Why should companies go to India at all?
Mr. Sudhir Rao, Former Chairman and Managing Director, Skoda Auto India and a Global Automotive and Transportation CEO. He has experience across India, US, and Europe in creating, building, and transforming firms to be sustainable, profitable businesses along with Mr. Shavikesh Goel, Vice President – Marketing & Business Development, Maier+Vidorno discusses Manufacturing in India and How to set up a manufacturing unit in India.
There are four probable reasons why companies should establish their business in India:
- The Board of Directors of the company forces the management into a presence in India because it’s the largest emerging economy in the world.
- The Indian government has formed attractive foreign direct investment policies for foreign companies that are trying to establish in India.
- Companies desire to access the second largest population in the world and reap the associated profits.
- The final reason is to establish a low-cost footprint of Manufacturing in India.
Should the small and mid-size companies be looking at India?
- It depends on the industry and the company’s product portfolio — if the SME is a supplier to a much larger company and that company has a manufacturing footprint in India, they may ask the SME to follow them and support their business in India.
- If there is a market for SME’s product in India, evaluate the appropriate manufacturing, sales, and service mix for that product – ranging from sales via an import partner, to your own manufacturing; and 100% subsidiary vs a JV.
Challenges the companies face:
There are numerous challenges which the companies face in terms of Manufacturing in India especially if they come from a western mindset-
- Evaluate the customer’s prospects in the country in case of strictly “following a larger OEM to be their dedicated Tier-2: Evaluate carefully if your customer has the capability to compete and grow in India. What if your company gets this only one business in India? Can your company sustain and be profitable?
- Duration of the contractual relationship: Will your customer live up to its commitment to support you over the long term; the strength of your historical relationship with that firm becomes really critical.
Whether a company should independently establish its business in India or enter a joint venture?
According to Mr. Sudhir Rao, companies should come on their own. As you are able to focus on the fundamentals of building up a high-quality, competitive organization, ensuring that you stick to the values of the company. Also, the employees, suppliers, and tools manufacturers absorb the engineering and Manufacturing in India practices and culture.
In addition to this if you plan to enter into a joint venture you’re adding a major complication. Thus the preparatory part is really important because it’s to go straight and focus on developing the product in your own way.
How much localization of their product should the companies should the company’s focus on in India?
In order to meet the cost requirements companies deliberately choose to down spec their product features that are really important for the customer in India. For example, in India, the weather strips off the paint of the car but that’s fine with the Indian customers. People are okay with small scratches on their cars. But the same is not the thing in Europe, people take each other down for a little scratch. Thus, companies have to decide on what positioning they want to take in India and how much they want to adapt their brand in accordance with the Indian culture.
In every product category, there’s already a company that exists in India. Therefore, you need the technology, quality, cost, or customer fit as one of your competitive advantages to succeed in India.
Another important factor that might break or make your company in India is talent availability and the quality of their behavior. In India, it’s very difficult to find that first core group of really good employees. Therefore it’s important to find one person whom you can trust in India. This person is going to hold your hand and walk you through identifying the right kind of people. Once you’re convinced that they’re fine you bring them to your factory abroad and inculcate your culture in them.
Key potential issues while setting up a manufacturing facility in India:
Companies setting up a facility of Manufacturing in India perform no location analysis. They have to evaluate the location before deciding on one. A wrong decision on the selection of the location leads to long-term problems. The Location Analysis should consider the specific parameters based on Company’s business requirement. Various locations should be evaluated on an objective basis, without any biases.
Land search and selection:
As land cost could be prohibitive in some locations, the tendency to go for the cheaper land options is prevalent. We advise going for Government land in developed Industrial Development Corporations (IDCs) wherever possible. In the absence of suitable Government land options, one should go for private industrial parks.
The process of Government approvals is bureaucratic and sometimes could take longer than planned. One should have all the necessary documentation in place well in advance before applying for various approvals.
Design coordination between various agencies working on the project could be one of the biggest challenges. The selection of architect and designers should be more detailed and careful in India.
The contractors in India are capable and competent. Selection of key contractors should be carefully done and even though the good ones come at a higher price, it is worthwhile to pay the additional price.
The workers generally are not trained people. They gain experience by working but not by training. Hence, the quality of the work is not always the best. The hiring of good contractors is essential in order to get good workers.
If the detailed budgeting and preparation of specifications exercise are not done initially, it is highly likely that cost escalations would happen. There should be contingencies built in the budget based on the expected deviations
Even though the additional cost of providing a safe working environment is factored in their contract, the contractors are not serious about implementing the same (to reduce their costs). Therefore, Contractors and their workers must be monitored and penalized monetarily, if needed.
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M+V offers support to foreign companies looking to establish Manufacturing in India or expand their existing business in India. For more information, get in touch with us on our email id firstname.lastname@example.org.