Vis Viswanathan of Deloitte’s Canadian practice is currently on secondment in India. We asked him to share his insights on manufacturing opportunities in India, with specific focus on how Canadian companies can benefit from this large and expanding market to drive growth and competitiveness.

These days, the country that gets all the headlines for outsourced manufacturing is China. Is India the next big thing for Canadian manufacturers seeking an alternative?

Canadian manufacturers should not view India as just another China when considering where to set up outsourced manufacturing. India is quite different from China in two key areas: production cost and price.

Regarding production, Indian manufacturing may not be sufficiently price competitive for the typical Canadian company: while China is a low-cost producer in a wide range of sectors, India’s advantages tend to be limited to certain more value-added areas. Because of this, only certain Canadian manufacturers might benefit from keeping India on their short list.

India also differs from China on price. The Indian domestic market is relatively large and can consume much of what is locally produced, unlike China, where the vast majority of production is exported. In this regard, India is very much like the United States in that the majority of its production is consumed by the local market. Consequently, Indian manufacturers are not pressured to compete on price for foreign sales. Chinese manufacturers, on the other hand, compete aggressively on price because they tend to export so much of what they produce.

With that in mind, are there particular characteristics of the Indian market that stand out as potential avenues for Canadian manufacturers?

Three specific areas come to mind: high-end electronics manufacturing, infrastructure and the domestic market.

Advanced electronic components from India are already built into the majority of cars sold globally. Canadian automotive manufacturers would benefit from participating in this supply chain. The Indian advantage is one of value competence more than price competence. This could give value-added Canadian manufacturers in automotive and other tech-heavy sectors an advantage in the global markets.

As for infrastructure, the current state of India’s roads, sewers and other infrastructure is very poor. Because manual tools are widely used for rebuilding, the country cannot keep up with current and projected needs. The process requires a large dose of automation to speed up the rate of infrastructure renewal. This presents a key opportunity to Canadian manufacturers with expertise in the use of automated techniques for building out infrastructure, from roads to utilities.

India’s domestic market also represents an expansion opportunity for Canada. With over one billion potential consumers, the Indian market represents a huge opportunity for Canadian manufacturers to produce and sell their goods locally. Even a small market share in India is massive in absolute terms: 0.1% of the population amounts to 1.1 million potential consumers.

India can also be considered a base for exporting to other Asia-Pacific markets whose own production costs are higher. For example, an Indian manufacturing base could supply Japan, Singapore and Malaysia as well, all of which are more expensive manufacturing hubs than India.

So India is either a sleeping giant with outdated infrastructure.

India presents a dichotomy of sorts: it is a society that is known for very advanced, high-tech expertise, yet the country continues to use manual tools and processes on the street. Savvy Canadian manufacturers will see this as an opportunity to move beyond the traditional outsourced manufacturing models.

Are there other aspects of the supply chain that Canadian manufacturers should consider for possible involvement in India?

Although India is already well-known for its strong technology services infrastructure, its benefits extend beyond call centres and help desks. Many U.S. organizations work here, setting up units that take advantage of the country’s well-developed education system. GE, for example, has set up a major research centre in India. Despite the relatively high degree of government bureaucracy, India remains a land of opportunity for manufacturers willing to do their homework to identify previously undiscovered avenues for growth.