Impressions of India 4 - UK/Indian SME Partnerships

Outsourcing and offshoring are nothing new, corporates such as HP, IBM, Intel, AMD, Microsoft, Oracle Corporation, and Cisco have been taking advantage of competitive and flexible workforces in the developing world for over a decade now and investing heavily in those areas to support their business aims. But there is a new trend appearing with more and more SME's looking further afield, to partners in China, Eastern Europe and India. In many ways the corporates have been blazing a trail for these SME's, not only by fine tuning the processes from the point of view of the outsourcing company but also by establishing an understanding of the business culture and requirements of the outsourcing companies within the offshore partners

IT, KPO and BPO business functions are obvious candidates for offshoring as improved technology allows information to be transferred immediately. This means that in principle an efficient offshored partnership can work as seamlessly as outsourcing to a domestic partner - In 2007 the global offshored BPO market was worth over £12billion with over £7billion of that going to Indian businesses.

But the opportunities are also there for more traditional business sectors, such as manufacturing, to gain a competitive advantage. While I was in India I spent 4 days with Srikanth G P, the Managing Director of Ibex Engineering, an export-focussed company that provides die-casting, tooling and precise machining services to businesses in Europe, New Zealand, The USA and Japan. Ibex have recently set up a successful partnership with HCM Engineering, a West Midlands based SME with a UK workforce of 25 and turnover of £1m. Simon Hanson, Managing Director of HCM said "The manufacture of tooling is very labour intensive and expensive in the UK, so by establishing a joint venture with Ibex, HCM can retain control over the quality and support services but gain a competitive advantage due to the reduction in costs. Currently the JV business turns over an extra £200,000 and is expected to double in size over the next 12 months, with some of that growth coming from sales to the Asian market generated in India"

Ibex Engineering, Bangalore

While talking with Srikanth G P about the potential for UK SME's to make the most of the opportunities that India offers it became clear that many of the issues are exactly those that face a company outsourcing to a British partner, but that there are also important additional factors to consider, and while there is no reason that an SME cannot benefit in the same way as a larger company they will almost certainly have less resources available to them so will need to manage the project to a much finer degree.

So, here are my top tips for any SME that is considering partnering with an offshore company:

Make sure there is a business case:

Offshoring can bring massive benefits, but it may not be right for all companies. Don't rush in and commit yourself without being sure that it's a viable option, and think long term - the cost implications on moving business processes back to the UK in 2 or 3 years time if outsourcing doesn't work could be very expensive.

Don't just think of the savings:

Wages for workers are considerably below those in the UK, but it is important to bear in mind that the salaries of more skilled and senior managers are rising quickly. In addition to that you will have to factor in the costs of travel and possibly relocation expenses if you decide to move a UK member of staff to oversee the offshore operation.
And while outsourcing can be highly efficient, it is not necessarily cheap to set up. It will take time, and unless what you are outsourcing is a new business area, you will have to maintain your current set up until it is in place. You will also need to make a reasonable number of trips to visit the potential new partner, and a visit to India takes a little more time and money than a trip to see a potential new partner in Milton Keynes.

And of course don't just look at cost, you wouldn't automatically go for the cheapest supplier in the UK, nor should you when looking for a supplier in India. Remember that everyone in the chain from customer to outsourced supplier/JV Partner needs to be looked after, so don't be greedy.

Be aware of cultural differences:

Even though business has been done between India and the UK for over 200 years and many Indian companies are used to dealing with UK clients, there will still be some cultural differences, and it is as much the responsibility of the outsourcing company to be aware of these and to accommodate them where possible as it is the responsibility of the offshore company to adapt.

Meeting face to face can go a long way to alleviate many of these problems, indeed I have developed a much deeper understanding of how things are done in India and why they are done that way since my visit, and this in turn will help me when dealing with Indian companies.

