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Manufacturing Outsourcing Growing in India

September 23, 2009

On my way to the Grand Canyon, I once happened to visit a souvenir shop in Arizona, where, little figurines of ‘indigenous’ Indian art, discreetly bore a ‘Made in China’ tag! Later, I was not surprised to learn that almost 80% of toys sold in the US are made in China. Now, this tide is turning its course to India.

Three years ago, supply chain research firm and consultancy Technology Forecasters Inc. (TFI) predicted that about 20% of the 400 electronics companies surveyed had plans to shift their manufacturing base to India over the next two years. This was in addition to the 25% that already had a presence in the sub continent.

Fact is that scores of original equipment manufacturers (OEMs) and their electronics manufacturing services (EMS) partners are looking to India for the same reasons they moved to China about two decades ago, namely a growing demand for cost cutting through low labor prices.

This kind of outsourcing is called contract manufacturing, under which a company that sub contracts its manufacturing owns the design and patent rights, and is referred to as the original equipment manufacturer (OEM), while the service provider is known as the EMS.

For the past couple of decades, Taiwan and China have been world leaders in the OEM sector, but gradually with the improvement in road infrastructure and better supply chain management, India, Thailand and Philippines have also begun to gain a foothold in the sector.

One reason EMS providers are getting interested in India is because after SAARC scare they want to de-risk their operations. The movement caught impetus when the Indian government kicked off a $10 billion national highway progect a few years ago for linking major metropolitan cities.

OEMs such as Samsung and LG Electronics and EMS providers such as Solectron, Flextronics and Jabil already have well-established facilities in India. Flextronics manufactures printed circuit board assembly, Celetron International is the country’s largest supplier of design services and printed, Tata Infotech makes board assemblies and backplanes and mechanical and electro-mechanical assemblies, desktop document processing systems and ATMs and cash dispensers, while Samsung is into home appliances, cell phones, PC monitors and disk drives, laser printers, fax machines and televisions and LG Electronics is a category leader in home appliances computer peripherals and televisions.

outsourceManufacturing-300x227 Manufacturing Outsourcing Growing in India
Indian manufacturing underwent a sea change after trade liberalisation in 1991. “India is changing from a command economy focused on self-sufficiency to becoming a key link in the global economic chain,” declared KPMG in its report titled ‘Manufacturing in India: opportunities, challenges, and myths’.

This led a Confederation of Indian Industries (CII)-McKinsey study titled ‘Made in India’. to predict that manufacturing exports from India could touch $300 billion by 2015. The most promising sectors for India in this context are those dealing in auto components, pharmaceuticals, electronic hardware, apparel, footwear, toys, and specialty chemicals.

A McKinsey analysis states that global outsourcing in the automotive components sector could be worth $375 billion by 2015, up from $65 billion in 2002. India could capture up to $25 billion of this amount, to become (along with China, Mexico and Thailand) one of the developing world’s top sourcing bases. Already, out of over 400 Indian suppliers, 80% have ISO 9000 certification—the international standard for quality management.
Meanwhile, the pharma contract research and manufacturing (CRAMS) market in India, which was valued at $532.10 million in 2005, is expected to touch $900 million by 2010, according to The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Lately, after being severally hit by the Chinese toy manufacturers, India’s toy exports have virtually doubled from Rs 200 crore in 2003 to Rs 400 crore in 2007. Indian auto industry, which is currently growing at the pace of around 18 % per year, has become a hot destination for global auto players like Volvo, General Motors and Ford.

The latest news is that Toshiba Corporation’s Toshiba JSW Turbine and Generator Pvt. Ltd., has signed a Memorandum of Understanding (MoU) with the state government of Tamil Nadu in India for manufacturing steam turbines and generators in Chennai, the state capital.

Related posts:

  1. Factories Rethinking Outsourcing Strategies To Bring Manufacturing Back Home
  2. India & innovation: Why hasn’t India produced an Apple, Google or Microsoft?
  3. Is China’s Economy Growing?
  4. Ease labour norms to make India attractive to outsourcers
  5. R&D outsourcing growing faster than total R&D spending


Written by Radhika · Filed Under Outsource Blogs 

Comments

3 Responses to “Manufacturing Outsourcing Growing in India”

  1. Caitlin Calida on September 24th, 2009 2:57 am

    Great news for India.I know India is number one position in manufacturing outsourcing.

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