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OPPORTUNITY FOR INDIAN MANUFACTURING SECTOR TO GROW India: The next global sourcing destination?

Oct 21, 2022

The article viewpoints on how the Indian manufacturing sector has the opportunity to rise to prominence globally, positioning the country as a creditable supplier of high-quality goods and a reliable business partner for international organisations. - Ruediger Schroeder, Sr Vice President - Projects, Maier + Vidorno Marketing and Sales

In the last two years, we have seen many disruptions in the global economy, partly because of the pandemic and partly for the Ukraine war, which has severely impacted the international supply chains. Due to supply chain issues and political challenges, companies are looking for alternative sourcing destinations to China (China plus one), and India is one of the promising alternatives here.

Reshaping the supply chain world

The opportunities created by these changes in the global supply chain post-COVID put India “on a pedestal” with great fanfare for the potentially strong growth opportunities that come with the size of the economy and the existing manufacturing and service industry base.

As the global supply chains are reshaping, this is providing a window of opportunity for India, but at the same time, India faces strong competition from South-East Asian as well as east European countries.

India ready to take the challenge

India has some work to do to fulfil its potential as companies still see many hurdles, despite the governments initiatives to make life easier for foreign investments. Just to highlight a few:

  • Ease of doing business (yes India has improved but still ranks more to the bottom than to the top)

  • Ongoing bureaucratic and administrative challenges

  • Infrastructure is still poor (especially in industrial areas) – A lot has been invested and planned, but with a country so large there is a lot to do

  • Power cuts have continued to be a challenge

  • Complicated tax structures and changing tax rules are concerns for especially big corporations

  • Trade union conflicts and old-fashioned labour laws

  • A legal system overloaded with cases, so it often takes years to get a verdict

  • Due to climate changes, there are increased impacts of heat waves, flooding, and air & water pollution, plus dust and dirt continue to be visible to all new arrivals

Towards a robust growth

India ranks seventh in FDI. When compared with China’s FDI, it is 11% of the total investment in China. Also, 80% of Indian FDI is from companies, which are already in India. As such, there is a lack of new market entries. In fact, India has a high GDP growth but also high inflation. 80% of the labour force work is in the unorganised sector, skilled labour is hard to find, and energy prices are high.

Balanced with this is resilience: Indian exporters did not just demonstrate COVID resilience but also posted robust growth with increasing revenues in 2022 – a positive sign of exports bouncing back.

India towards a manufacturing hub

Despite all these challenges, India does have big potential, and no company in the world should avoid doing business with and in India and its 1.4 billion people. The Indian government is doing quite a lot to improve the scenario. The Indian manufacturing sector has the chance to rise to prominence globally, positioning the country as a creditable supplier of high-quality goods and a reliable business partner for companies around the world keeping in mind that government reforms will continue and accelerate.

But if companies want to enter the Indian market, start sales operations, source components, or even start manufacturing, they would need a partner in India who can guide them and ensure that no errors are committed and all existing hurdles can be successfully passed.

Targeting the right region & partner in India

Below are the parameters that foreign companies need to consider for targeting the right region and the right partner for sourcing in India.

Finding the right partner: There are quality options available for any company that is looking to source in India. But the key is to enlist the help of a local partner that can identify that perfect supplier for that company. The owner just needs to identify the right partner with the right experience to make sure he can fully take advantage of the advanced knowledge and experience India has to offer.

Ensure the desired specifications & quality: To ensure the desired specifications and quality, the supplier must have the necessary expertise in that industry sector with adequate quality systems in place. Suppliers should have up-to-date and capable logistics experience (packaging, container loading), as well as process technologies in place so they can produce the material needed.

Get the best quotation: Each supplier is different. During the selection stage, a structured way of evaluating the supplier is formed. This should include both qualitative as well as quantitative factors. The buyer should first select a supplier (with the help of the local advisor) who can supply the required product. Once selected, the seller can then negotiate with the buyer on price and terms.

Ensure delivery schedules: This involves the buyer receiving goods from the supplier and ensuring they are as mentioned. Factors such as the quantity of the ordered goods and their quality are checked at this step. A well-established purchase order process enables seamless movement of raw materials and goods, helps maintain good relationships with suppliers and – most importantly – results in big savings for organisations.

Sourcing challenges for a foreign company

India is a competitive country. Therefore, the company needs to understand in which cluster they have the most expertise in the respective sector or specific product. For international companies, with little experience in India, the following are some challenges that need to be addressed for a good market overview:

  • Prices/currency risk

  • Logistic issues

  • Availability of raw material

  • Shortage of required components

  • Deadline compliance

  • Consistency in quality

Timeframe for finding a desirable supplier

Often, many companies select the first supplier they come across without doing the necessary due diligence or adequate testing. Finding a high-quality supplier takes time because you need to allow them to study your component and then develop it. That process can take up to six months or more. Also, having a local representative that can take care of the follow-ups, and do side visits will result in a high-quality solution for your company.

Key trends: Global sourcing space

Building global competency centres in India: Nowadays, foreign companies are establishing global competency centres in India funded by their principles. Sourcing is not just about manufacturing components it is also about finding the right talent who can do that work for you. These centres are bridging the gap between the mechanics and upskilling the talent.

Shifting manufacturing and assembly lines in India: European companies are shifting their manufacturing line to India, which can be attributed to a rising labour shortage and high fuel costs.

Decentralisation model: The government is boosting its decentralisation model in areas of effective and efficient pre-investment advisory in terms of land search, certifications, licenses, and approvals to achieve one step closer to Aatmanirbhar Bharat.

Free trade agreements: There is a renewed focus on trade deals with the US, the European Union and the UK, which are key markets for Indian exporters and are keen to diversify their sourcing. FTAs are being touted by policymakers as a gateway for extensive opportunities for companies in India.

Disclaimer – The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house.

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  • Targeting the right region and the right partner for sourcing in India

  • Ruediger Schroeder

    Sr Vice President - Projects,

    Maier + Vidorno Marketing and Sales

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