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Sameworld.net is the networking blog for Supply Chain Specialists interested in creating channel partners around the globe.

A key essence for success in a new market is to identify the ‘Right Partner’. We appreciate the huge importance of this aspect and are willing to invest the necessary time and effort to get it right. There is NO substitute for "Grunt Work" and it is essential to meet the prospective partner, understand their technical capabilities, visit their manufacturing unit and assess the management team. With the partners who add to this blog we hope to achieve that. Mark Kennedy Same World Trading

Thursday, 4 February 2010

Trade Partnering with India

India’s manufacturing base, which is the fourth-largest among emerging economies, is among the fastest growing and has seen more investments as a proportion of gross domestic product than any country except China. Same World takes a look at this economic giant and talk to Tarun Gupta of Inside India Trade (IIT) Same World Trading Ltd Indian Partner who is helping some of the UK’s and Europe’s leading Construction and Engineering Companies take advantages of the savings and qualities India can now offer.

Manufacturing in India contributes about two-thirds of the total exports of the country. It is estimated that manufacturing exports from India will increase to USD 300 billion by 2015, simultaneously increasing its share in world manufacturing trade from 0.8 per cent to 3.5 per cent Inside India Trade (IIT) was set up in response to customers who wished to move their business to the ‘next level’ but were unsure where to start. The primary aim of IIT is to 'provide procurement solutions for UK-based organisations aiming to source goods from India. IIT also provides consulting and operational support to UK companies who are aiming to enter the Indian market.' IIT assist in identifying strategic partners/ vendors in India and prepare a shortlist of 3-5 potential partners. They then propose an entry plan into the Indian market based on research of the relevant sector, different market segments with that sector and various sales/supply channels pertaining to that sector, which covers consulting (including business-negotiation services) and finalisation of contractual terms. They facilitate introductions between the client and organisations in related business community in India giving quasi representation for client locally to ensure better visibility and stronger relationship with customers and business partners/vendors.

Tarun Gupta is the co-founder of IIT. His last role was based out of Cardiff in Wales. Previously he had headed an international business team of HSBC for Wales, Northern Ireland and West of England. He was part of the United Kingdom Trade and Investment, Southwest steering committee on India and a keynote speaker at several events on ‘Doing business with India’. Tarun is a graduate in Mechanical Engineering from Delhi University and an MBA from the prestigious Indian Institute of Management. During his stay in the UK, Tarun worked closely with the SME segment and other supporting organisations such as Business West, Cardiff Chamber of Commerce and South Wales International Trade Organisation. His key responsibility was to advise SME customers on their international plans and achieve implementation of those plans in the most prudent manner. Prior to moving to UK, Tarun was the regional head of commercial banking for HSBC in India, running a wide portfolio of corporate customers operating in diverse industries. Having worked both in the UK and India, Tarun has a good understanding not only of the regulatory and operating framework in both the countries but more importantly the nuances and problems which organisations encounter as they expand across different geographical and cultural zones.

The competitive advantage that India enjoys across a range of sectors has led to a rapid increase in India’s exports. The cumulative value of exports during 2007-08 grew by 23.02 per cent to total USD 155.51 billion as against USD 126.41 billion in the corresponding period last year. The key strengths of Indian manufacturing are products which are engineering and design oriented, often' items catering to a niche segment. For example India is emerging as an important hub for complex automotive components. India has a strong engineering and capital goods base.

The engineering sector is the largest segment of Indian industry. The most important groups within the engineering industry include machinery and instruments, forgings, fasteners, castings, electronic goods and project exports. The engineering sector employs over four million skilled and semi-skilled workers. Growth in India’s manufacturing sector has provided a stimulus for the engineering industry to develop capabilities in product development and advanced manufacturing technology. India manufactures the entire range of industrial machinery. Indian engineering industry is highly competitive with a number of players in each segment. The intense competition has led to Indian players developing improved capabilities that have made them more competitive.

