6 Lessons for setting up a manufacturing facility in India from German multinational Viega
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In 2015, Germany’s Viega decided to set up a manufacturing site in Gujarat, India. In the preceding years, the global market leader in pipelines had seen its sales in India soar, but was struggling to keep up with demand. Managing Director of Viega in India, Shriyans Jain, shares six lessons the company learned while setting up a factory in India.
Left to right: Manoj Maithani – Vice President Sales en Marketing Viega India, Anna Viegener – Chief Strategy Officer, Claus Holst-Gydesen – CEO Viega Holding and Shriyans Jain – managing director Viega India.
Lesson 1: A Special Economic Zone (SEZ) offers interesting advantages for setting up manufacturing
Viega’s production site and Indian headquarters are located in Ahmedabad in a Special Economic Zone, the Gujarat Industrial Development Corporation Zone. “This is one of the best locations in India,” says Jain. “We have famous neighbours like Coca Cola, Tata and Ford Motors, but that is not the reason we chose this location. The location of this SEZ is perfect for us, because we are right between Delhi and Mumbai. That means good rail connections to the Mumbai port and a large supply of well-trained, technical workers.”
In addition, the Special Economic Zone offers tax benefits. “We can import machinery without paying import duties. However, we have to export the value of what we have imported in the products made in India,” explains Jain. “Although we are basically focusing on the Indian market with Viega, that arrangement is not a problem for us. We export the products that are suitable for this in the region and to Europe. We can also benefit from this, because we do not pay import duties on components that we import from Germany when we export the end product again.”
Lesson 2: Do not base your choice of location on the experience of another company, but do thorough research yourself
Where you can best set up your manufacturing location in India depends on the sector in which you are active. The Indian states all have their own speciality. For example, the Western states of Maharashtra and Gujarat are known as a suitable base for technical sectors, while the northern states of Punjab and Haryana have a flourishing agricultural sector. “A good location analysis is therefore an essential first step to ensure that the location you choose is really the right one for your company,” says Jain. “Trying to copy-paste what you are already doing in Europe or what your competitor has set up is not going to work. You are not certain that this is also the right decision logistically and operationally, and once the factory is up and running, you cannot simply move. I have seen many European companies fail in India this way.”
Lesson 3: You can set up an ultra-modern factory in India, but be open to the options the country has to offer
European companies are often curious about the possibility of setting up a production location in India that is comparable to the factories they have in Europe. “In order to build a copy of your European factory in India, you have to make high costs. Think carefully in advance about what that means for the total production costs. Viega was very clear in its assignment, a factory had to be set up that would last at least 50 years. In terms of quality, we therefore opted for a more European manufacturing location than a standard Indian factory. For example, we installed airconditioning on the entire work floor, something that is quite unusual for India. But for Viega it is important to offer employees a pleasant workplace in a city where it can get as hot as 48 degrees in the summer.”
Viega initially wanted to import this airconditioning system from Europe, but Jain strongly advised against it. “Firstly, because the company they wanted to do business with did not have a branch in India and I could see straight away that this would cause problems with maintenance and service. In addition, the alternatives, both international companies with an Indian branch and local suppliers, were of the same quality in India and a lot cheaper. Fortunately, the German team was open to considering other alternatives and they happily accepted my advice. I advise companies to take a critical look at what they really need to import from abroad and what can be done just as well (and often cheaper) in India.
The factory of Viega in Gujurat, India.
Lesson 4: Hire a local management team before you find a production location and dare to let them make the decisions
To succeed in India, you need local knowledge and a good understanding of the Indian way of doing business in your team. It is therefore essential that you take the time to recruit the right people for your local team, who not only have these qualities but also fit well with your company culture. “International companies often tend to send colleagues from the head office to India to fill management roles, because they think that there is no suitable talent in India,” says the Viega director. “But a local leader can help you adapt your Indian subsidiary better to the local market and find innovative solutions that will help you grow.”
According to Jain, it is also important to involve local management as early as possible in the decision-making process. “It is very easy to say: ‘Hey, I am not responsible for these choices because they were made by the team at the head office at the time. At Viega, they got this right from the start, our team had the final say on everything from product strategy to equipment installed in the factory. Of course, there was always consultation with the responsible team in Germany, but the final decision-making took place there. So the responsibility for those decisions lies entirely with us.”
Lesson 5: Seek external, specialized help for difficult issues
Finding suitable management or the right location for your factory can be challenging if you are new to India. “It is wise to involve consultants who have expertise in this area,” says Jain. “For example, Viega still uses external recruiters to find the right candidates for roles where we require very specific skills and consultants were involved in finding our location and handling all the paperwork. It is especially advisable to get help for that step, because you want to avoid unnecessary mistakes that delay the set-up of your manufacturing site.
Lesson 6: Don’t let the stories about Indian bureaucracy hold you back
India has risen from number 142 to number 63 in the World Bank’s Ease of Doing Business rankings in the past five years. This is partly due to improved transparency about the procedures and policies that need to be followed. Jain: “In this respect, setting up a production site is not so different from other countries. In India too, you have to get your plans approved on many points, which can take a bit longer than you are used to in Europe, so you have to factor in a few extra months. But European companies need to shake off the idea that bureaucracy in India is too much of a hurdle. India is the place to be with its growing economy and middle class. There is a lot of work being done to make investing in the country as attractive as possible and to make doing business easier. If you play by the rules and have your paperwork in order, no one will stand in your way.”