Be realistic and be prepared:

Be clear and realistic about what you expect, Set key performance indicators and have a service level agreement in place. You will probably have to allocate resources internally to manage the outsourced process from the inside, as well as to deal with any internal conflict that might arise from moving part of the business overseas. And like any partnership while you can hope for the best you should plan for the worse, if you have no plans in place for resolving conflicts and dealing with problems then, should they arise, they will have a more serious effect than they need to.

Get as much support and advice as you can:

Offshoring an area of your business is a big step, and as suggested above the risks are greater for an SME because they cannot just throw money at a problem in the same way that a corporate body could. But there are plenty of experienced people who you can, and should call on for help. Speak to the international trade team at your bank and bring in appropriate legal support. Remember that many of the offshored companies that you will be speaking to will have a lot of experience in dealing with companies wishing to outsource elements of their business. While this is very useful once you have found the ideal partner, when it comes to the negotiation stage it can give them an advantage - make sure that you have someone equally experienced in your corner.

Offshoring is becoming a much more viable and practical for smaller companies but while going in unprepared and unsupported can lead to all sorts of problems, when done right and with the right partners it can bring wonderful results in terms of cost reductions, increased capacity and new opportunities.

Article Copyright John Cave 2008

Impressions of India 1 - A Tale of two Countries
Impressions of India 2 - The Cargo Explosion
Impressions of India 3 - The Rail Network

If you have any queries on freight to and from India, please do not hesitate to contact one of our team on +44(0)121 713 7250 or by email for advice or further information.

Impressions of India 3 - The Rail Retwork

While I was in India I wanted to make sure I really understood how freight was moved around the country, as well as how it could be shipped out of there. In the last article I talked about the expansion of the Jawaharlal Nehru Port Trust in Mumbai, but in a country the size of India, even getting things to port can be a logistical challenge. As a result of the under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13% of GDP, in comparison to less than 10% of GDP in most of Western Europe and North America. Rail freight accounts for 40% of freight moved around India, compared to 89% in 1951! Currently the majority of freight in India goes by road, and the improved highways being built to supply ports like the JNPT will begin to make this even more efficient (although efficient is a relative term..!)

There has been a huge investment in the road network in India over the past half century. Despite the fact that a freight train (or 'rake') can carry 90 TEU's or 3000 tons of bulk material, for journeys less than 450 miles it is still more economical to move containers by road - but the railways are working on an enormous fightback to regain some lost ground. Indian Railways makes 70% of its revenues and most of its profits from the freight sector, and uses these profits to cross-subsidise the loss-making passenger sector.

Anyone who has ever been to India or even seen a documentary about the country will already be familiar with the experience that is travelling by train, with passengers hanging onto the outside of the carriages and hawkers selling their wares whenever the train slows to a pace that they can keep up with. Trains began to appear in the mid 19th Century, set up by private companies with the assistance of the ever present East India Company, but by 1907 nearly all of the companies had been nationalised and in 1920 railway finances were considered so important that they were ring-fenced with a separate budget to keep them away from the rest of the financial negotiations that any government has to contend with. Indeed the Indian rail system is immense, it's the worlds largest employer with a workforce of 1.6m and it carries 15 million people and more than a million tonnes of freight every day over routes that cover nearly 40,000 miles - and it's about to get even bigger.

A further 1,650 miles of track are planned for the exclusive use of freight transport with an additional 3,000 miles feeder lines that will include some new construction and the upgrade of many existing lines. The plan is to provide dedicated freight lines that can isolate the freight from the passenger trains, increasing the capacity for both sections and slashing the amount of time that it takes to get goods across the country to export.

The first phase of the Dedicated Freight Corridor is the Western Corridor which will run from the JNPT in Mumbai to New Delhi. As you would expect from a line that goes straight to one of the fastest growing container ports in the world the Western Corridor is expected to carry mainly container traffic, and lots of it, with trains up to a mile long, double stacked with TEUs. The Eastern Corridor will run from Ludhiana to Sonnagar and is planned to eventually to join up with the deep water docks at Kolkata carrying coal finished steel, food grains, cement, fertilizers, and lime stone.

