western Countries while production is mainly in Southeast Asian countries
and more recently in Africa. Sales of the products is then in retail stores internationally.
The challenge for managers: Language, Culture, time zones , Different ways to conduct
business between countries.

 A domestic value chain for example is farming and selling of fresh produce into local
retail stores. The challenge for managers: Price competition against globally produced
products (volume), ability to scale (even on domestic basis).

What makes GVC different?

• Complexity of transactions: More complex transactions require greater interaction

among actors in GVCs and thus stronger forms of governance is required rather than
simple price-based markets.
• Codifiability of transactions: Some industries codify complex information so that
data can be handed off between GVC partners with relative ease, often using
advanced information technologies. GVC partners must have access and expertise for
dealing with such codified information.
• Competence of suppliers Source: The ability to receive and act upon complex
information or instructions from lead firms requires a high degree of competence on
the part of suppliers.

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Decomposition of production activities

What determines countries’ GVC engagement?

Evidence from the OECD-WTO TiVA data A forthcoming report by the OECD builds on the
OECD-WTO Trade in Value-Added (TiVA) data and empirically links some of the key
measures of GVC participation to a number of country specific structural and policy
indicators. The focus of this empirical exercise is on understanding the differences in the
extent of export-related sourcing of foreign value-added (backward linkages) as well as on
providing value-added to foreign producers for their exports (forward linkages). The results
suggest that structural and policy characteristics of countries can account for a significant part
of the variation in the extent of GVC integration, particularly when it comes to backward
integration. The lower degree of explanation by these characteristics of the forward
engagement likely reflects the fact that this type of engagement captures the supply side of
value chains and covers a diverse range of idiosyncratic activities extending from the supply
of natural resources (by countries such as Russia or Australia) through high tech intermediate
inputs (Germany and Japan) to specialised services (the United Kingdom and the United
States)

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In contrast, the backward engagement captures the demand side of value chains which is
more closely linked to general characteristics of countries such as market size or degree of
industrialisation. Overall, a number of structural and geographical factors, which are beyond
the reach of policy at least in the short to medium term, belong to some of the key factors that
explain countries‟ GVC participation. Yet, the relationships between these factors and
backward and forward engagement are diverse. For example, we find that:

 The larger the size of the domestic market, the lower the backward engagement of a
country, and the higher the forward engagement. The intuition is that countries with a larger
market can draw on a larger array of intermediates both in terms of purchases and sales.

 The higher the per capita income the higher the forward engagement while the relationship
with backward engagement is insignificant. Developed countries tend to sell a higher share of
their gross exports as intermediate products.

 The higher the share of the manufacturing sector in GDP the higher the backward
engagement, and the lower the forward engagement.

 The larger the distance to the main manufacturing hubs in Europe, North America and Asia,
the lower the backward engagement while the impact on forward engagement is insignificant,
suggesting that there is a premium to locating close to large “headquarter” economies. 10
These results also show a certain potential for commercial and other policies to contribute to
GVC integration.

Low import tariffs, both at home and faced in export markets, and engagement in regional
trade agreements (RTAs) can all facilitate backward and forward GVC. Openness to inward
FDI tends to have a more significant association with both the backward and forward
integration, albeit the impacts go in different directions. We find that the higher the ratio of
the inward stock of FDI to GDP, the higher the backward engagement, and the lower the
forward engagement. This suggests that inward FDI tends to be associated more with
importing of foreign value-added for exports than with exporting the domestic value-added
for export processing abroad. The analysis shows also that structural and policy drivers and
GVC participation tend to vary substantially by sector.

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For example

 Compared to manufacturing, the market size plays much less of a role when it comes
to explaining the extent of backward integration in the agricultural and mining and
extractive sectors, while the level of development plays a larger role, reflecting the
difference between resource rich and more industrialised economies. On the other
hand, the revealed openness to FDI has a more pronounced impact on backward
integration in mining and extractive industries and services as compared to
manufacturing. Not surprisingly, the negative relationship between import tariffs and
GVC integration is much more pronounced in manufacturing than in agriculture or
mining and extractive industries.
 While all countries with a sufficiently developed industrial sector will need an input
of iron ore to produce steel or steel products (backward linkage), not all countries will
be endowed with iron ore deposits that they can export (forward linkage).

Producer and Buyer-driven Value Chains

Global value chains (GVC) come in two major categories depending on which actor has the
most significant influence. This can be either the producer (manufacturer) or the buyer:

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Producer-driven GVC tend to have high barriers of entry since many commodity chains
require capital/technology intensive production and economies of scale, such as in the
automobile and aeronautical industries. Under such circumstances, the value chain is mostly
coordinated by the producers and the capacity of the distributors to deliver parts provided by
subcontractors and finished goods to the marker.

Buyer-driven GVC tend to have low barriers to entry. Producers are bound to the decisions
of buyers through the functions of design and marketing, notably when retailing and brand
names are concerned. The most significant sectors concern agriculture, garments, footwear
and toys.

