An Introduction to Sourcing from India, Part 1: India’s Sourcing Edge

Posted by Reading Time: 4 minutes

By Tarun Manik and Samuel Wrest

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:

ASEAN minimum wages

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:

ASEAN minimum wages

RELATED: How to Navigate India’s Employment Visa Procedures 

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.

ASEAN minimum wages

IB Nov issue small
This article is an excerpt from the November issue of India Briefing Magazine, titled “Establishing Your Sourcing Platform in India“. In this issue, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.

Establishing Your Sourcing Platform in India” is out now and available as a complimentary download in the Asia Briefing Bookstore through the month of November.

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