At first glance, 21st century India represents a highly attractive marketplace for Western companies looking to expand their global sales.
Yes, it's true that the country's population of 1.1 billion is still largely rural, and the Asian Development Bank has reported that about 35 percent of Indians currently live on less than $1 a day. But the nation's $785 billion economy is growing at around 9 percent annually and per capita income has risen to about $3,400 a year. More importantly, India boasts an educated middle class that already numbers some 300 million — or as large as the entire U.S. population. This growing class of consumers is experiencing rising incomes and is expected to drive a doubling of retail sales in the country within the next decade, by some estimates.
These factors have prompted a variety of global companies to turn their eye to the Indian marketplace. In the high-tech sector, for example, computer-maker Dell is set to establish a major production operation and employ some 20,000 people in India by 2009 to service the domestic Indian market, which will absorb nearly 5 million personal computers this year alone, according to industry estimates. In moving into India, Dell is following other global technology companies, including rival HP, that already have set up shop in the country. Elsewhere, LG, Nokia, Ericsson and Motorola all have established beachheads in India to take advantage of what is expected to be a booming mobile phone market. Outside the tech sector, automotive companies like Honda and Hyundai have been stepping up their production operations to service rising domestic demand, and multinational consumer packaged goods companies like Unilever and Procter & Gamble have had longstanding presences in the country.
Skill Sets Improving
That's the good news. The bad news is that companies looking to establish local supply chains to service the Indian market are likely to encounter a number of significant people, process, infrastructure and technology challenges.
Let's start with the people and process issues. "A lot of the supply chain functions, like logistics, are often carried out [in India] by people who are not very skilled or educated," says Sandeep Kumar, the Bangalore-based principle consultant and group leader with the Manufacturing and Supply Chain Management Group at Infosys, a global consulting firm founded in India 25 years ago. "As a result, we have a very labor-intensive, manual environment in India."
That is beginning to change, Kumar says, as India's major institutions of higher learning ramp up supply chain programs to impart the skills and knowledge necessary to manage a complex supply chain. But even though the nation is beginning to build up a cadre of supply chain-oriented professionals, the talent pool of managers and executives continues to lack depth of experience and knowledge of advanced supply chain principles. "For example," Kumar says, "scientific forecasting principles or scientific supply chain principles like demand-driven supply chain are catching on, but they're not really very prevalent in India right now."
Infrastructure Ripe for Investment
The infrastructure within the country can also present a challenge. Nearly 80 percent of goods transported in India move over highways, yet highways make up just 2 percent of the country's more than 2 million miles of roads. Most of India's byways are, at best, poorly maintained blacktop and, at worst, un-maintained dirt tracks. As a result, logistics and delivery firms most commonly use smaller vehicles, under one ton and generally three-wheeled, to reach much of the country, creating the potential for substantial inefficiencies for any company looking to move large amounts of goods long-distance over ground.