Standing of India in the World

A look at the global value chain (GVC) indices adds to apprehensions about India‟s export
portfolio. According to OECD-WTO‟s TiVA database, India‟s GVC participation index
stands at 43.1, (FEB 15, 2018)

1) TiVA indicators:
The 2018 edition of the TiVA database provides indicators for 64 economies including all
OECD, EU28 and G20 countries, most East and South-east Asian economies and a selection
of South American countries.36 unique industrial sectors are represented within a hierarchy,
including aggregates for total manufactures and total services. Period 2005 to 2015, with
preliminary projections to 2016 for some indicators.

2) The GVC participation index

The GVC participation index, which takes into account both goods and services, displays a
country‟s integration into the GVC and is the sum of forward and backward linkages divided
by total exports.

3) Trade in Value Added

The goods and services we buy are composed of inputs from various countries around the
world. However, the flows of goods and services within these global production chains are
not always reflected in conventional measures of international trade.The development of

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Trade in Value-Added (TiVA) addresses this issue by considering the value added by each
country in the production of goods and services that are consumed worldwide. TiVA
indicators are designed to better inform policy makers by providing new insights into the
commercial relations between nations. The indicators are expressed in USD millions at
current prices, in case of values, or in percent, in case of shares. Data presented in the TiVA
database provide insights into:

 Domestic and foreign value added content of gross exports by exporting industry
 Services content of gross exports by exporting industry, by type of service and value
added origin
 Participation in global value chains (GVCs) via intermediate imports embodied in
exports (backward linkages) and domestic value added in partners‟ exports and final
demand (forward linkages)
 'Global orientation' of industrial activity, i.e. share of industry valued added that meets
foreign final demand
 Country and industry origins of value added in final demand, including the origin of
value added in final consumption (by households and government) and in GFCF
(investment by businesses)
 Bilateral trade relationships based on flows of value added embodied in domestic final
demand
 Inter-regional and intra-regional relationships
 Domestic value added content of imports

4) The WTO and the Organization for Economic Cooperation and Development
(OECD)

The WTO actively cooperates with the OECD in different ways. The WTO Director General
regularly participates to the OECD Ministerial Council Meeting (MCM) and OECD Forum.
The MCM meeting brings together Ministers from OECD members and other selected invited
countries to discuss economic and trade issues and review ways of strengthening the
involvement of non-OECD countries in the OECD's work. OECD is an important player in
Aid for Trade.

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Insights on India’s GVC

a) India‟s strengths include a vast pool of engineers, competitive labour force,

familiarity with English, and others. Many MNCs have set up design and R&D
centres in the country, connected with manufacturing sectors. With the right policy
environment, a thriving electronics sector well-integrated with shifting regional
supply chains could help boost exports and create new jobs.

b) India increased import duties on certain electronic products in the 2018-19 Budget, it
recently exempted 35 machine parts used for manufacturing mobile phone
components from basic customs duty to promote local handset production. A balance
will need to be maintained on the import duty structures of such products.

c) India has been able to participate in GVC in gems and jewellery, automotive parts and
services. But India is not able to integrate into GVC in more items. The reasons could
be many ranging from lower wages like in the garment industry of Bangladesh and
the high skill levels of Bangladeshi women workers. Bangladeshi garment producers
are linked to big retailers in the EU and the US like GAP, Sears, Zara, H&M etc.
Other reasons could be logistics, infrastructure and ability to deliver consignments on
time due to lesser regulations. Instead of entering the GVC, India could easily enter a
Regional Value Chain (RVC) in garments and in many other items with neighbouring
countries, especially when there is a Free Trade Agreement with the countries within
the region in place. For Regional Value Chain to take off, India will have to improve
its cross border infrastructure, remove tariff and non-tariff barriers, and speed up the
implementation of rules for harmonisation of regulations and technical standards
which could make the trade between countries of the region more fluid.

d) India‟s current export product profile confirms the poor trade infrastructure
hypothesis. To understand the impact of poor infrastructure on India‟s current export
profile, let us divide world merchandise trade of $16 trillion into two baskets, small
and large. The small basket contains products that account for 30 per cent or $4.8
trillion worth of world trade. The large basket holds the remaining 70 per cent. A

12
 country that exports products that belong to the large basket will have higher chances
to grow.
 70 per cent of India‟s export earnings come from the small basket products.
India has a high share of world exports in the following such products: small
diamonds (19.8 per cent), jewellery (12.9 per cent), rice (39.3 per cent),
buffalo meat (19.1 per cent), and shrimps (17.7 per cent). Other major
products are petroleum, cotton, yarn, ladies‟ suits, medicines, auto
components.
 India has a weak global export share in these commodities. Mobile phones
(0.19 per cent), integrated circuits (0.01 per cent), computers (0.04 per cent),
solar-powered diodes, transistors (0.14 per cent), LCDs (0.04 per cent).

