India – The answer to manufacturing resiliency in the New Normal

This article was originally published in ManufacturingToday.com and has been reproduced here with permission.

COVID-19 has heralded a pronounced period of uncertainty for businesses, leading to hard questions about our economic and social future. However, despite this unprecedented economic and social stress, the easing of lockdown restrictions in key markets means that organizations’ business strategies are turning to how they navigate the post-crisis era and drive the transformation necessary to succeed in the “new normal.”

One key trend that will define the new normal is in how global companies will look to build redundancies in their supply chain and avoid future all-or-none shocks. As companies look to diversify supply chains in light of the new and emerging economic and political landscape, India is emerging as one of the most favoured destinations for large global organisations looking for alternative business locations.

India offers a strong manufacturing base, and in recent weeks has announced a slew of incentives to global firms that seek to set up new operations or expand their existing operations. While India offers a range of advantages as a manufacturing destination, capitalizing on these opportunities requires a multi-pronged strategic approach across three broad dimensions.

Understanding the local regulations

India currently has a range of active regulatory policies, and incentives offered by both the central and various state governments are promoting India as a viable manufacturing destination. For example, the Ministry of Electronics & Information Technology has announced a production-linked incentive scheme among others to promote electronics manufacturing at India. This scheme has caught the attention of mobile industry leaders such as Samsung and Foxconn that have already announced large investments in India.

Given the country’s federal structure, Capgemini sees the understanding of regional regulatory structures as a critical factor for success in India. Besides the central government, several state governments have their own investment policies. For example, there are different rules regulating the employment of labor. However, none would like to lose out on the investment opportunity and are rolling out the red carpet for large companies. But understanding this maze of regulatory policies is key to determining the next big element of your India strategy – location.

Getting the location right

India’s mammoth size and varied locations offer unique capabilities and advantages. India has six major industrial clusters as on date, with plans to increase number to 10 in the near future. Each cluster has its unique characteristics.

Besides availability of hard skills (in automotive or electronics engineering, for example), companies must consider the cultural fit. Certain clusters are comfortable working with a process-driven hierarchical model while others are suitable for continuous improvement and ongoing change. There are differences in availability of human resources, as well as in infrastructure to bring in and take out goods. Hence, getting the location right the first time is critical for long-term success in business.

Building an India-specific organization structure

Once regulations and locations are sorted, the next challenge for organizations is to get the governance structure right. This framework should factor in competitive local/global structures in India. For example, global companies moving into India should ascertain the form and method of the governance and reporting system, and key collaboration points with their India subsidiaries. This will ensure a strategic business tailwind for the parent company and its domestic subsidiary as well as attract and grow the right talent to make it competitive.

There are a variety of models that allow for differing levels of autonomy; however, the decision will need to be taken in context of an individual company’s background, industry and several other factors. Capgemini has helped many clients adapt to Indian ways of working and organizing for success while operating locally.

In conclusion, we may say that companies are today dealing with consumers who are hyper-knowledgeable and with low brand loyalty. At the same time, organizations must deal with demanding shareholders who keep the management on their toes. In such a scenario, setting up operations in any new country is challenging, and the diversity of India makes it even more critical to get early decisions right. Being ‘First Time Right’ for policy, location and organization structure will prove its worth manifold over the long run.