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Foreign players keen to invest in India’s logistics infra space: Detlev Mohr, McKinsey

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Detlev Mohr

Logistics forms the backbone of any modern economy and with the advent of ecommerce, demand for the logistics sector is bound to grow manifold, increasing the pressure on the existing infrastructure. Detlev Mohr, senior partner at consulting firm McKinsey and Company, in an interview with Nehal Chaliawala and Satish John said that India will be one of the hottest growth markets in this area and foreign players are keen to invest here. Edited excerpts:

Would privatisation help in building the logistics infrastructure in India?
I think there are two aspects to this. The first is about raising capital. Raising private capital can be a big unlock, if the state is not having sufficient funds to invest. There's no natural rule that a private company can be more efficient than a state-owned company. It all depends on the willingness to transform. We have seen public transportation companies that managed to transform in a big way and we have also seen private companies who are lagging behind. So, it depends very much on the will of the leadership and the capability to evolve.

One more thing to note is that since larger part of the logistics is not completely independent, because you need certain infrastructure that will be run by the state in some way, I think it is important that whatever you privatise fits into the regulatory regime. Because if you get mismatches there, for example, there is not sufficient capacity, then there is no incentive to invest in capacity. So, I think the key part is the need to have a complete and integrated view. What is it that you try to achieve and what is the best way to achieve it. And then in the second place comes what is the public and what is private part or in partnership.

Would foreign players be interested in entering the logistics sector in India?
I'm very sure that there is big interest to invest in infrastructure because India will be probably the hottest growth play in the next 10 years in this area. So, I think people are keen to invest if they see that the boundary conditions are moving in the direction to facilitate this growth in an effective way.

How big is the opportunity in ecommerce?
In India, ecommerce consumption is less than one packet per capita. In China it is 70; Europe is in the 20s. As we have seen in other countries, once e-commerce takes off, it grows at very high rates. If you go from 1 (in India) to 10 or to 20, and it is only a question of time, just imagine what that requires in terms of logistics, infrastructure and delivery and also the jobs created in order to do that work.

How important is the last mile in ecommerce supply chain?
Ecommerce is all about the last mile. That's where the difference is made — where a significant part of the total cost sits and also where customer experience makes all the difference. So, getting that right is critical. We have seen in several countries that ecommerce players are starting to build their own last-mile delivery network. They see it as an opportunity to differentiate their customer experience in a significant way.

For example, getting delivery time from sometime next day to precisely in a few hours. Ecommerce players have started to test their own last-mile delivery capabilities in cities where they have a lot of volume.

What is the reason for the global decline in sales of cars?
There are several factors and they differ from country by country. If you look at the global growth of the automotive industry, it has been unevenly distributed for quite some time. We have seen a huge growth in China, which contributed massively to the overall numbers. In Europe and the US, we have seen much less growth, but we have seen economic cycles.

You indeed see a trend that young people are less keen to get their car than what used to be 20-30 years ago. I think there's still evidence that if they can afford they will buy a car, but there are some changes.
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