e) India currently has a substantial trade deficit in electronics, which has increased from
$27 billion to $42 billion in just six years. India‟s exports share in machinery and
electronics stands at less than 10 per cent

f) The Indian government has adopted the core policy initiative of Make in India in a
national attempt to productively integrate into the global economy. Following this,
greater emphasis has been placed on foreign and local investments to transform India
into a global manufacturing powerhouse. With the aim of improving employment
rates and skill enhancement, this programme is considered to be a major step in
further integrating India into the global economy, which is increasingly being defined
by Global Value Chains (GVCs)

g) Calculating forward linkages in agriculture, manufacturing and services, it is observed

that the forward linkages of manufacturing declined from 43% in 1995 to 37% in
2011, while that of services rose from 41% to 52% (Figure 3-3). In contrast, the share
of manufacturing in backward linkages rose significantly from 13% to 36% and that
of services doubled from 6% to 12%

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Aerospace Industry in India and Global Value Chain

Aerospace Industry In India

Indian industry today is on the threshold of entering into a new era where it will assume
greater responsibility in making the nation self-reliant in Defence Production. The resurgence
of India‟s manufacturing sector has been remarkable. Not only are the profits soaring, the
sector is also making its presence felt abroad as many Indian firms are becoming
transnational companies.

The Indian manufacturing sector is internationally competitive with international quality

standards, efficiency and manufacturing facilities. India is fast developing into a
manufacturing hub for world corporations wanting to leverage the sector‟s proven skills in
product design, reconfiguration and customization with creativity, assured quality and value
addition.

India, also keen to strengthen its own aerospace industry and has asked major weapon
exporting countries to transfer technology to India.

Indian Aerospace Industry

The Indian Aerospace Industry is witnessing an unprecedented growth. Hindustan
Aeronautics Limited (HAL), which is fully owned by the Government of India, is the premier
aerospace company in the country. HAL has played a major role in the Defence aviation of
India through design, manufacture and overhaul of fighters, trainers, helicopters, transport
aircraft, engines, avionics and system equipment. HAL is now ranked 34th in the list of
world‟s top 100 defence companies.

HAL is a major partner for the Space programmes of Indian Space Research Organization
(ISRO) and manufactures structures and assemblies for the launch vehicles and satellites at
its dedicated Aerospace Division in Bangalore.

The civil aviation sector in India is growing rapidly. It has recorded annual growth of over
41% in passenger traffic during in the last two years. In fact, it has contributed significantly
to the growth of international civil aviation sector. The rapid growth of civil aviation has put
extreme pressure on the existing civil aviation infrastructure. As a result, the thrust is now on
modernization of airports, communications, navigation and surveillance systems for air traffic
management, radars and facilities for Maintenance Repair and Overhaul of aircraft and sub
systems.

There is thus enormous potential and huge opportunities for collaboration and creation of
joint ventures in the aerospace sector in India for establishing Maintenance Repair Overhaul
(MRO) facilities for civil and military aircraft, overhaul and maintenance of aero engines and
production of avionics, components and accessories both in the civil and military aviation
sectors. Major global aviation industry are already eyeing the local market in India and
scouting for outsourcing aerospace and defence products as India is fast emerging as a center
for engineering and design services.

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Aerospace industry - Global

In 2018, the global aerospace and defense (A&D) industry recuperated and experienced a
solid year as passenger travel demand strengthened and global military expenditure
continued to rise. The industry is expected to continue its growth trajectory in 2019, led by
growing commercial aircraft production and strong defense spending. In the commercial
aerospace sector, aircraft order backlog remains at an all-time high as demand for next-
generation, fuel-efficient aircraft continues to surge with the rise in oil prices. With the
aircraft backlog at its peak, manufacturers are expected to ramp up production rates, hence,
driving growth in the sector. However, manufacturers could experience supply chain
interruptions as some suppliers may struggle to increase production to keep up with the
growing backlog. In the defense sector, heightened
global tensions and geopolitical risks, recovery in the US defense budget, and higher defense
spending by other major regional powers such as China, India, and Japan are expected to
drive global defense sector growth in 2019 and beyond. The commercial aircraft order
backlog is at its peak of more than 14,000, with about 38,000 aircraft expected to be
produced globally
over the next 20 years. Geopolitical tensions are continuing to intensify and demand for
military equipment is on the uptick, driving defense spending across the globe. Though A&D
industry growth is primarily led by the United States, some of the other key regions that are
expected to contribute to industry performance in the near term include China, France,
India, Japan, the Middle East, and the United Kingdom.

Future projections: Global and Asia

Although market forecasts by Airbus and Boeing vary slightly, both reports agree that the
aviation industry can expect record-breaking growth in the years to come.
The rise of the middle-class in the Asia-Pacific region, combined with an ageing global fleet,
are two essential factors driving demand for new aircraft to an unprecedented level.

