Fokker Elmo benefits from factory in India: "Our staff in India are better educated and cheaper than in China."

While Fokker Elmo's factory in China had to close several times due to corona measures, the Indian factory of the Dutch manufacturer of aircraft wiring systems continues to operate as usual. A few years ago, Fokker Elmo chose to spread risk: no factory expansion in China, but a new factory in India. "In India we found not only a large supply of better trained personnel, but also lower labor costs than in China," says Maarten Durville, director of the Indian production hub.

Fokker Elmo factory in India under construction

"If as a company you have the luxury of spreading risks, you have to do that," Maarten explains. "We would be in a quandary now if we had only bet on China." The Fokker Elmo plant in China had to close several times in recent pandemic years. According to Maarten, the aerospace company's other factories cannot take that hit directly. "But it makes you less vulnerable as a manufacturer if you are in several places around the world. In addition, India also offers us opportunities that we don't have in China."

India's aviation sector is growing like a coalition. Not only the commercial sector, but also the defence arsenal is expanding considerably. "By opening a factory in India, we are offering our customers an interesting combination: good products at a competitive price and the opportunity to do a deal with the Indian government." There has been speculation for some time about the possible purchase of Boeing's Super Hornet Fighter by the Indian government. "And they want something in return for such a large purchase. Boeing can then say: 'Look, we are building in India through Fokker Elmo and thus also creating jobs in India. So that makes us an extra attractive partner for Boeing."

Local support

The plant in India has been operating for a few years now, but did experience some start-up problems. "We had two major delays, one was internal and the other had to do with getting permits. That takes an incredibly long time in India." Maarten had support from an Indian project manager during the set-up, and even though there is a lot of knowledge at Fokker Elmo about starting a plant abroad, that help was much needed. "I couldn't have done it without him. It was all so much work: from property registration to obtaining the license for operation. Indians are extreme on the comma."

But an Indian project manager alone was not enough to get everything running. "For all corporate reporting we work with local accountants and for the recruitment of the right employees we have Indian consultants in our team". At the moment, Maarten manages about 40 people, which should grow to 800 in about five years. And they will have to be able to participate in the hybrid, international business culture that Maarten is shaping within the company. "I would like to retain the Indian ambition and enthusiasm, but I am replacing the hierarchy with Dutch openness, so that everyone can freely contribute their ideas and dare to voice criticism.

Director Maarten Durville and his team in front of the Fokker Elmo factory in India

Business culture in India

Maarten cultivates openness in various ways. For example, he holds a monthly session with the management in which the values of Fokker Elmo are discussed. Everyone who participates must then give good and bad examples of the open corporate culture. "Personally, I like the introduction of our joint lunch," says Maarten. "When I started, I suggested we all have lunch together, at a long table. So the managers, engineers, operators, all mixed up together and next to each other. That's not at all common in India and I got very different reactions." It was mainly his young employees, under 35, who thought it was a terribly nice idea. The more senior employees had to get used to this Dutch initiative. "And then there was the group who immediately said: 'We'll get the cleaners! Not to join them for dinner, but to clear the tables. I explained to them that we could do that ourselves.

Maarten is very pleased with the quality of his staff. "I heard a lot of stories before I left for India. That there would be a lack of knowledge and dedication among employees, but I see just the opposite. They dare to take ownership for their successes, but also for their mistakes. I hardly come across that outside my team in India." When working with local parties and contractors, Maarten regularly runs into the same problem. "Here, they often give you the answer you want to hear. For example, during the construction of the factory I was often told by contractors that a certain task would take about three weeks, but in reality it would take six. If they told me the truth, I could come up with a solution, but the delay would be glossed over. Fortunately, my team has learned from that."

Recruiting talent in India

The local HR consultants recruit the team with the utmost care. "We do a lot of campus recruitment, and we also try to enthuse as many women as possible to come and have an interview with us. It is a tough job, especially when you are looking for women with a technical background, but we have some very good ones in our team at the moment. Now the question is whether they will also stay with us when they get married." Maarten hopes that the good terms of employment that Fokker Elmo offers can keep them on board. But the factory has also applied for a subsidy from the regional government. "We are trying to get a subsidy to train and employ more women in the company, but it is not yet clear when we can start. The process takes a long time."

