India Looks to Gain Global Market Share

Sourcing Summit RoundtableChanges in China’s environmental laws sent ripples through the agrochemical industry as manufacturers around the world wondered how these changes would affect availability of raw materials and tech. India, more than any other country, has the opportunity to take advantage of any gaps the changes in China might supply.

Farm Chemicals International gathered a quartet of business leaders as part of a Supplier Roundtable during the magazine’s Global Sourcing Summit held in Delhi in December. The roundtable, moderated by FCI Editor David Frabotta, included executives from some of India’s leading agrochemical producers: Sanjay Gupta, Senior G.M. International Business, Bharat Rasayan; Dharnish G. Shetty, Vice President of International Business, Rallis India; Sandeep Tulshyan, General Manager Purchasing, Indofil Industries; and Keshav Anand, Managing Director, Parijat Industries.
The group discussed how Indian companies can protect themselves from and take advantage of any disruption.

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David Frabotta: Sourcing has been changing. Is sourcing as difficult as people are saying? And what are your businesses doing to insulate yourselves from the volatility?
Keshav Anand: My perception is that sourcing from China is changing. What has changed is the Chinese have learned their worth. They’re learning to consolidate. They’re also looking for better partners. We need to change if we want to be comfortable sourcing there.
Sandeep Tulshyan: I spend a lot of time sourcing from China. There will be challenges. From a long-term perspective, whatever has been happening in China over the last two or three years in terms of being more and more sensitized to the environment and long-term sustainability while creating short-term ripples in the market, that are disturbing for most of us, for the long term it’s good for the global industry. A lot of small companies have been forced to shut down because they haven’t been able to meet compliance standards.

DF: The Chinese industry is losing some of its low-cost producers that were not good for industry. They were driving prices too low, which affected many companies globally.
Dharnish Shetty: Some of the dependence on the Chinese molecule, especially the raw materials and intermediates — they are becoming a challenge. We are technology strong. China is definitely a strong technology country. Manufacturing will always be strong there. Going forward if China and India are to become the heart of manufacturing, you can’t remove one from the other. It has to be interdependent.
Sanjay Gupta: We are a technical producer and formulator. We have been importing various raw materials and intermediates from China. Initially, we were importing through various intermediaries and trading companies, but that caused some problems for us. As a strategy, we shifted sourcing directly from the manufacturing companies. The commitment level should be increased more from the Chinese manufacturers.
We have alternate sources lined up. With this government clampdown on Chinese industries, the cost of production is expected to go up. Indian entrepreneurs can take advantage of this opportunity.

DF: There is talk that China is building more capacity in the Western provinces, which could drive prices down.
KA: If I were an Indian manufacturer of technical, I’d be very circumspect before jumping into the well. I don’t see what is happening in China as fundamentally different from what happened in Japan many years ago. The Chinese having realized they generally now control the world, they can play with their molecules. They’re going to look for the value that they should actually have and not dump the products as was happening earlier.
Consolidated capacity and backward integrators are going to battle with you. I’d be careful before I decide to get into any product, until I could completely backward integrate and not be dependent on China.
Is this an opportunity for India that China is becoming a difficult market to source from? Sure. But does that opportunity represent itself as copying what the Chinese did a few years ago by allowing manufacturing to happen at the cost to the environment? I don’t think that’s going to happen here.
What it does offer is, it opens new market segments for India. Now that the Chinese (market) has become a little more difficult to deal with, it would be easy to say, ‘let’s jump into that space.’ I wouldn’t do that.

DF: Is the value chain with which your company deals asking for this? Are they asking you to supply products so they don’t have to source from China?
KA: Yes they do. But somebody who has been fed with extremely low prices is not going to buy our product at a higher price till such time that that supply dries up. It’s going to happen, but it’s not going to happen the way it has been proposed in this conference. Will we become a sourcing hub in the classic way we see in China? I don’t see that. Indian business is going to grow. There is going to be much greater opportunity for Indian companies to move overseas through the regulatory framework of a product that offers much better value to the customer.
ST: We are receiving requests from the multinationals to look into investing into the capacity in India. Some of the multinationals to whom we already cater are willing to share their sources and technology. They’re more than willing to support our company, to invest in capacities to source from India.
India, today, may not be able to be as competitive as China because of China’s backward integration of raw materials, but the trend is to use India as a backup source. They don’t mind paying a premium over Chinese suppliers, but they want to (break free) from Chinese dependency. That is one of the major shifts in their sourcing strategy that we’re experiencing.
KA: From the Indian industry perspective: Are we saying that we shift from a last-reaction manufacturing country to an even lower chain, to say, we become just job workers of the world? Is that a good sign for India? In a very limited sense. If you’re talking about replacing China, then something else needs to be looked at. I don’t think that contract manufacturing provides you the alternative because essentially what you’re going to do is you’re then going to strengthen multinational arms, and essentially the Indian industry is not multinational dependent.
The answer lies in building value through a different spectrum. For the Indian market for sure, we need to build more capacity, better molecules with our own system. I don’t see contract manufacturing as the answer to that — unless technology leaks from that.
SG: What is lacking in India is branding — branding of the country, branding of the company. The “Made in India” brand has to have weight, where we can get premium pricing. Some of my customers have told me, ‘We don’t mind paying extra for your product because this is a good quality product.’ Their customers want that. Competing on prices is a bottomless pit. Instead of competing on prices, why don’t we compete on building efficiencies, building branding and giving quality products?

DS: The companies of the world are looking at India in terms of risk mitigating. India could be a source of molecule that is also from China.
Consolidation in China; we need to look at India from both the import and export markets.
Usage in India is low. That’s an opportunity. Without competing with China, we can grow in spite of China. The global market is growing phenomenally. There is room for everybody. Our dependence on China cannot be ignored. We will always be dependent on China. They will be with us, also.
Technologically we are strong. As more molecules come off patent in the next five years, a lot of molecules will be coming from Indian manufacturers. •
Look for more from this roundtable and the Global Sourcing Summit online.