As well as the construction of the lines themselves there is a lot of work to be done to make sure that the tracks fit into the existing infrastructure, with the demolition of 30 Road Over-Bridges (or ROBs) and construction of another 150 with approximately 900 level crossings to enable travel across the lines.

While the Prime Minister Manmohan Singh laid the foundation for the Western Corridor in October, the Eastern Corridor may have hit a bit of a stumbling block. Both sections were due to be funded by the Japanese government, most likely through the Japanese Bank for International Cooperation (JBIC) in the form of an aid or a soft loan, and the Rs 16,000 crore deal (about £2billion) for the Western Corridor is still on track (if you will excuse the pun). But it seems that Japan is getting nervous about the spiralling costs for the Eastern Corridor (currently projected at Rs 11,000 crore, which is about £1.5billion) partly due to the increased cost in buying the land needed to lay the tracks and is looking for an opt out on that side of the project, but also because it has more interest in the fast turn around of the container freight than the industrial commodities that would be moved along the Eastern Corridor.

In response to this The Dedicated Freight Corridor Corporation of India Limited (DFCC), the company set up to manage the project, are looking into the possibility of implementing toll charges (similar to those used on highways in the country) to fund the project, the cost of the toll would vary depending on the type of goods being moved.

The entire project is expected to take 5-7 years to complete and is set to have a significant impact on many areas of Indian industry. On the Western Corridor it will mean journey times from New Delhi to Mumbai are cut from 60 to 36 hours, with trains travelling at up to 60mph, leading to a faster turnaround, and lower transport costs making Indian goods more competitive worldwide. Container traffic alone on the Western Corridor is anticipated to increase from 0.69 million TEUs in 2005-06 to 6.2 million TEUs in 2021-22.

On the Eastern Corridor the coal and steel are mostly raw materials destined for the industrial areas and power stations in the northern area or Uttar Pradesh with traffic projected to grow from 52 million tonnes in 2005-06 to 142 million tonnes in 2021-22 providing the resources for a massive expansion in capacity.

The DFC is the single largest infrastructural project being undertaken in India, at enormous public cost, but it is being backed by inward investment from some equally enormous corporate bodies. At this point I must express my gratitude to Ashok Gupta, Director of the Indian Roadways Corporation Ltd, one of the most well established and respected road operators in India, who kindly arranged a meeting for me with the CEO of ETA Freightstar, Mr Sathianathan. ETA Freightstar is an Indian Division of the huge Dubai based ETA Group, a company with 140 branches in 21 countries employing over 48,000 people with an annual turnover of $4 Billion. ETA are one of the first private companies on the scene and are extending the network where the DFC ends by providing road freight to and from the rail network an handling to get the freight onto the rakes themselves, making the Dedicated Freight Corridor all the more efficient as a way of shipping goods around the country.

By upping their game the road freight groups are going to have to try to improve their efficiency to be able to compete, and by separating the passenger and freight aspects of Indian Railways both will be able to develop at a much faster rate.

This article is copyrighted John Cave 2008

Impressions of India - Part 2

Part 2 - The Cargo Explosion

In part one I briefly mentioned the Jawaharlal Nehru Port Trust, the enormous complex of container terminals that handle over 60% of all sea freight that comes in and goes out of India. At the moment JNPT serves 25 ICDs (inland container depots) with plans for another 9 over the next few years. The port sees textiles, foodstuffs and medicines exported worldwide while at the same time chemicals, oils, petrol, plastics and heavy machinery are imported to aid the phenomenal growth in the Indian manufacturing economy.

JNPT is made up of 3 terminals: Gateway Terminals India is a container port with the capacity to process 1.3m TEUs a year, there is also a liquid cargo jetty capable of handling 5.5 million tonnes annually (including industrial and edible cargo such as molasses and vegetable oil), and finally the Nhava Sheva International Container Terminal, India's first private port.

Vessel loading at Nhava Sheva (NSICT)

We were fortunate enough to have an extensive tour of the facilities at Nhava Sheva, facilities that rival those anywhere else in the world (and I've seen a lot of container ports in my time...!). With the capacity for 100 moves per hour I was impressed by the efficiency of the operation, I was even more impressed when the CEO, Capt Rustom Dastoor, mentioned that they are on target to move 1,400,000 TEUs by the end of the year.

