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."
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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.
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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."