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Over the past few years, much has been said about India’s impressive economic growth and enormous market potential-and justifiably so.
An equal amount has been said about India’s drawbacks, especially those that pertain to its transportation and logistics. But unfortunately, this negative view doesn’t help companies position themselves to be successful in India.
I was recently reminded of this when I attended a panel discussion about Indian logistics. Although the panelists were accurate in their assessment of the challenges that shippers face in India, they neglected to address the one dimension of the subject that most of their audience truly wanted to hear: how to overcome these challenges.
Supply chain management professionals have an obligation to present a more balanced picture than this if we expect companies to have their best shot at developing viable India strategies. Specifically, we need to do more than generously dispense bad news about what it will take to move and manage materials there and be equally forthcoming with ideas for solutions and tools that can help.
In the spirit of that more balanced disclosure, allow me to offer updates on several key areas that are shaping logistics in India-and dispense some practical advice for how your company may be able to respond.
Changing tax laws
What’s new: Distribution in India traditionally has been a very fragmented, decentralized affair, with many companies operating a warehouse in every major Indian state due to a cumbersome Central Sales Tax (CST) that requires companies to pay taxes on inventory each time that inventory crosses state lines.
But India has plans-albeit frequently delayed ones-to phase out the CST and replace it with a more shipping-friendly national tax known as the Goods & Services Tax (GST).
What you can do: Once the GST goes into effect, it will enable shippers to take advantage of a more consolidated, regional approach to their logistics. And that, in turn, should open the door to much more efficient supply chain network designs. Whether you’re establishing a new network or just re-engineering an existing one, you may want to consider using more consolidated regional DC mix focusing especially on sites near Mumbai, Gurgaon, Nagpu, Kolkata, Bangalore, Chennai, Hyderabad, Ziakpu and Patna. Network optimization can help you determine which mix of locations will be right for your company.
Distribution centers
What’s new: The older, small-sized (5,000 to 25,000 square feet) Indian warehouses-and India’s limited communications and electrical connectivity-haven’t always boded well for operational efficiency.
However some property developers and global 3PLs have begun building larger, more modern distribution centers there, including some that measure well over 100,000 square feet. And, many of these 3PLs and multinational companies have begun introducing higher-caliber warehousing practices within their Indian DCs. Plus, improvements in communications and electrical power generational are on the way, thanks to India’s ambitious Power For All By 2012 initiative.
What you can do: Obviously, 3PLs operating in India would welcome your business. However, should you choose to develop your own warehouses there be sure to consider the high price of land, especially near places like Mumbai. Work closely with the construction contractors you choose regarding things like flooring because cracking is a common issue; for example, we found it helpful to ask ours to use a higher grade of cement. And, opt for a sloped rather than a flat roof, because monsoon season can work a number on a facility.
In addition, put some extra money aside if you decide to purchase material handling equipment from overseas companies, because the import duties for this equipment can run you at least 30 percent more. In addition, as communications and power generation continue to get up to speed, consider using back-up diesel generators, battery packs and ups (uninterrupted power supply) solutions to facilitate satellite Internet connections and achieve improved power reliability.
Labor versus skilled labor
What’s new: India’s large, youthful workforce has always been its biggest asset as well as one of its major liabilities. Many of the country’s 1.2 billion residents are English-speaking and wage levels are still quite competitive, which is helpful when you consider that the typical warehouse in India requires three to five times more employees per square foot than the typical warehouse in the U.S. However, India suffers from high illiteracy rates and low educational levels within the pool of warehouse associates.
Thankfully, literacy and skill rates are on the rise, because many of India’s parents who once pulled their children out of school to help with farming are now encouraging them to study longer in hopes of landing a better job.
What you can do: Don’t expect the skills gap to evaporate overnight. For the foreseeable future, seek college and high school graduates to work in your Indian distribution centers. Although this may cost your company more in terms of salaries, the superior skill level they offer could be well worth it in the long run.
Another option is to work with 3PLs that have already invested significant sums in training, motivating and retaining skilled Indian warehousing and transportation personnel-or to consider launching such training and motivational initiatives yourself. And by all means, offer your logistics associates competitive wages in order to attract and retain talent. Money talks, especially in an economy like India’s.
Infrastructure and equipment
What’s new: India clearly needs considerably more than the 70,000 miles of roadways it currently has, many of which are highly congested and in very poor condition. In addition, it must significantly expand its supply and use of railways, ports and airports in order to have even a hope of keeping up with dramatic increase in traffic that’s expected over the next decade.
Fortunately, some progress is being made. According to a September report in The Economist, India expected to spend $500 billion in transportation improvements between 2007 and 2012. Plus, several promising initiatives such as the Golden Quadrilateral, North-South Corridor and East-West Corridor (roadways), Pipavav, Mundra and Hamra (ports) and Bangladore, Hyderabad, New Delhi and Mumbai (airports) are under way. Furthermore, the government has encouraged private infrastructure investors and the launch of privately operated rail transportation solutions.
What you can do: A balanced modal mix is the key to almost every good supply chain, but especially in India. Increase your use of rail transportation there wherever you can. It should go a long way toward improving your inland speed and reducing your freight expense. Moreover, if you decide to operate a smaller number of large regional distribution hubs in the future, you may wish to continue using small amounts of space-perhaps at public warehouses-in outlying areas to offset potential delivery volatility.
The bottom line
Regardless of how you feel about the realities mentioned above, two things are certain: India is now the world’s second-fastest growing economy, with an estimated GDP growth of 8.5 percent. And, over the next ten years, it should add a staggering 136 million people to its working age population-nearly 5 times the number that China will add during the same time period.
As a result, it’s very likely that this highly vibrant country will be a factor in your company’s success, either now or in years to come.
Whether you choose to focus on its negatives or positives-or somewhere in between, the time to start focusing is now. wt
David Frentzel is Vice President of Contract Logistics at APL Logistics.
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