How European Manufacturers Benefit from Establishing Supply Chains in India, Leveraging Indian SMEs

How European Manufacturers Benefit from Establishing Supply Chains in India, Leveraging Indian SMEs

European manufacturers are increasingly turning to India to diversify and strengthen their supply chains. By partnering with Indian small and medium enterprises (SMEs), they gain access to cost-effective, high-quality, and agile manufacturing capabilities. This report details the key benefits, provides real data, and highlights examples of successful collaborations.

Key Benefits for European Manufacturers

1. Cost Efficiency and Competitive Pricing

• Lower Labor and Operational Costs: India offers significantly lower labor costs compared to Europe and even other Asian manufacturing hubs, leading to substantial savings on operational expenses.

• Stable Pricing: Contracts with Indian SMEs often run for multiple years without price increases, providing predictable cost structures and reducing financial risk.

2. Quality and Compliance

• Adoption of International Standards: Many Indian SMEs have adopted ISO and other international quality standards, ensuring products meet the stringent requirements of European clients.

• Reputation for Precision: Indian suppliers, especially in sectors like metalworking and engineering, have built a strong reputation for delivering high-quality, precision-engineered components.

3. Agility and Speed

• SME Agility: Indian SMEs are characterized by their ability to quickly adapt to changing market demands and production requirements, enabling rapid scaling and product customization.

• Digitalization and Industry 4.0: The adoption of digital tools and automation by Indian SMEs has enhanced their productivity and ability to deliver complex product variants faster.

4. Supply Chain Resilience and Diversification

• Reduced Dependency on Single Markets: Incorporating India into the supply chain helps European manufacturers mitigate risks associated with over-reliance on countries like China, especially amid geopolitical tensions.

• Diverse Supplier Base: India’s vast network of SMEs across multiple industries allows for flexible sourcing and greater supply chain resilience.

5. Strategic Location and Logistics

• Favorable Geography: India’s proximity to Europe compared to East Asia, combined with modern port and logistics infrastructure, reduces shipping times and costs.

• Time Zone Advantage: The smaller time difference with Europe facilitates real-time communication and faster decision-making.

6. Government Support and Trade Agreements

• Production Linked Incentive (PLI) Schemes: The Indian government’s PLI schemes incentivize high-value manufacturing in sectors like electronics, automotive, and semiconductors, attracting European investment.

• Favorable Trade Relations: India’s stable diplomatic ties and trade agreements with the EU reduce tariff barriers and simplify cross-border operations

Facts and SME Impact

• Share of MSMEs in India's manufacturing output ~ 33%

• MSME contribution to India's GDP ~ 30%

• MSME share in Indian exports ~ 50%

• Number of MSMEs registered ~ 64 million

• Capacity utilization in Indian SMEs ~ Typically 50-70%, indicating room for growth and partnership

• Example: Apple’s supply chain in India ~ Over 150,000 workers employed by Apple’s assembler partners

• Example: STMicroelectronics, Foxconn in India ~ Joint semiconductor plant established with government support

• Example: Siemens in India ~ Digitized factory near Mumbai, providing automation

• Example: India Europe Al (metal sector) ~ 95 Indian SMEs in metal sector supplying German/European clients, with long-term stable prices

Case Studies & Examples

1. Apple’s Expansion in India

Apple’s assembler partners (Wistron, Pegatron) have built large-scale operations in India, employing over 150,000 workers. While initial challenges included workforce training and local supplier development, Apple’s India strategy is now geared toward meeting a quarter of global demand.

2. STMicroelectronics & Foxconn

European semiconductor leader STMicroelectronics, in partnership with Foxconn, established a semiconductor plant in India, leveraging government incentives and local SME networks for component manufacturing.

3. India Europe Al (Metal Sector)

This German-Indian joint venture coordinates orders from Europe to about 95 Indian SMEs specializing in metal parts. Contracts are typically stable, with fixed prices for 2-3 years, and Indian SMEs have proven reliable in quality and compliance.

How Indian SMEs Augment Speed and Quality

• Agility: SMEs can quickly scale production and customize products, responding to European client needs with minimal lead time.

• Technology Adoption: Programs like “Make in India” and collaborations with international firms (e.g., Siemens’ digitized factory) have accelerated the adoption of automation and digitalization, boosting productivity and output quality.

• Quality Focus: Indian SMEs are increasingly investing in advanced machinery, skill development, and international certifications to meet global standards.

Challenges

• Capacity Utilization: Many Indian SMEs operate below full capacity, which can affect cost efficiency.

• Technology Gaps: Continuous investment in technology and skills is needed to match global standards.

• Regulatory Complexity: Navigating local regulations and ensuring compliance can require support from experienced partners or platforms.

Take away

By establishing supply chains in India and partnering with Indian SMEs, European manufacturers can achieve significant cost savings, improve supply chain resilience, and access high-quality, agile manufacturing capabilities. Real-world examples from sectors like electronics, automotive, and metalworking demonstrate the tangible benefits and growing trend of EU-India industrial collaboration. With continued investment in technology and strategic partnerships, Indian SMEs are well-positioned to help European companies compete globally with speed and quality.

Please contact Baltic-Bharat today to ask how India's supply chain can benefit your business!