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In 2017, an impressive 4.1 billion passengers were carried by air – a 7.5 percent growth
compared to 2016. According to Airbus‟ market outlook, just 15 years from now that number
is expected to double to a staggering 8.2 billion passengers a year.
A large part of the future air traffic will be centralised around Asia-Pacific and the rising
middle class in this region. As of 2018, the middle class represents 40 percent of the world‟s
total population – a number that will rise to 57 percent by 2037.
What‟s interesting about air traffic is its resilience to external shocks, such as major changes
in the global economy. The industry has historically been relatively unaffected by global
GDP fluctuation, and this is thought to continue in the years to come.

16
17
Airbus forecasts a demand for 37.400 passenger aircraft and freight aircraft over the coming
20 years. Boeing predicts a slightly larger demand, concluding that the industry will require
42.000 new aircraft by 2037.
Boeing‟s and Airbus‟ reports agree that the small segment of aircraft and narrow-bodies will
dominate the skies in 20 years, representing approximately 76 percent of new aircraft
deliveries and 54 percent of the total fleet value in 2037. The medium, large and extra-large
segments will represent the remaining 24 percent of demand in units, but 46 percent of the
value.
Asia-Pacific will account for the biggest share of new deliveries in the next 10 to 20 years.
According to Airbus, 15.640, or 42 percent of the total new deliveries, will be going to this
region.
To put that number into perspective, airlines in Europe and North America combined will
account for 13.030, or 35 percent of the new passenger aircraft deliveries.

Although India is now outpacing China in economic growth, China still remains a key
economic player in the region. According to Airbus, Asia-Pacific will continue to lead world
economic growth with expected average real GDP growth of +3.9 percent per year, over the
next 20 years.
Tourism is playing an increasingly important role for Asia-Pacific, with the region being the
second most visited region in the world after Europe in 2017. As a result, the region had a
record-breaking year in 2017, with 636 million foreign arrivals – a record that is likely to be
broken again multiple times over the course of the coming years.

Godrej Aerospace

Aerospace is executing major Aerospace projects involving Precision machining, Precision

fabrication, (Welding & Brazing), Heat Treatment, Surface Treatment, Assembly, Testing &
Supply of Complex & Air worthy Systems.
Godrej Aerospace has amassed a rich experience in successful development &
productionisation of Liquid Propulsion Engines, Defence Systems, Satellite Components &

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Assemblies and Dish Antennas with Feed Systems - all duly approved & accepted by our
customers.

Expanding its partnership with aerospace major Rolls-Royce, Godrej Aerospace, a business
unit of Godrej & Boyce, has bagged a ₹200-crore contract. The Indian group will invest ₹50
crore in a new facility, called the Centre of Excellence, with an aim to strengthen its foothold
in the aerospace sector.
Godrej is to manufacture unison rings, complex fabrication and external brackets and will
supply 600 different parts to Rolls-Royce's civil aerospace engine portfolio. The company has
secured the contract to make the parts at its new facility in Mumbai over the next five years.

Godrej Aerospace recently contributed to the ISRO‟s successful launch of 104 satellites by
manufacturing critical components for the launch vehicle.
For ISRO‟s launch, the company manufactured second stage liquid propulsion engine and
fourth stage reaction control system components for the launch vehicle.

Godrej Aerospace has partnered with several global aviation and defence manufacturers, and
has been supplying them components such as sheet metal and tubing assemblies, actuators
and other complex structures. The company first bagged a contract from Rolls-Royce in 2014
for manufacturing unison rings. Since then, it has also started complex sheet metal
fabrication.

TATA Aerospace & Defense

Tata group is leading the 'Make in India' charge in the Defence & Aerospace spaces and is a
key private sector player in the industry.
In aerospace, Tata has emerged as a global, single-source supplier for a number of important
fixed wing and rotary wing programmes. In the defence domain, as a trusted partner to the
Ministry of Defence (MoD), armed forces and Defence Research and Development
Organization (DRDO), Tata is playing an increasingly important role in defence programmes
of strategic importance.
Going forward, the group is focused on: partnering global OEMs for 'Make in India'
programmes for fighters, helicopters, transport aircraft and weapon systems and land

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systems; building unmanned systems; supporting other critical aerospace & defence programs
for the Indian defence sector, and setting up world-class aero engine components
manufacturing facilities.

Lockheed Martin and Tata Advanced Systems (TASL) signed a landmark agreement
affirming the companies intent to join hands to produce the F-16 Block 70 in India. The
agreement supports F-16 Block 70 „Make in India‟ offer.

The F-16 Block 70 is ideally suited to meet the Indian Air Force‟s single-engine fighter needs
and this unmatched US-Indian industry partnership directly supports India‟s initiative to
develop private aerospace and defense manufacturing capacity in India.

Tata Boeing Aerospace Limited (TBAL), a joint venture between Boeing and Tata Advanced
Systems Ltd. established its state-of-the-art facility in Hyderabad. Spread over 14,000-square
meters and employing 350 highly skilled workers, the facility will be the sole global producer
of fuselages for AH-64 Apache helicopter delivered by Boeing to its global customers
including the U.S. Army. The facility will also produce secondary structures and vertical spar
boxes of this multi-role combat helicopter. The delivery of the first fuselage is expected in
2018.

