SOURCING & MANUFACTURING
India is one of the largest countries in Asia and has a population of more than 1.3 billion people. For the last decade, India’s economy has been the fastest growing in the world (recently surpassed by Bangladesh). Currently, manufacturing makes up about 18% of the country’s GDP, but that number is expected to grow. In 2014 Prime Minister Narendra Modi launched the Make in India initiative with the goal of transforming India into a global hub for manufacturing. The initiative has been successful so far, and the government hopes that by 2025 the manufacturing sector will contribute 25% of the country’s GDP.
Manufacturing in India comes with many advantages. Along with government support, the country is in a prime location and has a relatively unsaturated market—full of great opportunities for smaller businesses and startups.
While many countries are taking steps towards sustainable manufacturing, India is approaching the matter a little differently. Their goal is to improve sustainability by imposing high-quality manufacturing standards. This concept is part of the Make in India initiative and is called Zero Defect Zero Effect (ZED). The ZED model works by increasing standards of quality which reduces defects and eliminates unnecessary waste. The model is applicable to all sectors of manufacturing but focuses mostly on MSMEs (micro, small, & medium enterprises). The model implements a multi-level assessment for factories, ranking them into five categories: bronze, silver, gold, diamond, and platinum. The ranking system is based on these parameters:
- Manufacturing capabilities
- Design capabilities
- Quality/Environment/Safety assurance systems
- People development and engagement systems
- Standardization and measurement systems for quality and environment
- Learning and improvement systems
- Legal compliances
India is a developing country with an extremely capable and well-established manufacturing industry. The country is known for their strong technical and engineering capabilities which has led to higher quality products.
A huge advantage to manufacturing in India is the ease of doing business. This can be problematic in developing countries, but India managed to rank 63rd in the 2019 EODB (World Bank’s Ease of Doing Business Survey) beating out other countries in the region like Vietnam (70) and Bangladesh (183). Since 2018, new reforms have been implemented to usher the country into an even higher spot. Also, the country’s official language is English (along with Hindi), giving it an extra advantage in the industry compared to other developing nations.
Suppliers in India typically require a minimum order quantity (MOQ) in the range of 500-1000 pcs. Many suppliers in India are flexible and willing to negotiate based on your needs. However, it’s important to consider that some of the larger textile factories in India may be working with bigger brands and won’t be as willing to negotiate. This doesn’t mean you have to sacrifice quality though—if these larger operations can’t fit your production into their main factory, they may have a qualified subsidiary factory that will.
The textile sector in India is particularly appealing. With low labor costs, a well-established industry, and high standards of quality, you’re almost guaranteed to find a textile supplier in India that fits well with your business and budget. One of the sector’s biggest advantages is India’s huge supply of raw materials. India is the largest producer of cotton in the world, and the second largest producer of silk. The country’s textile sector includes two different categories of manufacturing: organized and unorganized. The unorganized section uses handloom and handicrafts and operates on a smaller scale with more traditional methods. The organized section uses modern machinery and includes mass production. The organized sector is best for larger production runs, while the unorganized sector focuses on intricate or bespoke artisan goods.
The 2017-2018 Global Competitiveness Report ranked India 63rd in overall quality of infrastructure, and 31st in transportation. As part of the Make in India initiative, the country is really pushing for infrastructure improvements to support the growing manufacturing industry. The country plans to build more than 80,000 new kilometers of road by 2022 and will spend more than US$22.77 billion on railway improvements. More than 500 projects in place focus solely on sea connectivity: port modernization, new port development, and port connectivity.
The factory wages in India are some of the lowest in the world. The minimum wage for factory workers in India is less than $5 per day. Labor costs this low could save you as much as 10-15%. Minimum wage can be a good way to predict the cost of labor, but it’s important to note that labor cost varies significantly depending on the factory and region. In developing countries, it’s not uncommon for workers to be paid below the national minimum wage.
Other factors, like the complexity of your product and the availability of materials needed, will play a role in the cost as well. Expensive materials and outsourcing will both raise the overall cost of your product. Some outsourced materials have especially high import duties in India, like steel and aluminum. If you’re manufacturing apparel, you’ll save money because of India’s huge supply of cotton and raw textile material.
Shipping from India tends to be less expensive than shipping from other Asian countries, but will vary depending on your location, method and courier. Part of your shipping cost from India will include a state and federal Goods and Services Tax on exported goods. In addition, shipping time will take longer on the water than China, Vietnam, and Indonesia.
The United States has free trade agreements with 20 countries, but unfortunately India is not one of them. This means that you’ll be paying customs duties on any goods you manufacture in India. Unfortunately, this portion of your cost will likely be higher now than in the past. As of June, India is no longer designated as a beneficiary developing nation under the Generalized System of Preference (GSP) trade program. The developing status permitted the country to offer duty-free exports on more than 3,000 items. Like with China, the trade relationship between the US and India is not as stable as it once was.
The amount of customs duties you’ll pay depends on the type and quantity of goods that you’re importing. The Harmonized Tariff Schedule is a code system that classifies goods into specific categories, dictating what you pay. What you pay in customs duties will be determined by the HS code of your product. This search bar can help you find the correct HS code for your product to help you calculate your cost.
Do Your Due Diligence
No matter what country you’re manufacturing in, finding the right supplier is crucial to the success of your product. Unfortunately, not every factory listed online is credible or even legitimate. Many of the best factories in India avoid listing online because they don’t want to be associated with this type of fraud. It’s crucial that you do your due diligence to ensure that the supplier you choose is honest and legitimate. This means investigating the finances, certificates, and creditworthiness of the factory. This may seem like a lot of work, but it will save you from financial and legal setbacks in the future.
The Indian government is working hard to make India a great place to manufacture your goods. But the government can’t do everything for you. The good news? Blacksmith can help. We work with more than 1,500 global vetted factories. Not only can we find the perfect supplier for your business and budget—we’ll support you during the entire manufacturing process.