When it was reported that India's Tata Motors decided it would not manufacture its much-publicized Nano cars in West Bengal, it sent a wave of chatter throughout the international business community that India may not be the right place for manufacturers to set up shop. Certainly, there are business risks associated with manufacturing in India, as there are in any country. But manufacturers should not shy away from the sub-continent's many opportunities -- as long as they do their homework first.
Land of Opportunity
India offers manufacturers competitive advantages that far exceed low labor costs, according to a joint study by McKinsey and the Confederation of Indian Industry. India has the world's second-fastest growing economy, just behind China. And unlike some emerging economies, India has a stable, national political system that is the world's largest democracy. Its workforce is highly educated -- with a vast talent pool of engineers -- and most people speak English. India's central location in South Asia makes it an ideal manufacturing hub. Finally, India produces a wide range of machinery, and has a proven track record of handling large manufacturing projects.
The Indian government also is offering manufacturers plenty of incentives to set up shop in India to meet the government's goal of pushing manufacturing production to more than 25% of the country's economy by 2017, from 16%-17% today. New Delhi officials plan to establish a series of special industrial zones around the country where companies would be given incentives to start operations, especially in fields such as petrochemicals, textiles, leather goods, food processing and electronics.ii
The result is that many overseas manufacturers are thriving in India. Global automotive original equipment manufacturers (OEM's) are sourcing components and automotive parts, and companies including Toyota, Honda and General Motors have well-established manufacturing facilities in India. In the medical sector, large and small companies that make prosthetics, dentures and other medical products, are growing in number, too.
But with promise comes potential pitfalls. That's why it's imperative for manufacturers to do their research and find the right resources to help pave the path to success in India. The following offers a few points for manufacturers to consider.
Infrastructure Growing Pains
India's economy is growing at a faster rate than its infrastructure. So it's essential for manufacturers to understand the resources they will need to sustain operations in India, including energy and water supplies, and prepare for these costs.
Although 80% of the country has access to electricity, unreliable power grids cause regular blackouts, so businesses should expect daily power outages, even in cities like Delhi and Bangalore. Manufacturers should maintain a diesel generator, and follow the lead of shopping malls and call centers and have their own fuel storage tanks.
Water is another area where supply isn't always keeping up with demand. With 16% of the world's population but only 4% of its fresh water, India faces significant water scarcity.vi Population growth and global warming threaten to decrease the country's water supplies further. In 10 years, factories may need to have their own water reservoirs -- an added cost to consider. But with proper planning, manufacturers will be in good stead to grow their businesses even amid these challenges.
Slow Passage Within India
While shipping to and from India has become much easier over the last decade, shipping within India isn't always smooth sailing. Local governments lure some manufacturers to Indian states with phenomenal tax concessions. But once they arrive, some manufacturers are discovering that moving equipment or distributing products is more costly and time-consuming than they thought. Roads in India are not always paved, and gridlock is an everyday occurrence. Many states have their own taxes, called octroi, which companies have to pay for shipping products across state lines. The result is that shipping around the world can sometimes be faster than shipping to a nearby city.
The answer to these challenges is for manufacturers to talk to a shipper before they commit to a setting up shop in a specific location. To find the right shipper, it's important to ask them one key question: Do you manage your own transportation network, or are you subcontracting to other companies? If they subcontract, it could likely mean that your shipments will take longer and cost more because you'll rely on a fragmented distribution network.
To make shipping easier for manufacturers, UPS created its own network in India through alliances and joint ventures. By having an integrated network across more than 200 cities in India, our customers know where their shipments are at all times -- and what their total shipping costs will be -- making sure there are no unwelcome surprises.
Be Ready for Red Tape
As India has the largest democracy in the world, bureaucracy can be tricky. Strict labor laws and other regulations can significantly slow the pace of business in India. In addition, India is a decentralized country with vast, regional differences. Having a partner with strong knowledge of both regional and national regulations will be most helpful for manufacturers.
While these challenges may sound tough, they are navigable if manufacturers are prepared. The following tips offer a foundation for success in India.
- Take a Long-Term Approach
According to a U.S. Commercial Services representative, one of the mistakes U.S. companies make when they go to India is expecting to build their businesses overnight. Companies shouldn't expect a similar business pace as in the U.S.; planning for the long-haul is key. - Do Your Research
Learn as much as you can about India -- its culture, etiquette and what's going on in the business world. Read newspapers online, such as the Times of India. Speak with other U.S. companies doing business there, and consult with experts including the U.S. Commercial Service (www. http://www.buyusa.gov/india/en/ ), a vital resource for American companies. - Don't Rely Solely on the Counsel of Others
Before deciding to manufacture in India, it is imperative that you go there. It's important to see prospective partners and operations first-hand to make a fully informed decision.
As India's economy booms, the nation is fast becoming a top manufacturing destination. In years to come, Asia business consulting firm Runckel & Associates projects that India will increasingly replace China as a key export manufacturing location.viii So now is the time for savvy manufacturers to gain a long-term competitive edge and extend their businesses to this fast-growing market.
George Post is the Supply Chain Solutions Global Marketing Director for UPS. He oversees key UPS services that assist automotive and manufacturing sectors move freight and packages across borders. http://www.international.ups.com
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