As China grows more expensive for manufacturing and sourcing, fueled by inflation and rising labor costs, India with its English speaking population and inter-regional competition is proving to be a promising alternative. Jens Wernborg recently moved to Mumbai to head up the Swedish Trade Council office after spending ten years in China. He gives an example. “In India a blue collar worker typically earns EUR 110 per month and there are no social costs; whereas in China the same worker will cost you between EUR 160 and EUR 220 per month plus social costs.”

Traditionally, India has excelled in call centers, administration outsourcing and software development but, when it comes to manufacturing, has lagged far behind neighbors like China and Taiwan. “After independence, manufacturing was very tightly controlled by the government with high customs tariffs and foreign companies had to use a local joint venture partner,”says Bengt Johansson, head of the Bangalore office, who has lived in India since 2004, “but things changed when the economy was opened up in the Nineties.”

 

Smaller supply base

Manufacturing quality has been an issue in India, admits Johansson. He attributes it partly to a smaller

supplier base in India which means a lack of competition amongst suppliers, thus affecting the level of quality. Indian companies were also not used to handling large volumes of manufacturing as they did not have a manufacturing history. However, this can be an advantage for international companies looking to manufacture smaller volumes. “Problems related to infrastructure, transportation, power cuts and clean water supply also affect quality, but the situation is improving,” he explains.

“Asians often think ‘this quality is good enough’, ”comments Wernborg. “But if you want to have the

same quality standards from your supplier in India, or China, as in Europe or the US, then you need to

implement more controls and regulations on site.

Western companies must be quite clear about the quality they expect from their Indian supplier and put

it in easy-to-understand written instructions and also actively train them in order to reach the right level.”

 

Holding on to staff

Hiring well-educated employees is generally easy in India but much of the best talent has ended up in the IT industry where salaries are higher. This has been a matter of concern for foreign companies who complain that they find it hard to attract good manufacturing staff. If setting up a purchasing office and recruiting local staff, Johansson recommends looking more closely at the individual’s attitude and mindset rather than focusing on education and work experience. “Indians learn quickly so you can teach them skills,” he says.

While it is easy to recruit good people, holding on to them is a challenge. “High staff turnover is an issue

as it’s not uncommon for companies to poach employees from each other with the lure of a higher salary. This means sometimes losing managers overnight to a competitor,” says Johansson. He believes investing in employees’ self-development is more effective than simply offering them more money. For example, give factory workers English language training, enroll managers in business school courses.

If you are working with a supplier, it’s equally important that they invest in their employees as this

will affect the quality of your product or service. Look past their office and on to the factory floor to see how they treat their staff. Healthy and happy workers will improve the quality of your product or service.

 If your supplier has a high staff turnover or changes location, this can have implications for you. Keep in regular contact with suppliers so you can detect any potential problems at an early stage.

“If you are looking for a new supplier in India, you should screen them first and then shortlist the ones who fulfill 70-80 percent of your Code of Conduct,” advises Johansson. “You should then sit down together to see how to improve the remaining 20-30 percent. Indian vendors understand they need to meet their obligations if they want to win a contract. You just need to be very specific and very firm with them. The ‘improve or else” policy should be the rule,” adds Wernborg.

 

Regional variation

India is a huge country, and conditions and infrastructure in one region can vary greatly from another.  As can the incentives and offers from different states, competing in the race to attract foreign business. Bangalore, Chennai and Mumbai have been very successful in attracting foreign investment. Wernborg warns that companies interested in sourcing or manufacturing in India should look very closely into the different options and do their homework properly before making a commitment.

Newcomers to India may be faced with the “baksheesh” phenomenon. Whether this is a “bribe”or a “tip” is a fine line but it basically means that Indians pay a fee to public servants and local authorities in

exchange for their help or service. Foreign companies should never get involved in this gray zone.

When international companies are asked about problems they face in India, bureaucracy is often one

of them. Slow and inconsistent decision making can be frustrating but it is improving and it also depends on the state you are working in. On a positive note, piracy and information theft is less of a problem in India, than in other parts of Asia. The Indian legal system allows foreigners to take a company to court and put them out of business for such issues.

 

Catching up on manufacturing

Many Indians have returned to India after having worked or studied abroad. This means that they are generally quite open to foreigners and appreciate western business practices. Most Indians involved in

business generally have good knowledge of English and all business contracts are generally written in English albeit under India law.

The country’s caste system is much stronger in rural rather than urban areas. Foreigners rarely experience problems with the caste system unless they have a plant in a remote area or marry into an Indian family. There is no doubt that India is catching up with its manufacturing neighbors and today many multinational companies are sourcing plastic, automotive and spare parts components from India; while its textile industry has been long established. More recently there has been a growth in telecom manufacturing as companies such as Nokia and LG set up their own operations or manufacture in India via Taiwanese and Singaporean partners – driven by a growing domestic market demand for cell phones.

“Not only are there business opportunities but it’s a very dynamic and fascinating country,” says Johansson. “There is also a sense of optimism here about the future which is something you don’t always see back in Europe.”