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Indian markets cost edge over China
By agencies
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Monday, 11 July 2005, 19:30 IST
MUMBAI: India, Inc. is working towards capturing the outsourcing wave to emerge as a leading low-cost supplier to global majors who are competing with China.
According to industry estimates for the year 2005-06, savings on account of outsourcing are expected to range between 30-40 percent for auto majors like General Motors and Ford, FMCG companies like Unilever and P&G, durables majors like Samsung, Electrolux.
Cost savings by rationalization of manufacturing facilities will be a key driver in expanding profit margins in a highly competitive business environment. Industry sources said vendors are now able to play the India card, along with the better-known China card, to retain clients who would walk away from a deal they feel is too expensive.
Owing to rising costs, several companies in Europe and the U.S. are transferring their manufacturing operations to Indian subsidiaries so as to retain customers.
Cost and quality leaderships are clearly the mantras for most global companies. Haresh Manwani, non-executive Chairman of HLL and president, Asia and Africa and Middle East for Unilever, said that the FMCG giant looked at two things, costs and market shares. By being cost competitive, half the battle is won. HLL will play a key role in this task, he said.
Based on manufacturing cost-benchmarking studies across Unilever globally, HLL has emerged as one of the most competitive for making home and personal care products.
In addition to the labor-cost advantage, conversion costs are lower as we have taken several initiatives to improve capital productivity. We have also leveraged our domestic business to derive scale benefits and institute best practices to reduce costs and wastages.
These cost differentials, even net of freight, open up a significant opportunity for sourcing some FMCG categories out of India for Europe and the US, said Banga, president foods, Unilever and former Chairman of HLL, India.
Similarly, P&G is tapping India for Vicks, laxatives, and sanitary napkins for the Asian region, company officials said.
Industry watchers say that outsourcing activity in the IT industry, confines hitherto to software services, product design, and research and development, is slowly getting extended to FMCG, electronics, hardware and telecom sectors. Pharma is another category where smaller companies are recording good growth to the back of such huge manufacturing contracts.
Indian suppliers have established their presence in skill intensive segment, including design capability. They also score over China when it comes to availability of qualified personnel, commitment to contractual agreement, adoption of robust account practices and cost effectiveness for small and medium volumes.