It wasn't possible to just submit some forms to have Fokker Elmo compete for the regional pot. "I really learned that you have to go out there. The best thing is not to make an appointment at all, but to just walk into a regional ministry at random and see if you can get a hold of the person responsible. This has helped me a lot so far, this personal contact opens doors that would otherwise remain closed. My project manager said to me for a reason: 'Maarten, a no is not the end'.

Why the pandemic made India the world's most popular manufacturing location

The COVID-19 outbreak confronted the world with its dependence on China for the production of all kinds of goods. Consequently, newspapers have recently been full of reports of big names moving production to India, or opting for a second location in India. Apple and Samsung opened their Indian factories in August 2020, and pharma giant Johnson and Johnson is moving its operations from China to India. But what makes India such an attractive location to manufacture?

India offers low production and labour costs and a large pool of well-trained workers

Production hub India offers foreign companies interesting advantages. For instance, production and labour costs are still low, but the country's rapid technological development ensures that the quality of production meets high European standards. This was also an important reason for the Amersfoort-based supplier of castings and forgings, Prins, to stop producing exclusively in China after 23 years. "China became too expensive in some areas, for example, the hourly wage has risen considerably in recent years. In India, we found competitive prices and an extensive choice of production methods," Erik Sattler, the CTO of Prins, told us in an interview about setting up their Indian production branch. "On top of that, India is more accessible because of the language, everyone in India speaks English. The lines of communication are short because of this; I am in contact with our suppliers simply via Whatsapp."

Tax breaks and subsidies for those who produce in India

The Indian government is working hard to create a favourable business environment. Cheap land for industrial use is being freed up on a large scale and the country's infrastructure is being improved considerably. An example of this is the successful commissioning of the first double-stack container train by Indian Railways. In addition, the Indian government introduced a lot of favourable financial incentives for companies manufacturing in India. A few of these initiatives are listed below: 

• The corporate tax rate has been reduced from 30% to around 25%. India's corporate tax rate is now the lowest in Southeast Asia.

• Introduction of initiatives like 'Make in India' and 'Skill in India'. These programmes focus on creating employment in the manufacturing sector. Moreover, they also focus on improving skill development to create a large pool of skilled labour.

• The rules for land acquisition have been relaxed.

• Companies and limited liability companies benefit from various relaxations in the Companies Act 2013 and LLP Act 2008.

• Income tax, GST and customs exemptions came in when Lockdown was lifted.

"Opening a factory in India also offers the possibility of winning large government contracts," says Maarten Durville, director of the Indian factory of aircraft component builder Fokker Elmo. "We work a lot with Boeing, for example, and they would like to sell their Super Hornet Fighter to the Indian government. But the Indian government will only make such a large purchase on condition that the company also does something in return for the country. In this case, Boeing can show that through our cooperation it creates jobs in India and thus win a place at the negotiating table."

The Do's and Dont's of setting up production in India

Apart from all the advantages of a manufacturing location in India, there are always a lot of things to consider when starting out in India. We discussed the smartest strategies during our last webinar on manufacturing in India. The COO of Maier+Vidorno, IndiaConnected's partner in India, Shavikesh Goel shared his key tips. Please find below the registration of the webinar:

6 lessons for setting up a production site in India of the German multinational Viega

In 2015, Germany's Viega decided to set up a production site in Gujarat, India. In previous years, the global leader in pipelines had seen its sales in India soar, that the company was struggling to keep up with demand. Managing Director of Viega India, Shriyans Jain, shares six key lessons the company learned while setting up a plant in India.

From left to right: Manoj Maithani - Vice President Sales and Marketing Viega India, Anna Viegener - Chief Strategy Officer, Claus Holst-Gydesen - CEO Viega Holding and Shriyans Jain - Managing Director Viega India, at the opening of the Viega India factory in 2018.

Lesson 1: a special economic zone (SEZ) offers interesting advantages for setting up a factory

The production site and also the Indian headquarters of Viega is located in Ahmedabad in a special economic zone, the Gujarat Industrial Development Corporation Zone. "It is one of the best locations in India," says Jain. "We have famous neighbours like Coca Cola, Tata and Ford Motors, but that is not the reason we chose this location. The location of this SEZ is perfect for us as we are right here between Delhi and Mumbai. That means there are good train connections to the port of Mumbai and a large supply of well-trained, technical labour." 

Read also: Business in India: To locate in a Special Economic Zone (SEZ) or not?

