UNDERSTANDING INDIA

Transcription

1 UNDERSTANDING INDIA

2 AGENDA Understanding India About India (& Economics) Why India? FDI Growth In India Study Objective in India Industry Spread In India Manufacturing Perspectives: India vs. Other Countries. Sourcing From India Cost Structure in India Challenges Progress in process Future Prospects SWOT Analysis Sourcing Considerations What they say about India?

3 ABOUT INDIA Total Area: 3,287,590 sq km (land: 2,973,190 sq km, water: 314,400 sq km) Total Population: 1.27 billion (2014) India is administratively divided into 29 states and 07 union territories Religions: Hindu 80.5%, Muslim 13.4%, Christian 2.3%, Sikh 1.9%, other 1.8%, unspecified 0.1% Work Force: Million Currency: INR Work Force by Occupation: Agriculture: 53%, Industry: 19%, Service: 28% Languages: Hindi 41%, Bengali 8.1%, Telugu 7.2%, Marathi 7%, Tamil 5.9%, Urdu 5%, Gujarati 4.5%, Kannada 3.7%, Malayalam 3.2%, Oriya 3.2%, Punjabi 2.8%, Assamese 1.3%, Maithili 1.2%, other 5.9% Unemployment Rate: 3.7% Age structure: 0-14 years: 28.9%, years: 18.2%, years: 40.4%, years: 6.9%, 65 years and over: 5.7%. 65% of India population is under 35 years of age. Literacy rate (2011 Census): 74.04% (Male: 82.14%, Female: 65.46%). Natural Resources: Coal, Iron Ore, Manganese, Mica, Bauxite, Rare Earth Elements, Titanium Ore, Chromite, Natural Gas, Limestone, Diamonds & Thorium. Major Export Partners: USA, UAE, China, Hong Kong, Singapore. Major Import Partners: China, USA, Saudi Arabia, UAE, Switzerland. Source - Indexmundi, CIA, TOI, Theonlinegk, commerce.nic.in

4 INDIA ECONOMY Sl. No. Description India 1 GDP (Nominal)-Trillion USD (2014) GDP (PPP)-Trillion USD (2014) GDP Per Capita (PPP)-USD (2014) GDP Per Capita (Nominal)-USD (2014) GDP Growth (%) (2014) 6% 6 GDP Break-Up by sector (2014) Agriculture: 17% Industry: 18% Services: 65% 7 % of World GDP (Nominal) (2014) 2.42% 8 % of World GDP (PPP) (2014) 5.9% 9 Inflation Rate % WPI // CPI (2014) 3.90% // 6.37 % 10 Exports (2014) 296 billion USD 11 Imports (2014) 457 billion USD 12 FDI (2014) billion USD 13 Foreign Exchange Reserves (2014) billion USD 14 Global Manufacturing Competitiveness Index (2014) Purchasing Manager s Index PMI (2014) Currency Exchange (USD to INR) (2014) $1 = INR Source Trading Economics, commerce.nic.in

5 WHY INDIA 1 Big Economy: India is the third largest economy (in terms of PPP) in the world, surpassed Japan. Quality Manpower: India has Large Educated, Trained & Technically Skilled Workforce. In some cases, clients outsource work to get access to more specialized engineering talent. Cost Effective Services: India is because India offers cost-effective services. Outsourcing to India can help to save more than half of the operating cost. Highly Developed IT Sector: Indian IT companies have globally established their superiority in terms of cost advantage, availability of skilled manpower and the quality of services. They have been enhancing their global service delivery capabilities through a combination of organic and inorganic growth initiatives. Highly Prevalent English as Business Language: India also has one of the largest pools of Englishspeaking professionals. Very Big Market with High Growth Rate: India has huge market in every sector because of that it has a potential to become a global sourcing hub. Liberal & Transparent Investment Policies: The Indian Government provides a conducive policy environment to the enterprises, both public and private, to invest and grow their business in the country. Today, foreign direct investment is allowed in almost all sectors barring a few sensitive areas such as defense. High End Technology: India is one of top-ranking countries in the field of basic research and is regarded as one of most powerful instruments of growth and development, especially in the emerging scenario and competitive economy; is promoting R&D of high edge technologies to become design hub of World. Educational System: The preference for technical disciplines continues to reinforce India's position as having the second-highest number of engineering graduates, after the U.S. Data and Intellectual Property Security and Privacy Laws relating to intellectual property and patents are strong and improving. IP theft is less of a concern in India Companies are supportive of contractual replications like U.S.-style state breach notification requirements and industry privacy legislation, such as U.S. Health Insurance Portability and Accountability Act, Gramm-Leach-Bliley Act, Family Educational Rights and Privacy Act, etc.

