Local production: why produce in India? In order to not only reach the niche!

European capital goods and especially German machines and systems - almost exclusively serve the absolute top segment in India. Because only a few medium-sized companies from India can still afford “Made in Germany”.

And what applies to industry applies even more to the consumer goods market. In India, European products are only conceivable for a minority. German and Austrian medium-sized companies basically serve absolute niche markets, which only just cover the top one to two percent of the overall market. Sometimes that is the main reason why 70% of German companies do not achieve their sales targets in India.

Economic growth in India takes place almost exclusively in the middle and lower market segments. But the real needs of these medium-sized customers are only partially satisfied by European products: they are too expensive and are considered difficult. And this applies not only to B2C but also to B2B business!

Product-market fit

It is no longer a secret that India is an extremely price-sensitive market. The Indian customer only pays for exactly the service that he needs - but not for non-essential additional functions, design, full integration or automation.

In the last ten years, companies from the Far East have gained significant market share in India at the expense of Germany (see GTAI article) - not only through generous price advantages, but above all because they have adapted excellently to actual local customer needs. Due to high flexibility and very pragmatic products, Korean, Taiwanese and of course Chinese companies are increasingly gaining traction and are asserting themselves against high-end products from Europe. Because these are considered over-engineered and are basically far too sophisticated and therefore too expensive for the Indian market.

Frugal innovation as a success factor

Local assembly and purchasing local components can often alleviate the price problem. Saving on logistics and customs costs can sometimes result in a sales price that is up to 30 percent cheaper!

But in order to reach a broader customer base in India and thus achieve real market relevance, you often have to go much further and adapt your own products specifically to Indian customer needs. The key word for this is “Frugal Innovation”, Frugal Engineering or “Indovation”.

This means that international manufacturers develop simpler products specifically for the middle market segment in India and then produce them locally. Very often, these products “designed and made in India” then work extremely well in other emerging countries and are later exported to Africa or Southeast Asia.

When does setting up production in India really make sense?

Companies that have been active in sales in India for several years or decades are increasingly deciding to set up local production in India. But such a decision does not have to make sense for all companies. Therefore, the potential advantages and disadvantages of own production in India must always be examined individually.

Indian work

We have also met companies that made the decision to set up production in India straight from the book, without fully understanding the implications. In the end, they were no longer able to make any more sales in India, but instead had “wasted” enormous investment costs.

A feasibility study for the individual case with real feedback from the relevant market can prevent fatal wrong decisions. Existing customers and competitors, suppliers and potential as well as lost customers must be surveyed in order to gain a realistic picture and the basis for a decision.

In addition, such a study also examines and evaluates the extent to which your products are suitable for the Indian market and, if necessary, suitable product adaptations are also planned.

This ultimately forms the basis for an analysis of the planned assembly and production steps, as well as for financial and organizational planning.

From the decision to your own work

Once the decision has been made to set up your own production, a suitable location must of course be found. A location analysis will take many factors into account when searching:

  • Infrastructure: energy supply, transportation, social structure, potential suppliers, surrounding industries
  • Staff: Availability of workers, employees, managers and local fluctuation
  • Costs for land, energy supply, personnel, conversions and new buildings And, last but not least, the geographical proximity to customers and suppliers.

Only then does the search for suitable properties begin and the support of the entire purchase or rental process. You often also need special approvals and permits such as construction and production permits or export licenses. When building a new plant, selecting an architect and the suppliers of the trades is also an important task.

The future plant manager should also be brought on board now at the latest. Because this should already be integrated into the planning of the future plant.

We can provide our customers with a suitable solution throughout the entire project planning period through to implementation (Interim) Manager from our ranks. Having someone on your side who has already gone through this process can prove to be very useful and also help to meet the deadline for the actual start of production.