For those of you who don't speak logistics jargon, a TEU is a 'twenty-foot equivalent unit' - a container that is about 20ft by about 8ft. At the moment the TEU is the standard size of container, there are a smaller number of 10ft containers in use, and an increasing number of 40ft containers, these are sometimes referred to as 2 TEUs or logically FEUs. If all of the containers that NSICT moved in 2007 were laid side by side and end to end they would cover over 8 sq miles of land. To put it another way, if you were stood in the centre of this sea of containers, you wouldn't be able to see the edge. By 2015 JNPT as a whole is expecting to be handing 8m TEUs a year - That's 43 sq miles of containers. If you were driving at 30mph it would take you over 5 and a half hours just to drive round the perimeter.

To prepare for this, as well as the work I mentioned on the roads supplying the port, hundreds of crores (in India 1 crore = 10 million) of Rupees are being spent on expanding the container berth, improving the rail network to the ICDs and digging out the harbour channel so that it is deeper and wider to accommodate the ever expanding size of the ships that carry the containers all over the world. They are also planning a 4th terminal that will be bigger than the rest of JNPT put together.

Aerial view of NSCIT Terminal and Gateway To India Terminal

But the Nhava Sheva terminal isn't just some multinational company moving in and exploiting the natural resources of the area, they also have a real sense of what corporate social responsibility means. Many of the staff are recruited from the surrounding villages and given training above and beyond what is needed to carry out their day to day jobs. In addition to this DP world, the company that manages NSICT has also adopted the local community college with work beginning this summer on a new school building which will include science labs and a library.

Congestion is still a problem at JNPT though. The average container can wait up to 7 days to clear the port complex due to the sheer volume of containers being processed. Cargo throughput surged 26.4% in the 1st seven months of fiscal 2007/8 to 2,700,000 TEU across the three terminals and JNPT and Customs officials are looking at ways to cut down the waiting times while maintaining this phenomenal growth.

It is this sort of dual progress which is propelling India into the forefront of international trade, providing not only world class facilities but a world class workforce to run them to a world class standard.

If you have any queries on freight to and from India, please do not hesitate to contact one of our team on +44(0)121 713 7250 or by email for advice or further information.

Impressions of India - Part 1

Having just returned from a 2 week tour of India I thought I would record some of my observations that may give you a flavour of this amazing country.

Part 1 - A Tale of 2 Countries

India has been described as a 'Rich country where poor people live.' The last few years have seen incredible growth in the Indian economy with huge organisaitions such as Reliance, Tata and Mittal making their presence felt on a global scale. Tata for example shocked many in the UK by buying Corus Steel, and is now going on to purchase Jaguar and Land Rover, which would make them one of the largest overseas investors in UK manufacturing. From 2000 to 2005, The Indian Economy grew from $460.2 Billion USD to $906.3 Billion making it the second fastest growing economy in the world after China.

The worlds' largest democracy, India is making huge investment in infrastructure which was evident while travelling round the country. In Mumbai, for example, more than 4500 crore INR (over 5 Billion GBP) is being spent on a project to link the port complex with downtown Mumbai via a 6 lane bridge across the bay, linking two of the most crucial areas in India - downtown Mumbai is the commercial capital of India, and the JNPT / Nhava Sheva port complex handles over 60% of the seafreight in India. This 22km bridge would cut average driving times between the two by 1.5 hours with a projected traffic by 2011 of 46,580 cars per hour. The area of Navi Mumbai (New Mumbai) where the bridge would terminate looks like any western city, with Malls, a state of the art railway and 30+ storey apartment buildings as far as the eye can see.

Downtown Mumbai

On the other hand, 26% of the 1.1 Billion population lives in poverty, that is, they earn less than 560 INR (£6.89 GBP / $14.20 USD) per month as explained in this interesting article. Any Indian would agree that this is the problem that needs a solution. To see such poverty at the side of some of the most expensive real-estate on the planet drives this home forcibly.