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Medical Device Industry and Global Value Chain

The medical device industry in India is presently valued at USD 5.2 Billion and is growing at
15.8% CAGR. Currently, India is counted among the top 20 global medical devices market
and is the 4th largest medical devices market in Asia after Japan, China and South Korea and
is poised to grow to USD 50 billion by 2025 as per some industry estimates.

The medical device market is dominated by imported products, which comprise of around
80% of total sales. The domestic companies are largely involved in manufacturing low-end
products for local and as well as international consumption. Lately, many multinational
companies have established local presence by acquiring established domestic companies or
starting a new business.

Global Medical Device Industry in India

The Global Medical Device market was estimated to be around USD 370 billion in 2015 and
was observe to grow at a growth rate of 5.3%. The market has been primarily dominated by
US and Europe which cater to 75% of the market while the Asia pacific contributes to nearly
22%.

Although through Technical innovation and extreme emphasis on R&D the medical
technologies in the developed nations have fairly evolved. The last decade has seen an
evolution of the Asia pacific medical device industry. This region has slowly emerged as the
growth hub. Many factors which include cost arbitrage, manufacturing excellence,
engineering skills etc. have contributed to this sudden impetus.

In terms of industry segments, Orthopedic & Prosthetic and Electro diagnostic emerge as the
largest category with a total market share of nearly 30% of the total medical device market.
The dental products amass to a total of 6-7%. The consumables which include the Syringes,
Needles, Catheters etc. constitute to ~ 11%. This consumables space is primarily as low value
high volume space and has witnessed a domination of the emerging economies. The High
technology „patent driven‟ space has been a stronghold of the US and Europe.

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Medical Device Manufacturing Plants in India

The Indian medical device manufacturing sector is fragmented, both in its scale and
geography. Currently, there are five device manufacturing clusters in the country. These
clusters along with the upcoming medical device parks and MedTech parks developing
around them, have the potential to create a large ecosystem of manufacturers, suppliers, and
developers. It will also create manufacturing capability, encourage R&D, improve quality,
and reduce dependence on imports.

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Regulatory Regimes in Medical Device Industry by Government of India

The existing regulatory framework for medical devices in India is inadequate for a USD 6
billion industry. Medical devices were unregulated in India until recently. At present, 22
medical devices have been notified by the MoHFW and are treated as „drugs‟ under the
Drugs & Cosmetics Act (DCA), 1940 & Rules. The MoHFW released the first draft of The
Medical Device Rules in July 2016 and after consulting the industry and stakeholders,
released the second draft in October 2016. In January 2017, the MoHFW notified the Medical
Devices Rules, 2017 and announced that they would be effective from 1 January 2018,
thereby giving the industry time to adapt to the new Rules.
The Rules clearly separate medical devices as being distinct from drugs, clearing some
hurdles for the industry. However, medical devices still continue to be defined as drugs under
the DCA and going forward ideally the government should pursue a full separation of
medical devices and drugs with each having distinct and separate regulations.

The Rules generally adhere to the framework laid down by the Global Harmonization Task
Force (GHTF) on medical devices and are on similar lines with global standards. The Rules
further address procedural issues such as the need for constant re-approval of manufacturing
licenses, while eliminating the need to apply for a registration as well as an import license.

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The process of tracking applications for licenses is made easier with online systems. While
the new Rules attempt to plug various loopholes within the existing framework, it has caused
ambiguity amongst medical device companies. It is anticipated that as the Indian market and
manufacturers mature, the perception of devices manufactured in India will also improve and
these rules will help quality improvement.

Growth by 2030 in medical device Industry

The medical device industry is poised for steady growth, with global annual sales forecast to
rise by over 5 percent a year and reach nearly US$800 billion by 20301. These projections
reflect increasing demand for innovative new devices (like wearables) and services (like
health data), as lifestyle diseases become more prevalent, and economic development unlocks
the huge potential in emerging markets –particularly China and India.

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Despite these apparently attractive prospects, a shadow hangs over the sector in the form of a
relentless downward pressure on pricing. Governments around the world are desperately
trying to reduce the cost of healthcare –especially in the most expensive part of the system:
hospitals. They want to pay less for medical devices and see proof of greater value in terms of
better patient outcomes. Responsibility for many purchasing decisions has already moved
from clinical to economic buyers. Short-term respites like the 2-year US excise tax
moratorium on medical devices notwithstanding, pricing appears to be going in one direction
only –down.

Further uncertainty lies ahead, with the new European Medical Device Regulation in 2020
and regulations in China that are designed to spark local innovation. These developments
present a quandary for medical device companies that have historically concentrated on
manufacturing and research and development (R&D), but are now seeing healthcare budget
restrictions and new reimbursement regimes continue to skip away at margins. On top of this,
new players –some from entirely different industries –are disrupting the sector by harnessing
data to take ownership of customers, patients and consumers. In this volatile new
marketplace, today‟s device players are in serious risk of being stuck in the middle of the
value chain, as mere commodity producer

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How will you Increase our Presence in medical device sector in GVC?

