In the last two years, we have seen a lot of disruptions in the global economy especially due to the coronavirus pandemic but also due to the war in Ukraine which 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 alternatives.
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 manufacturing and service industry base.
The global supply chains are reshaping, providing a window of opportunity to India but India faces strong competition from South-East Asian as well as East European Countries.
Is India ready to take on this challenge?
India’s image in the world has to be improved, companies still see many hurdles despite the government’s initiatives to make life easier for foreign investments.
Just to name a few:• Ease of Doing Business (yes India has improved but still ranks more to the bottom than to the top)
• On-going bureaucratic challenges
• Infrastructure is still poor (especially in industrial areas)
• Power cuts
• Complicated tax structures and new changing tax rules are especially concerns for big corporations
• Union conflicts and old-fashioned labour laws; and
• A legal system is overloaded with cases, so it takes years to get a verdict.
In addition, due to climate changes the world notices many other challenges like heat waves, flooding, air and water pollution, plus dust and dirt everywhere. On top of that the main headlines seen outside the country focus on communal unrest, restrictions on press freedom and very nationalistic Government policies. None of these is helping the image of India and is all concerned when companies think about investments in a country.
Looking at some economic figures in India there is also a mixed message
India ranks No 7 in FDI – but compare that with China’s FDI and it is only 11% of the total investment in China. Also, 80% of Indian FDI is from companies which are already in India so there is a lack of new market entries. India has high GDP growth but also high inflation, 80% of the labour force work in the unorganized sector, skilled labour is hard to get 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.
Despite all of these challenges and mixed messages, 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 situation but as always in India, things develop slowly. 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 if the 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 need a Partner in India who can guide them and ensure that no mistakes will be done and all existing hurdles can be successfully passed.
How should foreign companies go about 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 you. India is a big market and if you don’t know where to look, you can easily end up selecting the wrong one.
There are tons of suppliers around that can manufacture components of international standards. Whatever you are looking for, it is available in India. You just need to identify the right partner with the right experience to make sure you can fully take advantage of the advanced knowledge and experience India has to offer. - Ensure the Desired Specifications and 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 (in quantities and qualities). Once selected, the Seller can then negotiate with the Buyer on price and terms or it will be done by M+V Altios.
- Ensure the 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 organizations.
What are some of the Sourcing Challenges that a foreign company would face in India?
India is a complicated country. To think that all regions are similar would be a mistake. You need to understand in which cluster they have the most expertise in your sector or specific product. For international companies, with little experience in India, there are some of the challenges that they need to keep in mind, to get a good overview of the market:
– Prince increase/Currency risk
– Logistic issues
– Availability of raw material
– Shortage of components
– Deadline compliance
– Consistency in Quality
In what time frame can a company find a desirable supplier for their products?
The answer of course depends on what kind of product you are looking to source.
The mistake we see many companies make is selecting 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 product or component and develop it. That process will take 6 months or more and having a local representative that can take care of the follow-ups, do side visits, and take over the time-consuming processes will result in the high-quality solution your company is looking for.
What are the key trends happening in the Global Sourcing space?
- Building Global Competency Centres in India: Nowadays foreign companies are establishing global competency centres in India which are 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: Many European companies are shifting their manufacturing line in 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 Atmanirbhar 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.
A local consultant like M+V Altios plays such an important role in this process, they can not only do the research for you but also pre-select the right suppliers based on essential criteria such as experience and expertise.
M+V Altios has the unique knowledge and skill to provide an experienced team that can manage all aspects of setting up sourcing – both technical and commercial. Not only do we have the local knowledge to identify suitable suppliers and help clients to find the best and most reliable partners, but we can ensure that all the client’s requirements are met because we understand. For more details on Sourcing Services in India, contact our experienced M+V Altios’s expert
RUEDIGER SCHROEDER has a rich experience of over 35 years of managing large German subsidiaries in different countries. An MBA from Hamburg, he has worked across all areas – Finance, operations, Marketing, Project management, International Sales & Business. He has lived and worked across Europe, the USA and for nearly 10 years in India and travelled extensively in Asia.