Progress is being made, with over 90% attendance at primary school, even in rural areas, and the development of low-cost, heavily subsidised housing to replace the slums that sprawl across every major city. Looking back at our own (UK) history, it is a similar picture to the Victorian / Industrial Revolution era. The big difference with Indian development is that they are going from the Industrial Revolution to the 21st Century and missing each of the steps in between..!

It was incredible to be hundreds of miles away from anywhere in rural India, to pull out a mobile phone and have a full signal...! Even in the middle of the jungle, we could text and phone home. The shop pictured below sold phone cards and DVD's! This is typical in this country of contrasts. India is definitely a rich country. India definitely has a lot of poor people. But the pace of development is incredible, and it is a country 'on the up.' It remains to be seen if it can get to grips with the dichotomy of rich and poor which is at the heart of its future, if it can, then India is without a doubt a superpower in the making.

Rural shop in Karnataka, India

All images and text copyright John Cave / Statistics from the World Bank Group

Dummies Guide to Importing - Part 2

In part 1 (written over a year ago...!) we looked at the information required to ensure that you can get an accurate freight cost for goods coming into the UK.

As mentioned in the article, freight costs are often the largest chunk of the bill, but what else is there to consider? Most obvious:

Products and Suppliers

When thinking about importing you are probably in one of 3 camps:
1. You have an existing product and are looking for outsourced production to cut costs
2. You have an idea for a specific product and are looking for outsourced production partner
3. You are a "trader" - looking to make money on the transaction of many different types of goods

Existing products:

In the UK we often hear about the decline of manufacturing with many businesses unable to compete with the low cost base of overseas production. This is a fact, and it is not going away. There are still a great number of (mainly) small businesses that are still manufacturing goods in the UK, and there will always be niche areas where production lead times outweigh the emphasis on cost, but there are many that are afraid to look at overseas partners and are facing difficult times as a result. So how can you limit the risk of outsourcing?

Like any business transaction, it has to come down to your trust in suppliers to deliver on their promises. Just because the supplier is on the other side of the world, it makes no difference. Some tips to get started:

Meet face to face: You can never underestimate the power of going out and meeting potential suppliers face to face, preferably at their premises. It gives you a chance to start building a relationship and getting a feel for the people involved - just the same as you would do if it was a local business.

Be culturally aware: There is a need to be culturally aware of differences between Western and Eastern cultures as this can be the first stumbling block to building a healthy relationship. Just making the effort to understand is often appreciated by the supplier and can help to build the initial bond. For example, in China it is considered rude to discuss business over a meal, when it is the normal thing to do in Western culture. Also (my favourite) never finish your meal completely in China as it is seen as an indication that you are still hungry! Have a look at www.cybor.com/besite/ for more tips on this

Use your Bank!: The financial transaction is the most worrying part for most people. If you have a good relationship with your International Trade team at your bank, they can be an excellent source of ideas and information. Trade finance of some type is a pre-requisite for most larger overseas transactions whether it be a Letter of Credit or another arrangement it offers a safeguard for both parties.

New Products:

One of the greatest additional fears of having new products manufactured overseas is the protection of your IPR, and rightly so! There is an excellent article here written by the China-Britain Business Council, and the same is true of any supply overseas. Do not suspend your common sense and business sense. Check your suppliers thoroughly or even better go into Joint Venture or a "Wholly Foreign Owned Enterprise."

Traders:

The key to being a very successful goods trader is spotting the potential in a product before anyone else does! Again, it comes back to the face to face approach. If you are serious about trading goods you need to visit the country you plan to source from and meet your contacts face to face. There are a huge number of trade shows in India, China and many other emerging markets and these are a great place to try and look for the next "big thing." Again, do not suspend your normal due diligence just because of the distance.

