India Sourcing

Advantage India sourcing

If you are wondering why outsource to India, there are several things you should know before you decide whether to buy in India:

Demographic factors

  • Largest Democracy in the world – 1.18 billion people
  • 4th largest GDP (PPP) and 1th largest GDP (Nominal)
  • 2nd fastest growing economy (Estimate 2011-12 – 9%); India’s average growth rate 7.3% over past 10 years and expected to outpace China in next 10 years
  • Demographics of Youth – 50% under 25 years & 65% under 35 years
  • 2nd largest pool of certified professionals and highest number of qualified engineers in the workforce – every year 400,000 engineers pass out from Indian universities

Business system

  • Robust Legal and Banking Infrastructure – India has a well established and independent judicial system based on the English Common Law and derives its powers from the Constitution
  • English as the language of businessmen and entrepreneurs (there are 14 major and over 1000 minor languages in India)
  • India is only a 3.5 hr time difference and a 7 – 8 hour flight from Europe
  • Import duties for many products are lower as compared to import from China

Major International engineering companies have established a sourcing presence in India – GM, GE, Renault, Bosch, Wartsila, Vishay, Phillips, Volkswagen, Toyota Motors, Piaggio, Nissan, Alfa Laval, Goodrich, Magellan, Boeing, Volvo, Navistar and countless others.

Manufacturing in India

With a size of US $ 22 billion, the engineering sector exports stood at US $ 6.6 billion in 2001-02 and imports at US $ 4.9 billion the same year.  Indian engineering manufacturing sector employs over 4 million skilled and semi-skilled workers.  The engineering manufacturing sector comprises of heavy engineering (70%) and light engineering (30%)

Witnessing a wave of growth, the Indian manufacturing sector is touted to be much more promising in the future. The sector is poised to get more skill-intensive according to industry leaders who foresee India map new heights of progress in every aspect. The country is increasingly getting recognised for high value goods requiring a fair amount of engineering precision and quality. The sector is diversifying due to conditions on the ground that global players are using to their advantage.

As German engineering technology major, Siemens, plans to make India the global hub for manufacturing its key steel plant equipment, it joins the growing ranks of firms looking at the country as a launching pad for supplies to Asian markets.

Drivers of growth

India continues to be one of the fastest growing exporters of engineering goods, growing at a CAGR of 30.1%, trailing only China among major engineering exporters, but well above the global engineering average export growth of 13%. Significantly, the country’s engineering export growth rate has been higher than its overall exports.

In 2008, India’s goods export touched USD182 billion (CAGR of 23% over 2004–2008), with its engineering exports contributing 21.49% of its total exports of goods, reaching USD43.13 billion (a CAGR of 30% over 2004-2008).

Engineering the Future: An exports perspective

The key drivers of growth in this industry are given below:

  • Increased investment in infrastructure: India is in the midst of a massive overhaul in infrastructure, with large investments required to maintain its targeted GDP growth of 9% and above. The strong investment and consumption demand has driven the industrial growth to more than 10 % over last three years. The key driver of the impending growth of the sector is the expected surge in infrastructure spending to USD 23 billion by FY2009 from USD11 billion currently. The growth should largely be driven by power, accounting for 41% of the total investment, followed by roads, oil & gas, and smaller sectors like ports and airports. This will drive growth in the engineering sector.
  • Emergence of India as a manufacturing hub: India is being preferred by global manufacturing companies as an outsourcing destination due to its lower labour cost and better engineering and designing capabilities. Exports of engineering goods and services from India have reached about USD 20 billion in the year  2005-06 and registered a robust growth of about 25%. The growth in the exports of automotive components from India is a good example of this trend. The below chart shows some statistics from auto component sourcing:

Auto Component SourcingAuto Component Sourcing

  • New capacity additions:  There has been a tremendous growth in demand from domestic as well as overseas markets and the economy is experiencing high capacity utilization across sectors. This has triggered capacity additions across industries. With approximately 50% of the capital expenditure going into plant and machinery; it augurs well for the engineering industry

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