Investment in Indian Manufacturing

Phil Black - PII Editor 23/10/2014

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Today, Baird Capital in Europe put forward research foretelling India’s future as a global manufacturing hub. In spite of poor infrastructure and bureaucratic inefficiencies, Baird Capital sees compelling opportunities for India to emerge as a major player in global manufacturing, encouraged by Narendra Modi’s recent pro-business statements.

Baird highlights three key advantages of sourcing in India:
India’s workforce: Although a significant proportion of India’s workforce is university-educated, Indian labour comes cheap at roughly 1/3 of Chinese labour costs
English language: The prevalence of the English language, an essential tool in the global economy, makes communication more efficient than in other regions

Highly skilled: The commitment of Indian manufacturers to quality and efficiency is a significant asset with little workforce turnover allowing projects to be handled by the same personnel throughout.

However, Baird Capital recognises that these benefits can often be offset by serious issues. For instance, India’s political structure can often slow or even derail reform, policy execution and investment; India’s infrastructure cannot support its expanding population and trade demands; there is lagging export expertise and a delay-ridden end-market customs process; and challenges of access to capital and working capital is prevalent, with Indian manufacturers requiring as much as 50-60% prior to the start of production.

In spite of these challenges, Baird believes that India complements the components manufacturing sector and the current trend in developed markets of reshoring finished goods manufacturing. Furthermore Baird envisages high-mix, low volume companies, as well as younger companies and niche players, as likely to flourish in a manufacturing-dominant India. Potentially successful sectors might include stamping and casting. If India’s leaders continue to support infrastructure improvements and adopt pro-business policies, Baird believes India will continue to be attractive to companies with a global mind set.