Companies have become more quality conscious and upgraded their technology base, besides diversifying their manufacturing range in tune with global market requirements. For example, more than 2,500 firms in the engineering sector in different areas such as castings and forgings, automobile parts, machine tools, electrical machinery, pumps, textile machinery, etc. have acquired ISO 9000 accreditation. Indian companies are also becoming renowned for their adherence to global quality standards. Already, India is amongst the countries with the highest tally for 2007 with total TPM Excellence Awards It also has 15 Deming award- winning companies (amongst the highest tallies worldwide outside Japan), and one Japan Quality Medal winner.

The size of construction industry in India is over USD 25 Billion and it accounts for approx. 6% of the GDP. With the opening of Foreign Direct Investment in this sector, coupled with the increased focus of the Indian government on infrastructure development, the construction industry is set for a boom. The upswing in the Indian economy has enhanced the demand for construction equipment. Infrastructure is the buzzword in Indian economy and the increase in
foreign investment and technology has led to a tremendous growth in requirement of construction equipment. With the GDP growth likely to be in the range of 6-8%, the demand for construction equipment will continue to grow and it is strongly correlated with the growth of other segments like infrastructure construction, ports, pipelines, roads, steel, cement, power projects, hydel projects, engineering industry, mining; building construction etc.

The construction equipment sector is comprised of four major segments: earth moving equipment (excavators, backhoes, loaders, bulldozers, etc), construction equipment (road rollers, concrete mixers, hot mix plants, road making machines, stone crushers); construction vehicles (dumpers, tippers, tankers and trailers) and materials handling equipment (mobile cranes, gantry cranes, hoists, forklifts, etc). India’s construction equipment sector has a market size of approx. USD 3 Billion, a fraction of the global market of over USD 80 Billion. The global industry is growing at 5 per cent, whereas in India growth averages around 30 per cent annually.

Before the opening up of the Indian economy and the entry of international majors, much of the infrastructure development and construction in the real estate sector was done manually. But with the infrastructure and construction sectors undergoing dramatic changes ¬ with 60-storey skyscrapers being built in cities like Mumbai, and thousands of kilometers of expressways and highways being laid across the sub-continent ¬ builders and contractors are acquiring sophisticated equipment to execute the multi-million dollar projects. This has attracted international giants including JCB, Volvo, Terex, Caterpillar and Hitachi. There are about 200 domestic manufacturers (small, medium and large).

Indian Railways (IR) is the second largest rail network in the world, having more than 63,000 km of track, of which about 28 per cent is electrified. IR comprises of two basic customer segments ¬ freight and passenger. The freight segment accounts for two-thirds of revenues, the rest comes from passenger traffic. Currently the high density network, the Golden Quadrilateral, which connects the four metropolitan cities of Chennai, Delhi, Kolkata and Mumbai, has got saturated at most locations, including its diagonals. It has become necessary to augment the freight carrying capacity of the railways to handle the increase in the volume of traffic in the coming years.

Specific Opportunities
Indian Railway intends to invest USD 18.80 billion to upgrade infrastructure over the next seven years, USD 62.64 billion in five years for upgradation of information technology network and USD .06 billion investment via Private-Public-Partnership (PPP). Apart from these, Indian Railways is keen to attract foreign players to work on the following projects:

Dedicated freight corridor (DFC)
The proposed DFC along the Delhi-Mumbai and Delhi-Kolkata corridors along the Golden Quadrilateral will ensure multi-modal logistic connectivity and will also significantly enhance railway freight capacity to handle the large volumes anticipated from the ports on the eastern and western coasts. While the western corridor will be used to move containerised traffic and manufactured goods (domestic and imported), the Eastern corridor will serve the coal, minerals, iron ore and steel industries. The investment required for the western corridor alone will be to the tune of USD 9 billion and is likely to involve substantial private sector participation for the construction and operation of the corridor. Logistics parks are also proposed to be developed on DFC.

Modernisation of railway stations
The government has identified 22 stations located in the metropolitan cities and major tourist centres for development of world class stations through PPP route by leveraging a part of the real estate development potential. They will be inviting foreign companies to participate in tenders to modernise railway stations and develop areas around railway stations.