6 WHY INDIA 2 Continuously Improving Engineering Skills Process Capital Product Growing and large potential domestic demand Availability of key raw materials (e.g., steel) Beyond low wage rates Emerging supply base with high quality suppliers Source Ashok Leyland

7 WHY INDIA 3 India is one of the largest emerging markets of world economy INDIA VIETNAM THAILAND BRAZIL MALAYSIA CZECH MEXICO SOUTH AFRICA CHINA RUSSIA Real GDP Growth in Top 5 Fastest Growing Key Emerging Economies in 2014 Source - Euromonitor

8 FDI Growth: Top Attractions Y-O-Y Service sector is being the number one sector in FDI Inflow. Source - DIPP

9 FDI Growth: Top Investors Y-O-Y FDI from Mauritius to India is the highest in comparison with all the other countries. This is due to the fact that special tax treatment is given to all those investments that come through Mauritius to India. Source - DIPP

10 Industry Spread In India: Footprints Heavy Equipment Fabrication Electrical and Electronics Automotive and Transport Agriculture and Food Processing Engineering Design Petrochemicals Diary Products Textile and Apparel Heavy Equipment Fabrications Plastics Manufacturing Fuels and Core Raw Materials Gandhinagar Jaipur Bhopal Lucknow Nepal Ranchi Patna China Fuels Core Raw Materials Tea, Jute Dispur Myanmar Diamond and Jewellery Automotive and Transport Heavy Equipment Fabrication Engineering Design Textile and Apparel Petrochemicals and Pharma Mumbai (Bombay) Panaji Pune Cochin Hyderabad Bangalore Raipur Chenna (Madras) Bhubaneshwar Kolkata Metals and Mining Core Raw Materials Heavy Equipment Fabrications Petrochemicals IT / BPO / Engineering Aerospace Electronics Textiles Heavy Equipment Fabrications Electrical and Electronics Engineering Design Services Core Raw Materials Elastomers Automotive and Transport Heavy Equipment Fabrication Engineering Design Petrochemicals Textiles and Apparel Agriculture

11 Manufacturing perspective INDIA vs. OTHER COUNTRIES 1 According to a research India stands 1st in comparison on key parameters Source A.T. Kearney

12 Manufacturing perspective INDIA vs. OTHER COUNTRIES 2 India is inching closer towards China for low labor cost India has surpassed China with respect to Talent Driven Innovation Source - Deloitte

13 Sourcing from INDIA: Top Importing Countries (April to March) vs (April to March) Value % Value % India s Total Exports ( ) : Bi USD Value % Value % USA CHN UAE HK Singapore Rest of the world Note: IT Services not included Source commerce.nic.in

14 Sourcing from INDIA: Top Exporting Commodities ( ) PRODUCTS % SHARE ENGINEERING GOODS 16.70% PETROLEUM / COAL 21.00% Others, % LEATHER PRODUCTS, 2. 00% ENGINEERING GOODS, % GEMS & JEWELLERY 13.30% CHEMICALS 9.00% TEXTILES 10.50% AGRICULTURE & ALLIED, 9.00% AGRICULTURE & ALLIED 9.00% Others 18.50% LEATHER PRODUCTS 2.00% TEXTILES, % CHEMICALS, 9.00% GEMS & JEWELLERY, % PETROLEUM / COAL, 21.00% Source commerce.nic.in

15 Sourcing from INDIA: Categories Casting Forging Machining Extrusions Gear Cutting Plastic Molding Rubber Molding Sheet Metal Fabrication Electrical and Electronics Tooling (Molds and Dies) Assemblies/Sub Assemblies Complete Machine Building Stock Items Chemical/Minerals Finished Goods Source - Pinnacle Research

16 Cost structure in India (2014) Sl# Description India 1 Raw Material Cost India is one of the cheapest source for iron ore, aluminum & other non ferrous raw materials. 2 Labor Cost India labor force is among one of the most cost efficient in the world. Skilled labor cost: Rs.380 per day, Un-skilled labor cost: Rs.300 per day (Ref. Haryana) 3 Industrial Electricity Cost 6.35 INR/unit for above 50 KW consumption per month (Ref. Haryana) 4 Economies of scale India s economy is 3 rd largest in the world in terms of PPP. 5 Cost of Capital 12-14% General 6 Petrol/Diesel 7 Logistic Cost 8 Profits/OH/Rejections Petrol-Rs /Ltr in Delhi Diesel-Rs /Ltr in Delhi Within India logistic cost from one state to other state is approx. 4~5% of Ex-Works price for full 9 ton truck load. For partial load logistic cost is approx. Rs.5~6 per kg. Profits are approx. 10~15% on process cost OH & Administrative cost is approx. 10~15% on process cost 9 Tax Structure for Retail Pricing India has Excise duty of 12.5% & CST of 2%. Total of indirect tax in India around 20% to 25%. Common tax as GST is also expected to be implemented from April Import Duty Structure Peak Custom Duty on engineered Products is 10%. Source paycheck, dhbvn.org.in

17 Challenges/Action Items & Status Challenges Poor Infrastructure Inflation Overall Lower literacy rate High levels of debt Rigid labor Laws Action Items Please refer coming slides Please refer coming slides Please refer coming slides Please refer coming slides Please refer coming slides