In addition, the Special Economic Zone also offers tax advantages to the companies located there. "For instance, we can import machinery without paying import duties. However, we have to re-export the value of what we have imported into the products made in India," explains Jain. "Despite the fact that with Viega we basically focus on the Indian market, this arrangement is not a problem for us. We export suitable products in the region and to Europe. This is another advantage we can enjoy, as we do not pay any import duty on parts we import from Germany when we export the finished product again."

Lesson 2: Don't base your choice of location on the experience of another company, but do your own thorough research.

The best place to set up your manufacturing facility in India depends on the sector you are in. The Indian states They all have their own 'speciality'. For instance, the western states of Maharashtra and Gujarat are known to be a suitable base for technical sectors, while the northern states of Punjab and Haryana have a thriving agricultural sector. "A proper location analysis is therefore an essential first step to ensure that the location you choose is actually the right one for your business," says Jain. "Trying to copy-paste what you are already doing in Europe or what your competitor has set up is not going to work. You can't be sure that it's the right decision logistically and operationally, and once the factory is in place, you can't just move it. I have seen many European companies fail in India in this way."

Curious about what is involved in setting up a production site in India for your company? In our special manufacturing workshop, our experts will work with you to develop a roadmap and strategy for successfully setting up a new factory in India.

Lesson 3: You can build a state-of-the-art factory in India, but be open to the options the country has to offer

European companies are often curious as to whether it is possible to set up a production site in India that is comparable in level to the factories they have in Europe. "To set up a copy of your European factory in India, you have to incur high costs. Think carefully in advance about what that means for the total production and production costs. Viega was very clear in its order; it had to build a factory that would last at least 50 years. In terms of quality, we went for a more 'European' production location than a standard Indian factory. For example, we installed air conditioning over the entire work floor, which is quite unusual for India. But for Viega, it is important to offer our employees a pleasant workplace in a city where it can get up to 48 degrees in summer."

Viega initially wanted to import this air conditioning system from Europe, but Jain strongly advised against it. "Firstly, because the company they wanted to work with did not have a branch in India and I could see immediately that this would cause problems with maintenance and service. In addition, the alternatives, both international companies with an Indian office and local suppliers, were of the same quality and were much cheaper. Fortunately, the German team was open to considering other alternatives and fortunately they took my advice. I advise companies to take a critical look at what they really need to import from abroad and what can just as well (and often cheaper) be done in India. 

The Viega production site in Gujurat, India.

Lesson 4: Hire a local management team even before you find a location and dare to let them make the decisions

To be successful in India, you need local knowledge and a good understanding of the Indian way of doing business in your team. It is therefore essential that you make the time to recruit the right people for your local team, who not only possess these qualities, but also fit well with your business culture. "International companies often tend to send colleagues from head office to India to fill management roles because they think there is no suitable talent to be found in India," says the Viega managing director. "But a local executive can actually help you better adapt your Indian subsidiary to the local market and find innovative solutions that will help you grow."

According to Jain, it is therefore also important that local management is involved in the decision-making process as early as possible. "It's very easy to say, 'Hey, I'm not responsible for these choices, because they were made by the team at head office at the time.' At Viega, they handled this well from the start, with our team having the final decision on everything from the product strategy to the equipment placed in the factory. Of course, there was always consultation with the responsible team in Germany, but the final decision was made here. So the responsibility for those decisions also lies entirely with us."

Lesson 5: Seek external specialist help for difficult issues

Finding suitable management or the right location for your factory can be challenging if you are new to India. "It is therefore very wise to engage consultants who have expertise in this area," says Jain. "Viega, for example, still uses external recruiters to find the perfect candidates for positions where we require very specific skills, and consultants were involved in finding our location and handling all the paperwork. For this step in particular, it is highly advisable to get help, as you don't want unnecessary mistakes to delay the set-up of your production site. 

Our local experts are ready to support you every step of the way in setting up a production site in India. Read here what they can do for you.

Lesson 6: Don't let the stories of India's bureaucracy hold you back.

India has risen from number 142 to number 63 in the World Bank's Ease of Doing Business ranking over the past five years. This is partly due to the improved transparency of the procedures and policies to be followed. Jain: "In this respect, setting up a production site is not so different from other countries. In India too, you have to get your plans approved on many points, which can take a bit longer than you are used to in Europe, so a few extra months have to be taken into account. But European companies should get rid of the idea that the bureaucracy in India is too big an obstacle. India is the place to be with its growing economy and middle class. Efforts are being made to make investment in the country as attractive as possible and to make it easier to do business. If you follow the rules and have your papers in order, no one will stand in your way."