Due to political tensions and rising labour costs in China, more and more companies are switching to India as a sourcing location. India offers access to a wide availability of raw materials, good quality producers and the costs are lower than in China. But how do you best go about sourcing from India?
In the last decade, India has become one of the world's major manufacturing centres. The Indian government has invested heavily in the development of the industrial sector, with the result that India's automobile, aerospace, IT and pharmaceutical sectors (e.g. vaccines) now produce for the entire world. India's exports have grown in recent years from USD 226 billion in 2010 to over USD 400 billion in 2021. This growth is based on a few pillars:
- Availability of raw materials
India is one of the largest producers of raw materials worldwide. A wide range is available such as steel, metal, wood, bamboo, marble, cotton, silk and jute.
- Attractive labour costs
One of India's strengths is its low costs, as wages in India are much lower than in competitor countries.
- High level of staff training
Indian companies invest heavily in training their employees to ensure that they can meet the quality requirements of international companies.
- Stable government and supportive policies
India is relatively stable economically and politically. Moreover, the Indian government stimulates the development of the manufacturing sector with favourable regulations for exports from India and for foreign companies that want to manufacture in India.
- Advanced infrastructure and technology
India's development in IT, aerospace and automobile industries benefits other sectors in the country. In fact, the new advanced technologies developed in these industries quickly find their way to the other parts of the manufacturing sector.
Read what the German family business Viega learned while setting up their factory in India.
Convinced? Get started with sourcing from India
Step 1: Start with proper market research
Many companies see India as one country, but it is better to approach it as a continent like Europe. The different industries are therefore often located in a specific cluster in a state where the best materials, infrastructure and personnel can be found for this specific sector. For example, the automotive industry has four large clusters in Gujarat and around the cities of Chennai, Pune and New Delhi.
Do not focus on these clusters, but look at all the options across India. Sometimes, the options outside these clusters may be more advantageous as wages are lower outside the cities, for instance. Once you have identified the locations that suit your needs, make a list of potential suppliers and manufacturers in these regions.
Step 2: Evaluate potential producers
In order to guarantee the desired specifications and quality, your potential supplier must have the right expertise and experience within your sector. In addition, you want to be sure that they work with quality systems, what the annual output is and whether the supplier has enough experience with exporting the product.
If you have little experience in doing business in India, it is advisable to hire a local consultant for this step. They know exactly which legal requirements products must meet and which permits are needed to produce and ship your products. Our experts have the know-how to guide your organisation smoothly through this process.
Step 3: Schedule a visit or call
From your list of potential candidates, you choose the three to five best options after evaluation. With them, you go into more detail about your requirements and the possibilities the producer can offer you. In this step, it is advisable to schedule a visit to the facility or, if a visit is not possible, a video call to get an even better idea of the working methods and the quality of the products manufactured there. If you are satisfied, ask for a quotation so that the price and conditions can be negotiated.
Please note that a factory in India usually looks different from what you are used to. This does not mean that the products delivered are of inferior quality. Often, factories in India are more simply furnished, and there is no air conditioning, for example, but the machines are of the same calibre as in Europe.
Step 4: Samples and quality control
Once you have agreed on the price and conditions with the producer, samples can be made. It is important that you have people available in India who can check the manufacturing process and quality before you do the same in Europe. If everything is to your liking, the first batch can be manufactured. Although you have already screened your new supplier in various ways, it is then advisable to have quality checks carried out every year or perhaps even more frequently.
Sourcing in India is a great way to get to know the market
India is one of the largest and fastest growing consumer markets in the world. Although you may be 'only' starting to source products or raw materials in India, your presence and local contacts give you the opportunity to explore the market further. India is expected to have the largest population in the world in 20 years and you will not be able to ignore this important market in the long run. Start your sourcing adventure in India with an open mind and a long-term strategy, because India has an incredible amount to offer European companies.