18 Progress in process (Infrastructure) Roads - Significant investments in strengthening the road network USD 12 bi of investments made in last 5 years, The Projects are under construction. Another USD 24 bi planned over the next 5 years Km long Golden Quadrilateral and 7000 Km North South/East West corridor are completed. Another 4 projects worth USD 13.2 bi,covering more than 332,600 KMS are Planned. Ports USD 1 bi of investments in modernization and opening new ports (last 5 years). Another USD 2 bi planned over the next 5 years. Govt. has approved Sagar Mala project which involves an investment of USD 22 Bi. In next ten years. Special Economic Zones (SEZs) - SEZs being set-up to provide hassle free environment for exports 14 SEZs functional; USD 3.5 bi of exports from these SEZs Another 285 approved Source Source : Government of India Statistics

19 Progress in process (Infrastructure) Source - Deloitte

20 Progress in process: completion of Golden Quadrilateral & NS/EW Corridor

21 Improvement towards Inflation In the year 2014 inflation rate improved from 5.11% in Jan to 0.11% in Dec.

22 Improvement towards Literacy Latest literacy rate was calculated in 2011 as per Census Comparison shows improvement in the literacy rate from 2001 to Tertiary Education in India is very advanced.

23 Improvement towards High Levels of Debt & Rigid Labor Laws High Levels of Debt: Focus of new Government is on fiscal consolidation. Clear targets have been set & are being monitored for adherence. Current foreign exchange reserves at an all time high. Rigid Labor Laws: New Companies Act 2013 addresses multiple concerns, along with focus of new Government to ease outdated & rigid labor laws are steps in the right direction.

24 Future prospects: Competitive Advantage vis-à-vis Other Countries (2020) Source - BCG

25 SWOT analysis Strengths Low cost manufacturing Big local market Adherence to quality standards Young working population Strong legal/institutional frame work. Strong IPR Protection Flexibility in small batch production Highly skilled managerial manpower Adequate level of automation. Widely used English language Opportunities Could become global sourcing hub for manufacturing/it/engineering services Slowly moving towards developing base for high end Technological products Going to the next level of Value chain Flexibility in government FDI Policies for enhanced Investments - various segments Weakness Inadequate infrastructure Low literacy rate Power crisis Red Tapism Low spend on R&D Technological dependence on Global majors Threats Presence of counterfeit market Pressure on prices from OEMs Imports from other LCC in SE Asia Threats from other ASEAN countries on account of FTA Inflationary pressures High dependency on Crude Oil Import

26 Sourcing considerations: Business Cryptography Move slow and you will be out of the Priority Sincerity Is Highly Appreciated No opportunity described, no response Cannot look into it now Improper Level of Outreach or Commitment? Have Capacity, Not Interested Local market is profitable enough Highest Price gets capacity Profit over Nationalism Low price means Low Quality too Non-price parameters and its value Fixed price only for a quarter i.e. Input concerns Orders got lost i.e. not a priority Done vs. Will get it done Low Incentive Shipping No problem, Big Problem Pay 50% in Cash Tax Evasion? Will discount ILC Possible Working Capital Concerns Sister Concern / Subsidiary Family Owned business?

27 Sourcing considerations: Process Select suitable products with a viable India supply base. Determine potential supplier and their type. Research, Research and Research on all of them. Outreach utilizing local process, Probe disinterests once. Provide upfront opportunity details and be patient for a response Front vs. Back end process. Qualify supply capability, local infrastructure, capacity etc. Gauge Initial pricing and competitiveness, identify cost disadvantages and improvement opportunities, disclose more details if viable. Communicate must have s and like to have s. Meet face to face to show commitment (IPO / International Sourcing / 3 rd party). Negotiate all contract parameters and employ TCO to identify exact economic opportunity. Establish communication/escalation procedures. Identify supplier development efforts required and steps to achieve them. Utilize local resource to speed up qualification and product testing. Schedule regular contract and supplier assessment timelines. Monitor market and supplier closely during the period of the contract for accuracy.

28 What they say about India 1 India is now the fourth largest destination for foreign investment in fast growing Asia -UNCTAD World Investment Report A truly global company will be one that uses the intellect and resources of every corner of the world. India is a developed country as far as intellectual capital is concerned - Jack Welch, General Electric

29 What they say about India 2 We are expanding our presence in India to take advantage of the ample research and development talent available - John Chambers, CISCO Systems Three years ago India was emerging as an IT superpower. Today, the country is handling the most sophisticated projects in the world - Bill Gates, Microsoft

30 What they say about India 3 IT Services 120,000 professionals trained in IT added to the workforce every year Over 70% of the Indian workforce has engineering/mca background India has the second largest software talent pool in the world 185 Fortune 500 companies are customers of Indian IT industry IT Enabled Services High quality, English speaking talent pool 2 million graduates pass out every year Second largest English speaking scientific labor force High quality of deliverables (e.g. 22/37 CMM Level 5 companies are from India) Large education infrastructure for sustained quality workforce India produces more world class programmers than any other country in the world Bill Gates India produces the best engineers in the world and Indians constitute around 25 percent of the total engineers in Cisco John Chambers, Cisco

31 THANK YOU