To that end, many companies have
begun looking to India for manufacturing. Ford Motor Company, Nidec and Yamaha
Motor all have established one or more plants in different states in India –
and car and auto parts companies aren’t the only ones manufacturing there.
Panasonic announced a partnership last year with Delhi-based Minda Industries,
and plans to begin manufacturing two million car batteries a year beginning in
2018. Clearly, some companies are seeing a competitive edge by relocating their
manufacturing to India.
Since the growing cost of labor in
China seems to be among the greatest concerns on the minds of buyers worldwide,
why not begin there? But keep in mind, cost of labor should not be the sole
consideration when deciding where to produce or source goods.
It’s no wonder that buyers are
particularly sensitive to wages – labor represents one of the chief costs of
manufacturing goods. When it comes to manufacturing wages, India has some of
the lowest in the world. The average manufacturing labor cost in India in 2014
was just $0.92 per hour, as opposed to $3.52 per hour in China. India’s
relatively low cost of labor is one of the strongest incentives for setting up
shop there.
Despite rising wages, India still remains one of the countries with a cheap labour force. The cost arbitrage still places the country at a distinct advantage when compared to some of the other Asian countries. Cost of labour is in fact a major factor in driving FDI flows into the country.
Information technology (IT) and auto manufacturing are the two most prominent sectors in India’s organized economy – they receive the bulk of foreign investment and are the biggest employers. The IT sector in India accounts for 67 percent of the global outsourcing market. While the overall manufacturing sector constitutes about 17 percent of India’s economy, automotive manufacturing is the largest contributor at 22 percent of the manufacturing GDP and seven percent of India’s overall GDP.
Within the IT sector, new technology
segments like artificial intelligence (AI), data analytics, and machine
learning are changing the nature of jobs and professional service capabilities.
Firms are ready to pay higher salaries to software developers and engineers
with skills in these new technology areas, but the competition to recruit is
intense as the majority of the labor market is educated in the use of legacy
technologies. As such, the sector is witnessing some disruption due to lay-offs
and reskilling drives, which in turn may benefit foreign firms looking to hire
labor at competitive rates in legacy industries like business process
outsourcing (BPOs).
In the manufacturing sector, the
federal Make in India initiative anticipates expanding industrial investments
and domestic operations, which will boost the creation of technical jobs and
factory and assembly work.
Regional manufacturing hubs are
centered on major tier two and three cities in the northern, western, and
southern parts of the country, where a majority of India’s skilled labor
resides. For instance, Pune (Maharashtra) in the west, Gurgaon (Haryana) in the
east, and Chennai (Tamil Nadu) in the south.
Proximity to large urban cities
allows companies to tap into skilled talent located nearby, while also reducing
operational costs due to reliable logistics networks.
In the IT sector, lower tier cities
such as Ahmedabad (Gujarat), Chandigarh (Punjab), and Mangalore (Karnataka) are
emerging as prominent hubs besides the tier one cities of Mumbai (Maharashtra),
Bangalore (Karnataka), and Gurgaon (Haryana). In the automotive sector, hubs
have emerged in the states of Gujarat, Maharashtra, Haryana, Tamil Nadu, and
Andhra Pradesh.
Industry experts note that the
average salary increment in the IT and manufacturing sector for 2017-18 was
projected at seven and 10.1 percent, respectively. We highlight the average
annual remuneration for skilled positions in the IT sector and the auto
component manufacturing industry.
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