Foreign-made Indian brands

Says Rajan Chhibba,MD,Intrim Business Associates,“Manufacturing pedigree is not that important anymore for brands globally. The product and the brand have taken precedence,while the manufacturing process and location have taken a backseat. Companies,big and small,are getting manufacturing done all over the world and for everything from a low-cost mobile phone to high-end computers and appliances.” And what attracts these companies to hubs like China? “Production costs are very low in China mainly because of the scale of manufacturing that goes on in that country,especially in electronics,” says Ramesh Srinivas,executive director,KPMG. He adds that Indian companies save on a lot of capital and infrastructure costs by outsourcing manufacturing,as they are not investing in setting up production facilities of their own in India. “Firstly,the kind of scale of production available there can’t be matched by India. Secondly,there are large-scale dedicated manufacturers abroad who are in the business since years and have the required set-up in place. This arrangement leaves Indian companies with more traction to focus strongly on other key aspects of advertising,marketing and distribution and keep their products low cost for the consumers,” he says.

The companies,too,are quick to list the advantages. “Chinese manufacturers have already achieved economies of scale. Part of the reason lies in the fact that they were able to establish themselves as manufacturing hubs with extremely competitive pricing much before other countries,and certainly India. Over the years,their ecosystem has really come up well from hardware to design to software to manufacturing,” says Ramesh A Vaswani,executive vice-chairman,Intex Technologies,one of the major Indian IT and electronics brands. Having registered a turnover of Rs 593 crore last financial year,Intex gets almost 80% of its products manufactured in China and works with around 40 Chinese manufacturers. Vaibhav Shastri,CEO,Zen mobiles concurs. “We get around 2.5 lakh mobile handsets per month from five-six factories in China catering to us. They have the expertise in manufacturing,especially mobile phones,as even the best brands globally get their products manufactured in these very factories,” he says. The most evident success story has been that of Indian phone manufacturers who have gone from negligible presence in the market two years back to walk away collectively with a 17.5% market share at present,with an estimated collective sales of over two million.

Private labels of big retail houses are not far behind either. “For our brands in electronics and home appliances,Koryo and Sensei,we get our products manufactured from China,Korea,Taiwan and Thailand. While our IT products are manufactured in Korea,appliances come from China. It is economical,swift and hassle-free and allows us to offer great deals to our customers while ensuring world-class quality,” says Nitish Tipnis,president of Future Group’s electronics retail chain,eZone.

And with outsourcing of manufacturing providing a cushion to cut down on pricing,business is growing steadily. “Our private labels have really picked up in terms of sales. Koryo has been doing exceptionally well in AC sales and now our private brands are claiming a 5-7% share of total sales of all brands at eZone,and touching 10% of electronic products sold at Big Bazaar,” adds Tipnis.

However,it’s just not hardware and electronics that are taking an excited plunge. Premier,one of the pioneers in car manufacturing in India,has re-entered the Indian passenger vehicle market with its compact SUV,Rio,priced in the range of Rs 5.35-6.05 lakh. Premier imports completely knocked down (CKD) kits from China’s Zotye group and assembles them in India.

“Our strategy is to keep investments low in the area of tooling and dies of body parts and other aggregates,thereby helping the company to keep the breakeven volumes low. Additionally,it helps in upgrading the model on a continuous basis,helping to keep investments low. The raw material cost and value addition cost in China is much less than any other country in the world. Moreover,today all major automobile companies such as GM,Mahindra & Mahindra,Tata,etc,are sourcing their components from Chinese suppliers for its price advantage,” says Rakesh Mehta,vice-president,automotive division,Premier Ltd.

Staying on the road,Firefox,a bicycle company fast gaining popularity in the country,also follows a ‘manufacture abroad and import’ model. It has been operational since the past five years and had a turnover of close to Rs 22 crore last year. They have more than 50 models in high-end bikes and sell around 25,000 bikes in India each year. “There are two major factors that don’t allow us to manufacture our products in India. Firstly,the proper technology to manufacture lightweight and ultra lightweight aluminum frames for bicycles in India is almost non-existent. Secondly,cost of production in India is substantially higher than China,and even if one were to bear the higher costs,the specifications that we require for manufacturing our bikes would hardly be available in India and,therefore,we have to get it from outside,” says Ajit Gandhi,marketing head,Firefox bikes.

And,while products manufactured in China have come under the scanner in the past over quality issues,especially around dumping low-quality products into the Indian market,these companies claim that their quality control procedures are well in place. “All components used in our SUV are E-certified (This is certified by European testing agencies,which enables any manufacturer to sell the product in the European market). Additionally,they observe well-established Japanese quality standards and parameters in their factory to ensure the highest quality norms. Finally,our quality assurance team visits them regularly during the stages of kit manufacturing and packing to ensure quality,” says Premier’s Mehta.

What many companies argue is that while the products may be manufactured in China,their design,specifications and details are decided solely by the company and the manufacturers just follow these. “We are not branding Chinese products and just lending them our company stamp. Our team really gets down to the basics of everything,from designing to manufacturing. Our products are Intex products,manufactured in China. They are not Chinese products just imported by Intex. We have an associate company in China that strictly monitors the quality aspects and even goes down to the level of process inspection. Also,whenever a new vendor has to be signed on,a special team from India visits to approve the signing,” says Vaswani. Others,too,have set up teams in China for this purpose. “We have a team of 15 people in China who look after quality issues and detailed quality audits are done regularly there. We also have a design team there so we can prevent delays,” says Arvind Vohra,MD,Wynn Telecom.

It is also argued that since even major international brands across the board are also getting their products manufactured from the same factories in China,Indian companies are playing a safe bet. “As far as quality goes,we have tied up with manufacturers who also cater to the top three electronic brands in the world. Apart from that,we have quality assurance teams at all the manufacturing hubs and we follow stringent quality guidelines,” says Tipnis. Experts believe that while quality has been an area of concern,China has all sorts of manufacturers and it really depends upon the company to choose what it wants. “China has a mixed market in terms of quality. You’ll find high-end as well as low-end manufacturers in abundance. The quality really depends upon the vendors the companies choose for manufacturing. But most companies have a process in place to ensure that they are getting good quality stuff and that they are choosing the right vendors,” says Srinivas.

But the thorn in this rosy picture for companies is the heavy shipment and transportation cost. AMW,one of the leading truck and dumper manufacturers in the country,started out by importing fully-made cabins for their dumpers and trucks from China,but over the years has completely switched to manufacturing cabins at their own facility in India owing to high transportation and shipping costs. There are others too who are planning in the same direction. “Once we establish the desired volume and production reaches a break-even,Premier would like to shift at least the bulky and major parts to be processed in India to reduce shipping costs,” says Mehta.

So,while India is making efforts to find its feet as a manufacturing hub,which might still be a few years away,the giant on the other side of the Himalayas is standing tall.