An Introduction to Sourcing from India, Part 1: India’s Sourcing Edge
Choosing where to source from can be a stress-inducing process, for although the practice is now commonplace, it is nevertheless still fraught with various risks and difficulties that can just as easily cripple a business as make it more profitable. Key considerations include understanding how to navigate the regulatory framework of the country in question, knowing if it has a workforce capable of producing the intended goods for export, and identifying the most suitable type of sourcing platform.
For the past twenty years, China has been dominant as a sourcing destination. The country’s extensive, cheap and skilled labor force has long since established China as a sourcing favorite in Asia, but its star no longer shines as bright as it once did. With a complex regulatory framework and rising labor costs, businesses may wish to consider other locations in order to ensure their competitive edge is not blunted.
India’s Sourcing Edge
Among China’s competitors, India is one of the most appealing alternatives at the moment. In this excerpt from an article in our latest India Briefing magazine, we analyze some of the key advantages that India possesses as a sourcing destination.
Low Labor Costs
One of India’s principal strengths is its cost-effectiveness. In contrast to China, India’s labor costs have remained consistently low since the turn of the century, as can be seen in the following graph:
This trend appears set to continue for the foreseeable future. Where the average Chinese salary looks fixed to markedly increase for 2015, the average Indian salary will remain mostly the same once inflation is taken into account, as shown in a recent salary report conducted by Towers Watson:
Cost of Living
In most instances, the cost of living in India and China is roughly equal. Electricity prices in both are amongst the cheapest in the world, each averaging approximately US$8 cents per kilowatt hour. In the past year, both have raised their gas prices to roughly the same amount, but India still slightly trumps China, averaging around US$8.40 per million British thermal units (mmBtu) to China’s US$10.
One area that is seeing a great deal of fluctuation on China’s part is property prices. Rental costs – which must be considered both for personal living and a sourcing platform’s office space – have been continuously rising in China for the past four years. In Beijing, for instance, rental prices rose by 6.2 percent in June 2013, according to Global Property Guide. Conversely, India’s property prices have remained mostly stable. From Q4 2012 to Q1 2013, Mumbai’s average rent fell between one and four percent, and Delhi’s remained mostly the same. Whilst it was previously thought that prices may rise under the Modi administration, realty experts are now predicting that no noticeable increase will come for some time.
Taking Advantage of India’s FDI Reforms
In this edition of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.
Passage to India: Selling to India’s Consumer Market
In this issue of India Briefing Magazine, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary. We conclude by taking a closer look at the strategic potential of joint ventures and the advantages they can provide companies at all stages of market entry and expansion.
Trading with India
In this issue of India Briefing, we focus on the dynamics driving India as a global trading hub. Within the magazine, you will find tips for buying and selling in India from overseas, as well as how to set up a trading company in the country.