For the past 2 weeks in June 2022, I’ve been travelling around India on a mission to discover how sourcing from India has changed since my last visit around a decade ago.
I’ve seen a number of different component factories, spoken to a lot of their owners and managers, and observed the sourcing and manufacturing landscape in some of India’s key manufacturing areas.
Today a lot of importers with supply chains in China, including some of our clients, are starting to question whether moving some of their sourcing and manufacturing out of China is a good idea given geopolitical tensions occurring between China and the West. So, is India a potential destination? Let’s take a look…
First, listen to me discuss sourcing from India in this bonus episode of Sofeast’s podcast:
Here are some of the trends I’ve seen that might influence your decision to start sourcing from India.
The Indian government’s pro-manufacturing policy
Since 2014, India has invested heavily in developing the manufacturing sector following the introduction of the Make in India initiative.
They have given loans and subsidies to new factories, and many industrial parks have been created. There are also many technical training centers, that provide the competencies needed for new staff to work in the manufacturing sector.
It’s fairly common for factories outside of China to rely on Chinese components because many, especially those for electronic devices, simply aren’t really produced elsewhere in Asia. This does understandably put importers off from moving their supply chains out of China. To address this issue, the Indian government also aims at being a net-zero importer of electronics, requiring in-country assembly of many electronic products. In 2019, already, 95% of mobile phones sold in India were assembled in India.
A slogan is “Zero Defect Zero Effect”, as they want to upgrade their manufacturing sector in terms of quality and environmental impact.
Improvements in infrastructure
A common statement by analysts is that infrastructure within India is poor and this is a big problem for the country, however, my experience of travelling domestically flies in the face of that.
I saw a lot of good and modern highways and newly built roads. There was a brief power cut when visiting one factory in Chennai, but several people mentioned that this seldom happens.
One of our engineers based here on the ground confirmed that there were great highways (like the one we took at one point) between most major manufacturing hubs and the big ports of Southern India (Chennai, Mumbai).
- The Missing Piece in India’s Economic Growth Story: Robust Infrastructure
- India sets world record for fastest road construction
The INR seems to be relatively stable
The RMB is relatively stable against the USD, but the INR does go up and down more if we look at the past 10 or 20 years. That can be a challenge for international trade.
In the past year the INR has been quite stable against the USD (the rupee went from 0.014 to 0.013 USD):
The past 20+ years demonstrate the continuing depreciation of the rupee against the USD:
Production is starting to move from China to India
Prof. Neale O’Connor has led research on this topic, and here are his latest findings (based on official disclosures of listed companies to their investors, on press releases, etc.):
“We count 18 large size moves to India and more of them for the first time. In the past 2 years Apple basically doubled its global sourcing % from India to over 6%. The geopolitical risk for India hasn’t changed. Labour costs are still low, and logistics are going to be much better by the end of the decade, especially with big brands expanding their manufacturing footprint. So now is the time.”
This is interesting data because it suggests that India is able to sustain a supply chain without the involvement of China. The willingness of large electronic contract manufacturers (such as Foxconn, Pegatron, etc, who do work for Apple) to set up in India as well as China shows which way the wind blows, for sure.
General findings of manufacturing in India
Here are my general findings, from this trip:
- It is easy to discuss technical matters with the owners, who tend to be English-speaking engineers. This is truly refreshing compared with what can sometimes be challenging communication in China.
- The proportion of Indian manufacturing companies working seriously on their management systems and paying close attention to their processes seems to be much higher than in China.
- Prices and lead times of components are often a bit worse (higher, longer) than in China, but geopolitical reasons and risk reduction strategies can probably justify the higher prices if they are not too high.
- Manufacturers in India are aware that, in terms of cost and lead time, there are better alternatives in China. If you want the best price and shortest lead time right now, it will probably still be in China.
- Small factories are not easy to find online and larger ones don’t accept visits easily. They are not aggressively looking for new business, unlike Chinese factories.
- The suppliers I visited were component suppliers (metal parts, plastic parts…) and they were predominantly selling to domestic customers. Mostly to customers making industrial equipment, telecom products, and automotive products.
- China’s government has been subsidizing automation projects generously since 2015, but Indian factories tend to have lower-tech equipment. They need to amortize the cost of their more expensive equipment (and charge their customers for it).
- Plastic injection molds are still often made in China rather than India. Chinese tool makers are highly skilled and the tool fabrication process there is much faster since some operations are typically more manual in India.
How available are electronic components in India?
This is a key question for many manufacturers who are reluctant to move supply chains outside of China.
I was told different things by different people:
- “On electronic products made in India, 60% of electronic components are sourced from China” (from the founder of a company that designs PCBAs).
- “Electronic components are mostly made in Chennai, and to a lesser extent in Bangalore.”
- “Chennai receives a lot of components from China and they’re distributed from there to other places in India, but not sure there is a lot of electronic component MFG.”
I am particularly worried about displays, batteries, cameras, and other advanced parts/modules that tend to be expensive. For many common electronic products, most of the value of the BOM would still come from China.
So, is India a viable alternative to China?
If you’re designing new products that don’t require advanced electronic components, they could be designed with Indian manufacturing in mind (with a high proportion of components sourced locally). In this case, being in India could work well.
Even so, transferring current productions to India may come with extra lead times and costs if most components still come from China…not to mention the risk that India implements new retaliatory measures against China.
Coming in part 2…
Coming in part 2 of this post I’ll talk about what I saw and learnt in 2 key manufacturing areas that I particularly focused on, Chennai and Hubli-Dharwad. These are two promising areas for supply chains and I toured some great factories there!
We have been writing a number of posts about different component suppliers in India for a while now. Take a look at them here for some hints on how to start sourcing from India.
Our local team in India can provide source new suppliers in India to help you find great components and manufacturers there, too!