India as a production location: practical tips for entering the market

India as a production location: practical tips for entering the market
26 Nov, 2021

Low labour costs, many young, well-trained workers and increasing sustainability: India is an attractive procurement and sales market for European companies. We present the potential of the emerging BRIC country and show how companies can become active - from finding producers to exporting goods.

Economic potential and prospects

India is one of the world’s largest economies: in 2020, its gross domestic product was around 2.7 billion US dollars. For years, the country has been on the path from a service-oriented economy to a global production centre. The young average age of 28.4 years of the more than 1.3 billion Indians and the lower production and labour costs than in China hold enormous potential for companies.

Although the Corona year 2020 was accompanied by a decline in export figures, goods worth around 276.23 billion US dollars were still exported (in 2019, the volume was 324.34 billion). For 2022, the International Monetary Fund forecasts economic growth of 11.5 percent. To achieve this, India is arming itself for further pandemic-related challenges, including its own vaccine Covishield.

“Make in India” - broadening supply chains

In addition to textiles, jewellery, electronics and software products, the emerging country’s most important exports include production goods such as chemicals. European companies can benefit from this wide range of products if they set the right course when entering the market and rely on partners with local expertise during implementation. Companies that broaden their supply chains by partially manufacturing their products in India spread the risk - and become more independent of China. Since the population is almost as large as in the Middle Kingdom, a large demand can also be met here. In addition, the transport routes to Europe are shorter, which can prove to be an advantage in terms of time.

To encourage European companies to produce and purchase locally, the Indian government has launched the Make in India initiative. Among other things, it provides financial incentives for investment in local manufacturing, which also gives a new emphasis to the pursuit of greater sustainability.

Production in India? Jump-starting the export business

When looking for qualified partners for product sourcing, purchasing, production and, of course, cross-border logistics, market entrants should rely less on random contacts and more on clear recommendations. In this way those responsible can establish and deepen contacts, get to know production locations, and develop an understanding of which product groups are manufactured where in India’s regional clusters.

Thanks to a strategic partnership with the Indian market leader Jeena which is the best logistics company in India, the logistics company Hermes International, a division of Hermes Germany, can provide optimum support for local companies entering the Indian market. Together, they offer companies comprehensive expertise in the international movement of goods, coupled with the in-depth regional know-how of a true local hero like Jeena - one of the country’s largest freight forwarders.

Establishing and maintaining supplier structures in India

The establishment of successful supplier relationships is ideally based on a detailed assessment. Clearly defined requirements make it possible to objectively compare the advantages and disadvantages of individual suppliers and make the best possible selection. In this way, not only can risks such as supply bottlenecks be reduced in advance. The clearer the agreements, the better it is possible to ensure compliance with defined social and ecological standards.

Those who optimize existing supplier structures and, for example, make firm capacity commitments or provide targeted support to supplier companies for sustainable further development will often be able to procure goods more quickly and at lower cost. For this reason, many foreign companies that produce in India rely on long-term business relationships based on trust: A competitive advantage that comes into its own especially in challenging times.

India as a production location: Meeting logistical challenges with local know-how

In order to make domestic logistics by road, rail or sea more efficient in India itself and to ensure further growth, the Indian government is investing heavily in expanding the transport and traffic sector. Nevertheless, the conditions in many places still do not meet international standards - foreign companies must prepare themselves for challenges. But they are not left to their own devices: experienced logistics service providers such as Hermes International and Jeena manage local land transport as well as international air and sea freight to Europe. In addition, they offer the entire range of supply chain services - including warehousing and customs clearance. If you think of supply chain services India, the strategic partnership makes it possible to develop innovative solutions for customers. One example of this is the coastal shipping offered by Jeena, as a time-saving intra-India transport alternative to cargo flows on roads and railways.

Successful cross-border logistics

Ultimately, one of the most important success factors for the India business is cross-border logistics. The location on the Indian Ocean serves as a strategically good starting point for trade: among other things, there are several weekly direct connections for international sea freight with the European shipping companies MSC, Hapag Lloyd and CMA CGM. Good accessibility is also provided by air: Hermes International, for example, offers its customers* two direct flights per week from the transport hub Frankfurt am Main to New Delhi - so companies receive their freight quickly and reliably.

Conclusion: India offers great potential

India is a particularly attractive procurement market for European companies due to low wage and production costs and a growing young workforce. Demands from European companies and end consumers for greater sustainability are also being met: In 2014, the Clean India - Green India campaign was launched - with the aim of ensuring greater cleanliness in cities and villages, advancing environmental protection and counteracting climate change. The desired sustainable economic development also opens up new local business opportunities for foreign exporters. These are, for example, in the areas of machinery, technology and automation.

Regardless of the direction of goods traffic, entry into the Indian market should be based on a well-thought-out strategy. Companies are well advised to outsource all activities that are not part of their own core business to local specialists who ensure smooth processing on site.

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