Sourcing in India: Should You Do it?

By: Mark Bradley, General Manager, ET2C India                                                                                                                      mark.b@et2cint.co.uk

 

                                   While India has made tremendous progress in some areas, the country is still considered to an underdeveloped society. This brings the risk of wrong expectations. Cultural diversity of India means that local languages and dialects dominate the daily business communication. This is why a language barrier can often prevent efficient communication with foreign partners and can lead to serious misunderstandings. Vendors are often local people close to the source of their product, meaning that they do not set up their businesses in urban, easily accessible areas. In spite of some improvement, Indian administration and tax hurdles remain very demanding and time-consuming, requiring employing full time staff specialized in these administration to ensure complete local regulatory compliance.

                                   This does not mean that India is not offering opportunities for international companies looking for sourcing partners. On the contrary: the country’s economic growth in 2016 was 7.7 percent, making it one the most significant ones in the world and signalling that India is preparing for a more important role in global trade. In order to advance the economy, the government under Prime Minister Narendra Modi plans significant investments in the national infrastructure, including ports and railways, including Chennai Port where shipment costs are already up to 7% lower than the regional competitors.

                                    Top sourcing products in India are textiles, leather, electronics and industrial goods, but this product range is expanding quickly to include other categories, especially the ones that are endemic to India such as spices and generic drugs. The relatively low labour cost allows vendors to manufacture high quality products that require a significant number of man hours at very competitive prices. Based on the volume of orders, these prices can be further reduced, further ensuring higher margins and stronger competitiveness.

                                     While sourcing opportunities for high quality items at the very reasonable cost are significant in India, an entrepreneur should always be aware of the existent regulatory, cultural and language issues. Selecting the right sourcing partner in India can be a challenge: we should always make sure that reliability, experience, dedication and presence in the local market are the key criteria. Remote sourcing management is not the solution for India and it creates significant costs and unexpected problems, often resulting in losses instead of profits. With the right sourcing partner that can ensure that costs are kept at a highly manageable level, India opens new global business opportunities that provide increased effectiveness and high margins for top quality products.