Some people rely on a google search or a website link to find a new supplier, and for very small businesses and speculative trading it may work.......but it may not...! The risks lessen considerably if you make the effort to see how things work on the ground and understand them. Do not be afraid to ask people for advice - use your Bank, your Chamber of Commerce, your Logistics company, your friends, anyone with the right experience could savee you some painful experiences!

Please let me know if you found this information useful, and I am always happy to answer specific questions and offer advice.

Dummies Guide to Importing - Part 1

Thought I may save myself some e-mails in the long run by trying to put a decent idea of what to look for when importing products from overseas.

This is not an advert, this is what we do (there, that's the only plug you will get!)

The UK has been a net importer of products for some time, and as manufacturing companies in the UK struggle to compete on costs with their overseas partners, many large companies and SME's are changing their strategy to become stockists and distributers.

Also, the massive boom in online trading through E-Bay has lead to people doing the same from their home - and many of our customers are home traders.

Depending on comments, I am happy to go into any amount of detail, but I will try to keep this a brief overview at the moment. I will concentrate on imports from China, as they are the largest volume, but the same goes for anywhere outside the EU. India for example, is becoming a real manufacturing powerhouse, and will be challenging China especially for industrial goods.

If you are considering bringing something in from overseas, the most important thing is the product. I am sure there are garages full of products that nobody ever bought..... Market research is vital.The second is the supplier. The third is the supply chain.

I will concentrate on the information needed for Freight rates at the moment, but in following blogs I'll try and pick up on the Market Research and developing the right partner overseas. Freight costs are the largest cost of most imports from China, often more than the goods themselves, so it is very important to be able to get an accurate picture of costs you are going to face.

I often have people coming on to me asking "I've got this idea of bringing widgets into the UK from China - how much will it cost?"

These are the questions that need to be answered first:

Question 1

How much do you have?
To be able to give any real idea of costs, any freight company needs some fairly accurate details. The ideal way is to get weights and dimensions of the whole shipment from the supplier when you are negotiating rates etc. with them. Manufacturers are more than used to giving these details out, and will have them at hand.

Question 2

What are the terms of supply?
You may have come accross 3 letter acronyms such as FOB, CFR, CIF, DDP, DDU, FAS etc. These are vitally important, as they say when the suppliers liability ends, and yours begin. To give an example. If a supplier gives you a term of FOB, they will take responsiblility for the goods to get "Free On Board" the vessel. In other words they will pay for the goods to be delivered from their factory, to the port, and any terminal handling costs at the port as well.
If they say DDP. That means they will deliver to your door, and pay all duties and taxes in the UK. Quite a difference.

Question 3

How quickly does it need to get here?
Does it need to come via Air or Sea? Airfreight can take from 3-6 days, and seafreight can take around 4-5 weeks. This obviously has a bearing on the cost of a shipment. For small amounts (up to 200kg, depending on volume) it is often cheaper to send via Air, as the minimum costs at the ports outweigh the total airfreight rate.

Question 4

How important is cost / transit time?
It is no different to any business. Customers often want the cheapest possible price, for the best possible service. This doesn't work. Especially when dealing in Airfreight this can be a problem. The cheapest rates may only be based on one flight per week, that travels via another airport, and has to wait there for 3 or 4 days before connecting on the final flight to the destination.
The more expensive rates will offer a better service, possibly a daily service, direct to the destination. This is very important to think about before approaching a freight company, as you will rarely be comparing like with like.

Question 5

Have you researched Customs Duties / Licenses etc.?
I have come across a number of people who have called me when their goods are sitting at the port, and they have been faced with a Duty rate of 20% asking me if there is any way round it? The answer is no! Make sure you have your tariff code well researched, and if applicable lodged with customs, so you know what your costs are going to be.
Another one that I have come across recently, was someone that had brought in a load of cotton t-shirts from India via air, but hadn't done any research. He had paid for the goods, and the airfreight and called in a panic because Customs wanted an Import License. Sadly, he had to apply for the license, and wait for it to come through. This took 3 weeks and left him with a hefty storage bill from the airline.

Hope this is a helpful introduction, please feel free to contact me for further information.