While the issue of BusinessProcess Outsourcinghas been grabbing mediaattention, what haslargely gone unnoticed is

that India is quietly becoming the source forseveral quality wares. Given the country’sskills in design and knowledge-based manu-facturing, it is becoming a sourcing hub fora slew of products — from consumerdurables to FMC goods, such as tooth-pastes and toiletries, and even manufac-tures, such as printing machinery. And,drawn by the other advantages, India isnow the preferred source for several rawmaterials for many MNCs.

Not so long ago, cost pressures werethe main reason that drove multinationalsto low-cost manufacturing destinations inthe developing world. The products thatwere sub-contracted to the Far Easternsubsidiaries of MNCs were largelyconsumer durables. The emergence of theAsian Tigers in the eighties, with theirdouble-digit growth rates, was the result ofsuch outsourcing. These days, China is thenew and very visible source for suchmanufactures.

But many megacorps, today, are lookingfor more than mere cost-compression. Theyare looking at several parameters and vari-ous efficiencies as well. A recent study bythe India Brand Equity Foundation bearsthis out. According to Ajay Khanna, CEO ofIBEF, India is now being recognised for costcompetitiveness in knowledge-based manu-facturing. “Global corporations are leverag-ing India’s strengths in product design,customisation with creativity, quality andvalue addition. This is the beginning of avibrant manufacturing activity…” saysKhanna. The Confederation of IndianIndustry, an apex industry association,predicts that the quantum of outsourcing,which is currently growing at over $ 1billion annually, will gross $ 10 billion with-in the next three years.

Procter & Gamble, the $ 43 billion

FMCG major, has many plans for tappinginto India’s varied skills. It is currentlysourcing the cold remedy Vicks and alsoPsyllium, which is used to make a laxative,from India. P&G is now considering makingthe Psyllium-based product in India to saveon costs of shipping it to the US. A plan toexport Whisper sanitary napkins from Indiato the ASEAN region is on the anvil. P&G,which currently sources over $ 80 millionworth of products and services from India,is examining opportunities in outsourcing inengineering, fabrication and research anddevelopment.

If P&G has been here, Unilever will havebeen doing it before. That is because theAnglo-Dutch giant, decades ago, was byfar the first foreign company whichperceived the importance of India to itsglobal operations. Its Indian arm, HindustanLever, is currently the largest subsidiary ofa foreign company in India. For Unilever,Hindustan Lever has turned out to be notjust a source for quality supplies but also amajor HR resource as it has provided notonly managers for Unilever’s global opera-tions but also board members.

Based on manufacturing cost-bench-marking studies across Unilever globally,Hindustan Lever emerged as one of themost competitive production centres forits home and personal care products. Itcurrently exports a wide range of prod-ucts, such as soaps, detergents, oral careproducts and skin care products toUnilever subsidiaries. Lux, the soapmodelled by filmstars, and the machoLifebuoy soap, go to the Middle East andAfrica. Pears, the legendary glycerinesoap, goes to the US.

Currently, an estimated 50 per cent ofHindustan Lever’s $ 260 million exportsgo to Unilever Group companies around theworld, and that proportion is fast growing.Encouraged by this trend, Hindustan Leveris setting up a new export-oriented unit inPune, an industrial city 100 km southeastof Mumbai, to cater exclusively to the

From toothpaste toprinting machinery,from Christmaspresents to colourtelevisions, globalcompanies aresourcing a range ofproducts fromIndia. What is the India allure? Darrel Philipfinds out

INDIA The NewOutsourcingDestination

Manufacturing

4140

manufacturing BPO option-1.qxd 5/6/2005 10:52 AM Page 40

needs of this burgeoning Group business.“Hindustan Lever’s vision is to build abillion dollar sourcing business out ofIndia,” says M S Banga, chairman ofHindustan Lever.

As in the other cases, Hindustan Lever’ssourcing business has not been led by merecost-compression. There is a larger foot-print to it. “Our engineering design, set-upand project management skills have

enabled us to set up productionfacilities at one-fourth to one-third of capital costs in devel-oped countries,” says Banga. Hesees great potential even in rawmaterials for detergents, soapsand shampoos, whose exportscould quintuple to $ 500 million

in a few years.Picking up a leaf from its competi-

tors’ book, Colgate-Palmolive has alsostarted taking India seriously as a sourcinghub. Its Indian subsidiary has built a new $ 11 million factory for toothpaste —which actually consolidates two facilities inone — in the ecologically sensitive state ofHimachal Pradesh in northern India at thefoothills of the Himalayas.

Significantly, this plant has been estab-lished at a time when the parent companyis cutting back on the number of manufac-turing locations worldwide and there are

indications that India could likely emerge asone of the 15 sourcing destinations, post-restructuring. When that happens, it wouldmean a huge growth opportunity forColgate-Palmolive India, which has beenlanguishing for a while from low-categorygrowth and increasing local competition inthe domestic market.

Just like the competition, raw materialsourcing also figures in a major way withColgate. Ian Cook, the company’s execu-tive vice-president who was recently inIndia said that, in the area of procurementspecifically, Colgate had taken an aggres-sive experimental stance. “We have estab-lished sourcing organisations in China andalso in India and we believe we can takethe same across regions for raw materials,product materials and indirect materialstoo.” Colgate procures $ 1 billion of indi-rect materials every year and expects 10-15 per cent savings from this initiative.

