Outsourcing: India is not for everyone

By Jim Carbone -- Purchasing, 1/3/2008 12:57:00 PM

Electronics purchasers involved in outsourcing decisions need to take a hard look at India before recommending it as a low-cost manufacturing location. While labor rates are low, they are often offset by higher costs of logistics because of poor infrastructure and a limited supply base, resulting in the need to import many materials needed for production. 

Buyers should not be unduly influenced by the fact that other large OEMs have set up operations in India and that India gets written about in many newspapers and trade publications, according to Charlie Barnhart, senior consultant for Technology Forecasters in Alameda, Calif. Often there is a “me too” thinking in deciding to move manufacturing to India because the list of companies in India reads like a who’s who of the electronics industry. Motorola, HP, Cisco, Flextronics, Jabil Circuit and Celestica are some of the major electronics companies in India. 

But just because major companies are in India, it doesn’t mean all electronics companies should manufacture in India. Barnhart says before deciding to build in India, OEMs need to understand what their needs are, what they want to accomplish, what their expectations are and the level of resources they want to commit to support their expectations. 

He says buyers involved in outsourcing have to carefully weigh the advantages and the challenges of manufacturing in India. 

He says there are clear advantages for some large OEMs. “The labor force in India is a better labor force than in China,” says Barnhart. “The work force has more education and I think India culturally has a longer tradition of commerce, more of a free market kind of mentality than China.” 

He says China has a kind of a “pseudo free market. The Indian government is pro-business which rolls down through their culture,” he says. 

In addition, EMS providers have built “world-class” facilities in India that have the same capabilities of facilities they have in other regions of the world. “They are building world-class factories, the same factories that they have any where in the world. “The HPs and Ciscos of the world that go to India find the tier one EMS suppliers provide a mirror image factory operation to what they are used to seeing anywhere else in the world,” says Barnhart. 

However, there are disadvantages to India. One is logistics. “The logistics problems in India are the same, if not worse, that China faced a dozen years ago,” says Barnhart. 

He says the issue is the lack of a proper infrastructure. “It takes an inordinate amount of time to get materials and supplies in and out of India just because of the roads and general chaos in their transportation system,” he says. 

Barnhart adds the electrical grid is “abysmal and unreliable.” 

The other key issue is the supply base. “Buying in India is tough,” says John Boucher, chief procurement officer at EMS provider Celestica, based in Toronto. Celestica builds telecommunications office equipment and automotive systems at its facility in Hyderabad. 

He says Celestica buys build-to-print items, like printed wiring boards, cable assemblies and enclosures from suppliers in India. “These are heavier items where there is a benefit in sourcing locally. I have full-time folks in India trying to find suppliers of the right grade steel and aluminum to make sure we have high quality and PCB suppliers that have the right capabilities. It is a challenge and we are developing our own approved vendor list in India” he says.