Contract manufacturing of Choosing India Over China for Contract Manufacturing
It is true that India is not always cost competitive against China – especially in low tech, mass production situations. A case in point is CNC machining, which is actually the strength of China. Depending on the complexity of design and lot quantity, the cost differential could be between 5 and 20% in favor of China. However, where India dominates is in small production runs and protection of intellectual property.
There are two potential scenarios where any foreign company would consider off-shoring to either China or India:
- You are a job shop and need to expand capacity and throughput as well as cut cost;
- You are an OEM who needs to manufacture a proprietary product at a low cost without making investment in costly machinery.
For a Job Shop:
What the job shops need to protect from is the eventuality that their customer and the foreign supplier might establish direct business relationship in order to bypass them and “cut the middleman”. India's judicial system and the overall environment of ethics make it relatively easier to enforce any Non-Disclosure Agreement (NDA) that the Indian supplier would sign.
It is true that India has a very strong culture of corruption. However, this is more prevalent among politicians and bureaucrats. Most (but definitely not all) businessmen are ethical. They realize that such ethical behavior is required if they have to gain a foothold and grow as part of the international business community. Besides, being an exporter and being able to visit foreign lands frequently is a sign of great prestige in the society. So the average businessman in India is more willing to honor the NDA signed with the foreign buyer. By the way, we strongly recommend that the foreign customer retain an Indian lawyer and have the Indian supplier sign an NDA which is enforceable in India.
Because the judiciary is State controlled in China, the NDA has no meaning. Besides, the Chinese political and business establishment directly or indirectly encourages companies to break such arrangements.
For an OEM (Original Equipment Manufacturer):
If you are an OEM, the most important thing you need to worry about is the protection of intellectual property (IP). China openly encourages its businesses to copy foreign designs and steal technology. India, by law and by social norms strongly discourages such practice. There are always exceptions in both countries. But by and large, your IP is a lot safer in India than in China.
So the OEM needs to weigh the cost of losing the IP against saving a few extra percent on the product cost. If you save 5-20% on product cost by going to China versus India, but if your product is going to be copied within a few months and sold in competition with you, what is going to be your preference?
Additionally:
India offers superior engineering talent and communication in English. India happens to be the largest English-speaking nation on earth (300 million people possess varying degree of knowledge of English). English is the official language of Government, business and most of the media.
Caution:
It must be understood that there are pockets of excellence in India (and China), but they need to be found and nurtured. The onus obviously is upon the buyer to identify the right vendor and work patiently with him to bring him up to your standards. Remember, quality is not an accident; it is a result of careful and meticulous planning and hard work. One needs to work with the foreign vendor in the spirit of partnership rather than adversarial relationship. It is not only about cost saving. It is about quality, cost, capacity, capability, ethics, protection of intellectual property, effectiveness of communication, mechanism for dispute resolution and the feeling of mutual financial wellbeing.
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