Manufacturing rolling stock
The demand for rolling stock is growing at a rapid pace. The projected requirement of coaches and locomotives at about 22000 and 3600 approximately. This will require augmentation of the existing capacity of production units and setting up new manufacturing units through PPP.

Port-hinterland connectivity
This is an important area to take up port-hinterland connectivity projects. This mainly consists of gauge conversion and construction of new lines. Metros Most major cities are planning to build and extend existing Metros (urban rail systems) or develop these if they do not exist. The Private sector will be used to generate all new Metro systems through PPP projects. The following Metro operations are in planning:

• Delhi Metro extensions (www.delhimetrorail.com)
• Mumbai Urban Transport Plan ¬ new and enhanced lines (www.mmrdamumbai.org)
• Bangalore (http://bmrc.co.in)
• Hyderabad
• Chennai

In the construction sector, Gupta refers to having specifically developed and sourced a number of products from India for the UK market including rubber track pads used in excavators, hydraulic rams and scaffold stairway towers. They are currently working on sourcing of shock absorbers and have recently been mandated by a safety equipment manufacturing company in England to advise them on their entry plans into India and also look at the possibility of setting manufacturing tie up with an Indian partner. They have also appointed channel partners for a UK construction equipment manufacturer who were looking to sell their product into the Indian market.

In the engineering sector they have completed an assignment whereby our clients outsourced production of patented product (i.e. filter valve used in oil pipelines for domestic and industrial heating). They have a client in the water treatment sector and have done sourcing for industrial-sized reverse osmosis plants, which are skid mounted. They have also done work for clients who were looking to build supply chain from India in areas such as agricultural equipment components, hydraulic cylinders, high pressure seamless gas cylinders, GRP products, engineering plastics, engineering steel bars (Grade 708M40) and are currently doing sourcing for steel tubes, complying with EN 10255 standards.

In the textiles and apparels sector they have built a supply chain for clients in wrap knitted polyester fabric and wrap knitted polyester towels. They have also done work in the area of military clothing and technical textiles used in niche applications such as PU/PVC coated fabric, IRR protection and high visibility garments. India shares a common history with Britain and there is a much closer cultural and language fit than other countries. Most of the FTSE 250, companies trade with India ¬ why shouldn’t the UK SME companies do the same. However quite often the UK companies view the prospect of ‘doing business with India’ challenging and, unlike big companies like Tesco who set up their own offices in India, they do not have the resources, i.e. the time and management width to commence the process on their own. Additionally, they often do not want to pay huge fees to the large consulting firms of the world just to get a nice ‘strategy paper’ at the end of the exercise.

The UK SME wanted an ‘end to end’ support ¬ an approach which is commercially oriented, pragmatic and appreciates the different nuances of doing business in the western environment. The SME wanted an effective representation and that much needed ‘on-ground’ support, without which one has to go through all the legalities, paperwork, cost, and time in setting up a local office.

In India the industrial sector is more dominated by the SME companies and accounts for 40% of all industrial output. This sector is also known as the “unorganised” sector as there is no equivalent of a Dun & Bradstreet through which you can do a quick reference check. Whilst a lot of research can be done over the internet, there still continues to be substantial differences in the ‘real world’ as against what appears on the ‘virtual world’.

The last few years has seen an emergence of some good players and the challenge is to find such companies and also to ensure consistency of performance in line with western business environment. The bottom line for business in India is that there is no substitute for ‘grunt work’ and somebody has to physically meet the vendor, understand their technical capabilities, visit their manufacturing unit and assess the management team. Either the client does this by spending a few weeks or months regularly in India or outsources this work to organisations like ourselves. In summary, Gupta hopes clients will view IIT as their ‘quasi office’ in India with the same set of possibilities as they would expect from their branch office. Using the IPO model they aim to offer professional services to replace? Unorganised and unprofessional agents.

Mark Kennedy
Same World Trading

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