In the rush to source from India,predictably, the first movers have beencompanies — such as the MNCs listed

above — which have estab-lished manufac-

turing bases in the country decadesago. They have been quick off the block asthey enjoy many advantages.

They have Indian subsidiaries that areconversant with the lay of the land; theyare familiar with local vendors and businesspractices and they are already producing,under Indian conditions, products thatmatch international standards. Anotherlocked-in advantage is that they have amanagement team in place that is conver-sant with the company’s global manufac-turing processes and has been in touchwith company HQ.

In the case of Tetley, the tea company,the situation has been a bit different. Thecompany was bought over by Tata Tea, anIndia tea company, and now the largest inthe business. The buyout provided Tetleywith a leg up on the competition when itcame to its Indian operations.

In the wake of a restructuring, theUS manufacturing has been completelyoutsourced to an Indian joint venturecompany, while its Australian manufactur-ing facility has been closed and tea forthat market is being sourced from TataTetley, the joint venture companybetween Tata Tea and Tetley in Kochi, insouthern India.

To be sure, the India lure goes beyondjust FMCG companies. Engineered productsare also among those being envisaged to besourced from India. Among such initiatives: � GE has entered into an OEM deal with

Thermax India to supply chillers for GE’spower systems in the US.

� Bobst Group,the world’sl e a d i n gmaker ofpackagingand printingmachinery,has decidedto set up its

facility nearPune to export peripherals for flexiblepackaging and reconditioning.

� Matsushita has decided to sourcePanasonic colour TVs from India for theglobal market.The retailing business has caught on

too. After Bloomingdale’s began sourcingfrom India in a big way about twoyears ago, other US retail-

ers have joined thebandwagon. And, while Wal-

Mart has a buying office in Bangalore, JCPenney and Target have buying offices inMumbai and New Delhi respectively.Other global chains are also setting upbuying offices in India. And Macy’s,Selfridges, Neiman Marcus and manymore are currently busy checking thewares that are going to be displayed intheir stores at Christmas. Their Christmasshopping list includes scarves, cushions,beaded mats, X’mas tree hangings, etc.

Now the $ 3.5 billion Littlewoods of UK

has set up its second office in India. It is inthe southern city of Bangalore, morerenowned as the prime BPO destination, inaddition to its New Delhi office. The newoffice is to handle the spurt of outsourcedproducts from south India and neighbouringSri Lanka.

Explaining the heightened interest of hiscompany in India, Jon Wragg, trading direc-tor of Littlewoods Home Shopping said,“Everybody is talking about China, which isgood for big production runs. But India fits my business better because we buysmall lots.”

Small lots are a big draw among appar-el makers, especially for high fashion waressought after by boutiques. But, to othermanufacturers, especially in industry, thelure is in the all-important comfort factor.As Procter & Gamble’s VP, R&D, LarryHuston, summed up during his recentvisit to India: “Globalcorporat ions

trust Indiafor its competence in

manufacturing process, quality anddesign skills. When multinationalsoutsource from Indian companies throughthe OEM (original equipment manufacturer)route, they feel secure because they dealwith companies that have the necessarylegal and financial systems that are regular-ly audited.”

There may be something fitting in that.Because the very legal and financialsystems that MNCs find comfort in, wereintroduced in India more than two centuriesago by the East India Company. Thatcompany, which came to trade in India andlater stayed on to create and rule the Jewelin the Crown, was reputedly the world’sfirst MNC….

OUTSOURCING to India isnot confined to manufac-tures; the citadel of designand preparing of prototypesin the glitzy automobile worldtoo has been breached.Mumbai-based auto designerDilip Chhabria, who iscurrently designing for Fordand Toyota in India, is alsodesigning for some majorEuropean carmakers, but isbound by confidentialityclauses not to speak abouthis work. What is, however,documented is his making of

the prototype of the legendary car marque readily associatedwith James Bond — the Aston Martin. The sporty and muscu-lar Aston Martin V 8 Vantage, built by Chhabria, was unveiledat the Detroit Motor Show in January 2003. Autocar Indiahailed it as a major breakthrough in the automotive field. The£ 70,000 luxury sports car is slated to roll out in theEuropean and US markets in 2005.

Ford Motor Company, owners of the Aston Martinbrand, had signed a contract with Chhabria forproducing a new Aston Martin, which is admiredfor its impeccable styling and thoroughbredperformance. Faced with the challenge of lend-ing a new look to the car while maintaining itsclassical appeal, Chhabria and his team of 40technicians from DC Design, Chhabria’s firm,delivered a sportier and tauter vehicle withshort front and rear hangs.

Made from sheet metal, the Aston is powered by an all-newV8 engine and the interiors of the Aston Martin have also beencreated by DC Design, with an-all vegetable hide interior andmachined aluminium accents. “The hard work and relentlessefforts put in by every member in the DC Design team toestablish ourselves as a world class automotive design househave been vindicated. This is the first time that an internation-al auto major has outsourced design to an Indian company fordesigning a prototype. In addition to cost benefits, we haveproved that India also offers design capabilities that are at parwith European design houses,” says Chabbria.

Incidentally, cost of developing a car in India is one-fifthcompared to other developed markets. According to Chhabria,India was probably the eighth country in the world, and secondin Asia after Japan, to design cars.

Dilip Chhabria: Designing a legend

4342

manufacturing BPO option-1.qxd 5/6/2005 10:52 AM Page 42