Greenfield Projects and Buying Equipment Remains Popular in the Indian FMCG Sector, says Beroe Inc
Source: PR Newswire
A preference for greenfield projects over brownfield ones, and a stable pricing model with clauses for penalties and warranties, work best in the FMCG sector in India.
Raleigh, North Carolina, July 29, 2021: As India prepares to bounce back from the impact of the pandemic, new opportunities have come up for the capital goods industry. According to a report by Beroe, the country does not prefer brownfield capital projects, and neither are they widespread. Most businesses in India engage with greenfield projects. Similarly, buying the equipment as opposed to leasing is the common practice in India, coupled with contract packaging.
“While the COVID19 pandemic has disrupted global supply chains, it also offers the Indian capital goods industry new opportunities for growth that requires crucial help from the government to be realized,” said Sruthi Raj Menon, Research Analyst at Beroe. “The sector contributes 12 percent to the total manufacturing in India and 1.8 percent to India’s GDP. The sector also provides direct employment to 1.4 million people and indirect employment to 7 million people.”
Brownfield capital projects are not common in India. Mostly, companies engage with greenfield projects with delivery lead time and machine specifications as relevant KPIs. The speed of the product offered is a performance indicator. When it comes to the Indian market, leasing is also not very common. Buying is the general practice, as is contract packaging. Fixed price models with incentives and penalty clauses are considered for machine purchases for better visibility. The cost-per-man-hour model is used for maintenance services.
Price discounts are very common in India. The standard rates can be negotiated up to 10-15 percent for global suppliers as per the specifications. When it comes to local suppliers, the rates can be negotiated to 30 percent of the initial quoted price. The warranty period is typically one year, but it may be extended to 2-3 years based on the negotiation and product price. Additionally, approaching EPC is not very common in the Indian market. Instead, approaching OEMs directly for the project is the general practice.
Here are some of the best engagement practices in FMCG in India:
- Approaching OEMs directly for the complete turnkey project is the general practice. Many companies approach OEMs for filling lines, pet lines and others approach OEMs for almost every piece of equipment, like water treatment, production line, electrical, conveyer, and transformers.
- Many companies in India go for global players when it comes to critical equipment, but local suppliers are considered for small projects as the cost is the key parameter. Major firms engage with 70% local suppliers and 30% global suppliers.
- A significant section of big companies approaches OEMs directly. They approach consultants to understand the business and process flow first, and then execute the negotiations at a company level.
“The Indian FMCG segment functions in a distinct way as compared to the global market, keeping in mind the business environment and logistical demands,” said Sruthi Raj Menon of Beroe. “Indian companies prefer buying over leasing, and they also go for OEMs directly. Price discounts and a fixed pricing model with incentives and penalty clauses run the market. So, the market is quite dynamic and procurement teams must have the right insights and data points to make effective decisions. This subsequently makes procurement intelligence all the more important.”
For more such market insights, procurement intelligence, supplier analysis, supplier compliance and risk management, price and cost benchmarking, please log on to Beroe LiVE.Ai: https://www.beroeinc.com/beroe-live-ai/
About Beroe Inc
Beroe is the world's leading provider of procurement intelligence and supplier compliance solutions. We provide critical market information and analysis that enables companies to make smart sourcing decisions — leading to lower costs, greater profits, and reduced risk. Beroe has been providing these services for more than 15 years and currently works with more than 10,000 companies worldwide, including 400 of the Fortune 500 companies. For more information about Beroe Inc., please visit https://www.beroeinc.com/.