We have designed a 3 R strategy for improving our presence in the Global Value Chain. The
3-R‟s are Reinvent, reposition, reconfigure!

The days of simply manufacturing a device, and selling it to healthcare providers via
distributors, have long vanished. Value is the new byword for success, prevention the
preferred clinical outcome, and intelligence the new competitive advantage. In this paper, we
discuss the pathway to success in 2030 for medical device companies, following a three-
pronged strategy:

1. Reinvent

Medical device manufacturers should take a closer look at their existing organizations and
reinvent their traditional business and operating models to adapt to the future, by: –
a. Integrating intelligence into their portfolios and offerings, to positively influence the
care journey and connect with customers, patients and consumers
b. Delivering services beyond the device, and intelligence beyond these services–a true
shift from cost to smart value
c. Investing in enabling technology – making the right choices to support a wide range
of parallel business models tailored by segment to customers, patients and consumers
(prospective patients) – and, ultimately, the financial ambition for the organization.

2. Reposition

It is equally important to prepare for the future by considering an „outside-in‟ perspective. In

2030, the external environment will be extremely dynamic and medical device companies
need to reposition themselves in the newly envisaged competitive landscape, to cope with
tumultuous forces from:
a) New entrants, including competitors from unrelated industries
b) New technologies, as technological innovation will continue to outpace clinical
innovation
c) New markets, as developing countries continue their high growth trajectories.
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 3. Reconfigure
The traditional medical device value chain will rapidly evolve and by 2030 companies will
take on significantly different roles. Following their reinvention and repositioning, medical
device companies will need to reconfigure their respective value chains and define their place
therein. Multiple value chain „configurations will exist, requiring companies to make
fundamental strategic choices. As somewhat evidenced today, manufacturers will continue to
link themselves directly with patients and consumers, or combine with providers or even
payers through vertical integration. Value chain reconfiguration choices will not be
straightforward, and are likely to differ by company segment (device area, business unit,
geography). This will be further complicated by the fact that the value chain itself will be
dynamically evolving, as a result of other companies attempting to reconfigure and meet the
strategic aims. The right choices, however, will create significant value for the end user–and
help the company avoid a future of commoditization.

One more step towards increasing our presence will be done by introducing and
implementing “Heal in India”

 Healthcare in India is at a crossroads and needs various interventions. The success of

initiatives such as „Make in India‟ is dependent on a number of policy initiatives.
 Campaign like „Heal in India‟ will be synergistic to the Make in India initiative.
 An attractive Heal in India campaign can result in a significant expansion and
upgradation of healthcare infrastructure in the country benefiting Indian residents and
providing value addition through medical tourism.
 India emerged as an important player in the medical tourism space as early as the
1990s, but awareness spread only in this millennium.
 The country is witnessing a growth of 22-25% CAGR in medical tourism, and
healthcare providers expect the industry to double to USD 6 billion by 2018 and grow
to USD 8 billion by 2020.

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  Quality of care, availability of high-end technology/facilities and costs are the key
drivers.
 Important medical tourism procedures are tertiary care driven such as cardiac surgery
and interventional cardiology, orthopedic surgery, transplant surgery, oncology,
bariatric surgery, dentistry, cosmetic surgery and in-vitro fertilization.
 Patients from Africa and the Middle East access private healthcare in the country due
to lack of quality facilities and trained doctors in their respective countries.
 Medical tourists from - developed countries use India for surgeries that are not
covered by insurance, or where waiting periods for non-life-threatening procedures is
very long in government funded markets.
 The expanding medical tourism sub-sector should also provide additional impetus to
the overall growth of the device industry.

Impact of Heal In India

Export Earnings and Balance of Trade

A successful medical tourism industry can help boost export earnings significantly. This can
also support imports of high technology assets/devices without hurting the balance of trade.

Continuous Learning and Innovation

A drive to Heal in India will increase international tie-ups and collaboration in both medical
devices technology and delivery sectors. These collaborative efforts will open up channels

28
for continuous learning, improved access to technology and its use, and further elevate the
quality and availability of healthcare.

Enlarge the Medical Device market in India and Accelerate Growth

This initiative will lead to increased medical procedures and drive up volumes for the medical
device industry. Medical Tourism being at the top of the pricing pyramid will also facilitate
the adoption of the high-end products and thereby improve margins for the industry. This in
turn will also incentivize innovation among both domestic and international players and
ensure continuous access to advanced technology.

Heart Valve industry:

Medical device industry is increasing at a considerable pace in India. In this devices Heart
Valve is a device for which the need is increasing day by day. It is estimated that this will
increase (Heart Valve Industry) will increase very rapidly in future. The expected CAGR
increase for heart valves will be 7.6% in 2023. So as one of the important device in medical
industry, India has a chance to make the presence in heart valves. As we have good expertise
and with the help of innovation, India can be a destination for making heart valves in large
quantities and export it to different countries.

