The contract manufacturing sector in India is emerging as a new and promising area for foreign investments. According to several market reports, India has a growing demand for contract manufacturing services due to increasing cost pressure on businesses across all industries. While at the same time, strong customer demand, along with extensive support from manufacturing consultants in India, are promoting the nation’s contract manufacturing market.
In addition, to promote investments in the contract manufacturing segments in India, the government has now permitted a 100% FDI through an automatic route. This strategy encourages increased FDI, which opens up India to new commercial prospects. It also promotes the nation as a desirable manufacturing location for international companies searching for ideal locations to grow their manufacturing operations in the wake of the ongoing U.S.-China trade war.
We have put together this article to provide you with an overview of contract manufacturing in India, the ways it can be beneficial for international companies and how to identify an ideal contract manufacturer for your business needs.
Key takeaways
- The contract manufacturing industry in India has been rapidly developing and is estimated to be worth USD 23.72 billion by 2025.
- To support the contract manufacturing service sector, the Government of India has been providing numerous incentives.
- Contract manufacturing offers a range of opportunities to foreign investors in India, such as cost savings, access to in-depth technical insights and seamless control over demand fluctuations.
Current market overview
The contract manufacturing industry in India is comprised of numerous market players who offer comprehensive manufacturing services across various sectors. It adopts such approaches as facility expansion, acquisitions, mergers, and strategic cooperation and has been developing at a significantly fast pace.
In fact, a study determined that the market for contract manufacturing in India was worth USD 9.04 billion in 2019, and it is estimated to be worth USD 23.72 billion by 2025.
The government’s incentives for the sector in India includes the following:
- 100% Foreign Direct Investment under the automatic route
- Permission to sell the goods manufactured in India as long as they adhere to the requirements for 30% local sourcing for foreign single-brand retail enterprises
- Launch of the National Policy on Electronics (NPE). It aims to produce one billion mobile phones, including 600 million for export by 2025, while increasing domestic handset production capacity
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Advantages of contract manufacturing in India
Contract manufacturing offers a range of opportunities that foreign investors in India can take advantage of:
In-depth technical insights
As contract manufacturers produce goods for various businesses across related or diversified industries, they gain numerous in-depth insights in terms of technical production, costs and production for various niches.
Additionally, the contract manufacturers are well-versed in identifying potential risks and flaws in the manufacturing design early on. This aids companies in avoiding major mistakes in their products and preventing investment losses.
Cost savings
The main benefit of contract manufacturing is that it offers businesses the chance to considerably save on costs and increase their profit margin. When outsourcing the manufacturing process, companies can avoid spending valuable internal resources on the production process.
Moreover, working with a dependable contract manufacturer eliminates the trouble of coordinating several vendors along with associated unforeseen expenditures. Additionally, it enables businesses to significantly save on labour cost as well.
Ensured production scalability
It can be incredibly challenging for start-ups and small and medium-sized businesses to scale products with limited resources. It may be even worse if a business is experiencing a demand surge. But since contract manufacturers have a substantially large number of resources, they are able to easily scale up production whenever the need arises, thus making it possible for business owners to easily manage changes in demand.
How to identify the best contract manufacturers in India
Finding the right contract manufacturer can make a great difference between managing production and supply with ease and being unable to properly channel the supply chain and meet changing demands.
The following steps will help investors looking to start a manufacturing business in India find the ideal contract manufacturer:
Evaluate feasibility of a partnership
Business owners need to assess their immediate and long-term production objectives prior to their collaboration with a contract manufacturer, as this will help them to recognize the advantages of outsourcing their manufacturing needs. To determine whether working with a contract manufacturer is feasible, they need to consider all factors such as timetable, money, legal concerns, etc.
Analyse reputation
After assessing the feasibility, foreign businesses must carefully review the reputation and ratings of potential contract manufacturers. Selecting a contract manufacturing partner with many years of relevant industry experience is always preferable. Foreign investors must also make sure that the contract manufacturers have excellent relationships with their customers and suppliers.
Perform a qualitative analysis
Investors must carry out a thorough qualitative evaluation in order to determine the ideal contract manufacturing partners: verify if they have sufficient access to raw materials, along with ensuring possession of the necessary tools to manufacture the product. Additionally, it is essential to ensure that they have the appropriate post-processing and assembly technology.
Assess the estimated expenses
The shortlisted Contract Manufacturers must also provide Investors with an estimated quote. This will offer a comprehensive understanding of the costs associated with acquiring raw materials and the profitability of outsourcing production. Additionally, it addresses things like delivery expenses, legal requirements, contract fees, customs, packaging, and more.
How we can help
To thrive in the erratic and highly competitive Indian market and successfully tackle the fluctuating demands, it is essential to conduct in-depth research and analyse the budgetary factors before deciding to invest in contract manufacturing services.
Therefore, to lower investment risks, foreign enterprises considering setting up manufacturing facilities in India must get guidance from reputable consulting firms like Acclime.
Acclime will help you frame an appropriate market-entry strategy and make an informed decision by providing thorough market analysis and end-to-end assistance in relevant areas, such as company incorporation, regulatory compliance, partner search and more.
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