The new-age manufacturing

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DARE.CO.IN

opportunity /mfg

The new-age manufacturing India is on its way to become a major contract manufacturing hub. Are entrepreneurs ready to pitch in? /Vimarsh Bajpai

C

ontract manufacturing involves outsourcing or sub-contracting to a company, which has the resources to manufacture products or components at low-cost without compromising on quality. The firm that outsources work owns the design and patent rights, and is called the original equipment manufacturer (OEM). The business model involves economies of scale with OEMs focusing on their core competence by outsourcing manufacturing to low-cost destinations. For long, Taiwan and China have been at the centre of the manufacturing boom in Asia. So much so, that 80% of toys sold in the US are made in China. But things are slowly working in favour of India. There is a huge opportunity in manufacturing waiting to be tapped. A proper synergy between the OEM and the contract manufacturer (CM) may also result in the latter bagging marketing rights of the product using the OEM’s brand name. The OEM either invites bids from empanelled contract manufacturers or approaches a CM of its choice with its design. Based on the cost of labour, process and tooling, a CM quotes its price. The OEM then decides on the CM taking into account various factors such as shipping costs and tax benefits. Various sectors involve contract manufacturing with pharmaceutical, automobile and electronics hardware being the major ones.

AUTO COMPONENTS

KEY SECTOR

Potential • Potential of over $5 billion for investment • India amongst the most competitive manufacturers of auto components; especially: • Metal intensive components such as forgings, stampings and castings • Labour-intensive components such as machining •

Hi-tech components such as electronic fuel injectors

Highlights • Highly fragmented industry • 50% exports are to Europe and the US • Majors including Delphi and Bosch have set up operations in India • GM, Ford, Toyota have set up International Purchasing Offices • Daimler, Suzuki and GM have set up development centers • 100% FDI allowed through the automatic route Major player / customers 1. Bharat Forge: BMW, Ford, Volvo, GM etc 2. Tata Auto Components System: Daimler, Fiat, Hyundai etc 3. Sundaram Fasteners: Volvo, Proton, MAN, Ford, GM etc 4. Brakes India: Swaraj Mazda, Tata, Toyota etc Source: Investment Commission, CII, Electronic Industries Association of India (ELCINA)

Advantage India The face of Indian manufacturing underwent a sea change after the liberalisation wave of 1991. The sector that lagged behind for decades because of licence permit raj and lack of technological know-how is today poised for growth. The country has become a 38

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10/27/2007 10:17:58 PM


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