Currently there are few players in heart valve industry in India and details of that are given
below:

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30
Key Players in Heart Valves:

1. Medtronic
Medtronic is present in India since 1979.It is headquartered out of Mumbai with offices all
over the country and a total headcount of 318 employees spread across the country.
Medtronic has sales offices in New Delhi, Kolkata, Bengaluru, Hyderabad, Chennai,
Vadodara and Cochin.
 Medtronic is a leader in biological valves today.
 Medtronic have adapted to the Indian market well as regards the price is concerned.
 Medtronic recently has discontinued their blockbuster model Hall, thus sales have
suffered drastically.
2. St Jude Medical
St. Jude Medical company‟s Indian operations have grown since it launched a wholly owned
subsidiary in the local market six years ago. St. Jude Medical currently is headquartered and
also has distribution center in Hyderabad
Sales offices in New Delhi, Kolkata and Mumbai three of the four major metros in India.
Warehouses located in Delhi, Mumbai, Bangalore, Ahmedabad, Kolkata and Chennai.
 St Jude is today the undisputed winner in mechanical heart valve market revenue
wise.
 St Jude have adapted to the Indian market well as regards the price is concerned .St
Jude started with high prices but then compromised on prices and sales went up very
high, now they are the market leaders. Thats because patients in emerging markets
often contend with cost-related accessibility issues which they have addressed well.

3. Edwards Life sciences

Edwards have been present in India since long but their presence has not been significant
when compared to St. Jude or Medtronic. The company is headquartered in Mumbai & has a
sales force of 30 employees
 Edwards products are good but priced very high as compared to competition.
 Edwards is concentrating on percutaneous valves costing 30000 $ in US (15 lakhs in
India) which has very less takers.
 No presence in minimally invasive products (huge market), now have Port Access
also, but have not introduced their products in India.

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4. TTK
TTK Healthcare's most significant contribution to healthcare is the manufacture and
distribution of India's first indigenous heart valve prosthesis - the tilting-disc TTK Chitra
Heart Valve. This is the only Indian-made heart valve and is the most price-friendly in the
world. So far, over 50,000 TTK Chitra Heart Valves have been successfully implanted in
patients. TTK Chitra Heart Valves has been tested in various International Laboratories and
the findings were published in leading journals. The results indicate that the performance of
TTK Chitra Heart Valves is comparable with any other valves available in the market.
Manufacturing facility is located at Kazhakottom in Trivandrum India TTK Chitra Heart
Valves are being used in over 250 major cardiac centers in the country with a total of over
55,000 implants.
The Chitra TTK Valves are leader in sales number wise .In year 2011-12 10,425 Chitra TTK
mechanical valves were sold

Market Drivers

Ageing population:

India has a population close to 1.1 billion people, making it the second most populated
country behind China, and 5% of them are over 65 years of age. And unlike China, India does
not impose restrictions such as one child policy upon its citizens. Over the next couple of
decades, India is expected to surpass China as the world‟s most populous country. During the
forecast period to 2015, India is expected to reach 1.3 billion in total population. And as the
ageing population grows, the demand for healthcare services and products will also rise. The
most important driver for India however, is the rising middle-class population that will
exceed 450 million by 2015. Although most of the population cannot afford premium
healthcare, there are 100 million middle-class people with an annual income of over $5,000
who demand quality healthcare. While $,5000 may be a small amount in comparison to
international standards, in terms of purchasing power parity (PPP), Indian citizens can enjoy
premium health services within this income bracket on a par with people in developed
nations.

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Medical Tourism

Medical tourism has been gaining more attention resulting in an increased influx of foreign
patients into India over the past seven to eight years. About
50% of specialized urban hospitals are actively focusing on tapping medical tourists to grow
their business and gain international recognition.

Cost effectiveness against developed countries

India is fast becoming a popular destinations for procedures like heart valve replacement
surgeries primarily due to:
 Cost savings ranging from 70-80%
 Presence of highly educated, skilled and experienced surgeons to the same degree as
United States.
The patient may remain in hospital for a prolonged recovery period after the surgical
procedure. A hospitalized recovery allows one to heal
faster than if he/she were discharged to recover at home as is the practice in the United States.
The following table provides a snapshot of the comparative cost (in USD) for major heart
procedures across 6 countries

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India Export destinations:

As we have some exports in this countries, we can expand our business by finding new
opportunities and by inventions. As we will expand our business in this countries, our global
presence will increase which will help us in global value chain. We can also target new
market in existing as well as new countries. This we can achieve because we have the
potential and our cost benefit is very good. As of now, we are exporting maximum to US.
India can also maximize their exports in countries like Thailand , Myanmar as these are the
countries which India is targeting.

