For many European companies India is foremost an outlet market. As a buying market the chemical market in India is still underrated. Especially in the area of chemical semi-finished goods, Indian providers offer significant cost advantages in contrast to established Western producers. In comparison with other Asian markets, India offers high creativity and flexibility.

When people think of India, they see 1.25 billion people and the demand that arises from that population. One thinks of the economic growth and the possibility to participate. As a buying market India is not yet on the radar of Western chemical companies.

“A wasted chance,” said India expert Dr Joerg Strassburger. “India has numerous middle-class companies, which are not only able to produce cheaply. They have developed a good understanding for quality and deadline demands of Western companies and are definitely able to fulfill those demands accordingly.”

Implementing Western Standards

Concerning production sites, reality does not conform to the clichés. As soon as one deals more closely with the topic, one will find modern production sites in India, which fulfill the highest demands. The administrational environmental specifications correspond with those in Europe or are sometimes even stricter. Furthermore, standards of quality and occupational safety are set high in many companies. And India, in comparison with other markets, offers a distinct cost advantage, which is essentially a result of two factors: Labor expense and investment costs of the plants in India are considerably lower than in other countries, but also the corporate structure influences the costs. Owner-managed companies in family property generally have lower overhead costs and lower profit expectations than listed companies. A further advantage is the fact that in these companies the hierarchical structures are more tightly woven. The customer will normally negotiate with the owner, and this can be swiftly concluded. Lingual barriers will not be a problem, as the negotiations will be in English.

Simply Buying or Toll Manufacturing — Everything is Possible

India is an interesting market for standardized chemical products of specialty chemistry, but also for specific products, which are made to the clients’ specifications. Also more complex chemical production processes are profitable in India. The engineers usually possess a good education and a large amount of creativity — a combination that offers promising results. This also shows that when together with the product the process details are transferred — these processes will also be optimized, generally with an unexpectedly positive result.

Purchasing in India is one thing, but for those who want to secure the Indian buying market long-term, contract manufacturing is an interesting option. For toll manufacturing many detailed arrangements and clear mutual terms can be made, in order to create a handmade solution for the client.

“It works out very well,” is Dr Strassburger’s experience. He and his partner have already successfully negotiated and implemented many such cooperations in India. “In a time of focus on costs, contract manufacturing in India is a good possibility to reduce the real net output ratio and production costs in Europe. Companies gain new competitiveness and more flexibility.”

Experts know: Indian companies are generally very interested in Western partners and are flexible concerning the design of the cooperation models — as long as it is economically reasonable. These models range from the pure contract manufacturing to the equity participation on the respective plants — a possibility the Indian liberal economic policy allows.

“The buying market India offers the chemical industry — in comparison to Europe — cost advantages of 20% and more,” said Dr Strassburger.

Long-term toll manufacturing agreements, if they are properly prepared and solidly negotiated, can achieve the highest savings. In the long term, more options may arise, which will exceed the pure purchasing phase. Investments in a plant as alternative to toll manufacturing may lead to a participation in the production plants of the local market. Considering the predicted very positive development of the Indian market, these are promising possibilities.

Choosing Partners Sensibly

Nevertheless, the Indian expert emphasizes that one should choose a partner selectively. It’s important to differentiate between the well-managed companies, which have experience with Western demands, and those who cannot keep their commitment. The latter mostly have fundamental deficiencies, and it is not only a question of timely and technical possibilities; they lack understanding of the importance of Western demands, such as just-in-time delivery.

To avoid such providers from the beginning, it is wise to ask the help of experts who know the industry and the market participants and who make sure that the demands of the clients are adequately met.