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Market opportunity:

1. Newer Market access due to India based innovation

Even though manufacturing remains limited to producing low technology products, a few
domestic companies and MNCs with manufacturing facilities in India have successfully
developed low cost products that are on par in terms of quality with existing products that
require complex technical know-how to manufacture. Consequently, these products have
developed a niche market in many regions globally. It is not surprising that medical devices
exports have recorded strong growth over the past decade. The Consumables and Implants
segment has contributed significantly to exports from India, at USD 1.17 billion (2014)25.
The top three export destinations from India in terms of value are USA (USD 171 million)26,
Singapore (USD 81 million)27 and China (USD 72 million)28.

2. Shortening of lead-time and better serviceability

With a potential for strong domestic demand and other supporting factors, India is set to
emerge as an ideal destination for setting up manufacturing facilities, especially for global
companies looking to align their global manufacturing footprint with shifting consumption
patterns. A shorter lead-time as well as the opportunity to significantly enhance service levels
augurs well for increasing healthcare penetration India

3. India as a de-risking option in the region

For MNC players, India presents a good opportunity to simultaneously de-risk their business
from regional/global risks and the growing domestic market. India is set to become a major
consumption location, with high potential to become an export oriented country. While China
is an example of a location that provides huge domestic demand as well as low cost
manufacturing, countries like Ireland, Singapore and Puerto Rico are successful examples of
markets that have become major export hubs (where exports are significantly higher than
domestic sales)

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Strategies for Heart Valves:

Short Term Strategies:

1. Changes to the D&C (Amendment bill) , 2013

 Medical devices significantly different from drugs
 Exclusive laws for Medical devices
 Punitive clauses to be changed to Corrective and Preventive actions and
progressive penalties
 Global harmonization of standards to quality for medical devices

2. Incentives from DGFT and Ministry of commerce to exporters

 On Medical products exports, China provides 17% subsidy, as against a
subsidy of 2-3% provided in India
 Time delay in sanction and disbursement of subsidies in India

3. Encourage brand India and the Indian manufacturers

 Price benefit in public health tenders for product of Indian companies and Indian
origin products
 Initiation of a modernization fund to provide minimal interest loans for plant up
gradation and setting up of clean room facilities
 Launching Brand India Engineering campaign in the Medical Device sector & its
promotion in overseas market.

4. Export promotion councils and promotion initiatives

 Medical devices to be a sector of focus for the next two years. Dedicated
personnel and subject matter expert at EEPC which would act as the
promotion body for medical devices
 Participation in Overseas Tenders with Joint support from Ministries with the
help of Indian exporters
 Incentivizing the participation in major medical device trade fairs MEDIFEST,
MEDICA, ARABHEALTH. Specialized Indian delegation representation in
such platforms

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Long Term Strategies:

1. Separate regulatory Infrastructure for Medical devices:

An Ordinance may be passed to remove Medical Devices from the definition of Drugs in the
Drugs and Cosmetics Act. This would pave the way for passing a Bill on Regulation of
Medical Devices and Patient Safety by a National Regulatory Authority under the Ministry of
Health

2. Setting up of Medical Devices SEZ

Specific in and out SEZ to be developed with proximity to metros. Development of industrial
clusters specifically for the medical devices industry would provide an impetus to the sector.

Eg. Similar strategies have worked well for the Indian Pharmaceutical sector , where excise-
free zones like Baddi and Poanta sahib have emerged as major Pharmaceutical manufacturing
hubs

3. Cross-border research linkages

Joint R&D activities can be organized through cooperation of Government of other nations.
For instance Israel has taken up many bi-national funds for development of R&D in
technology, such as Bi-national Industrial R&D Foundation

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Conclusion:
As India continues to innovate and develop new technologies, global demand and potential in
the near and medium term provide India with an opportunity to become a major participant in
the global supply chain of medical devices. With success stories from domestic
manufacturers, India is steadily developing capabilities in manufacturing medical devices.
Indian players have developed expertise in manufacturing products in consumables and
implants segment. In the near term, the focus needs to be on manufacturing of low and mid-
tech products, with a gradual shift towards developing capabilities for design and
manufacturing of high-tech products. A key concern for the medical device industry today is
that irrespective of the sophistication of technology, all segments/sub-segments of medical
devices are being treated uniformly by regulators and other stakeholders in the ecosystem.
However, going ahead, as the industry moves towards indigenization, a differential treatment
for each segment/sub-segment is necessitated. For instance, most products in medium high
technology segments have a long lead time for development and require large investments.
Being low volume products with longer return on investment cycles, such products need to be
treated differently, possibly with additional incentives for development and manufacturing. A
phased approach needs to be adopted for indigenization, based on how well the
manufacturing ecosystem develops for each segment/sub-segment. Only when the ecosystem
matures to enable indigenous manufacturing of comparable global quality standards, tariffs
and barriers need to be used to protect indigenous manufacturing. This would ensure
orientation of the industry towards quality, thereby making indigenous manufacturing
globally competitive.

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