India is a big country with big challenges. Just picture it; one sixth of the world's population residing in a country only one third the size (by land mass) of the US divided into 28 individual states, each with its own intricate tax and governmental regulations. It is estimated that by the late 2020s, India will overtake China as the most populated country across the globe. Although, like China, the entire country adheres to a single time zone (India Standard time, or IST, is 5.5 hrs ahead of Greenwich Mean Time) there are 18 major languages and over 840 regional dialects spoken in comparison to China's one. Couple that with booming economic growth – particularly in the consumer goods market – and this means a potential recipe for disaster when it comes to managing your reverse supply chain.
As has been seen time and time again in booming hi-tech economies elsewhere around the globe, the message from retailer, distributor, and OEM management since the dawn of the sales explosion has been simple: sell as much as possible, as quickly as possible and dominate the market share. The reverse logistics industry has been left in the shadows, and senior management are only now starting to realise the complexity and heartache involved with setting up an efficient service supply and return network.
As many multinationals have found upon starting operations in India, embracing local operations and regulations rather than fighting them is the key to launching successful operations. A simple "cut and paste" from other regional operations will stand little chance of success in India. In the logistics market, both DHL and TNT Express have launched renewed focus on the India market, and both have acquired established local Indian 3PLs in order to ensure that they have the local reach and infrastructure (TNT acquired Speedage, whereas DHL bought out Bluedart), leaving Gati and Safex as the only remaining Indian 3PLs with recognised national coverage. Specialised Indian reverse logistics companies such as RT Outsourcing Services have grown in response to the niche service environment bridging the gap between 3PL and 3PSP.
The retail sector is dominated by the conglomerate Indian giants of Reliance, Future Group, Subiksha and Tata (who recently purchased the Jaguar and Land Rover brands from Ford earlier in 2008) as well as the growing presence of many international chains; Wal-mart, Carefour and now Tesco. The Associated Chambers of Commerce and Industry of India announced this year that the retail industry enjoyed a growth rate of 25-28% in 2007, reaching a year end value of approx $300bn (USD), although remarkably due to the infrastructure and logistical issues less than 5% of all product sales occur through organised retail distribution channels.
The mobile telecoms market is a jumble of international and Indian players, with the operator market dominated by the latter. There are over 10 carriers bidding for customers including the sole multinational representative Vodafone (who purchased 52% of the Indian company Essar Group's network , and have approx 15% of subscriber base) who compete with the Indian brands of Airtel, Reliance, BSNL (state owned carrier), Tata and Idea Cellular. Yes, that's the same Tata and Reliance who dominate the retail industry (as well as the automotive, oil, tea, steel, power, appliances, and IT industries to boot!). The handset OEM race is dominated by Nokia against fierce competition from the usual suspects (LG, Samsung and Sony Ericson) but all have been frantically trying to keep up with the ever growing penetration rate of mobiles to consumers; from 5% in 2004 to over 20% in early 2008, and remember the size of the population! In fact, in April 2008 the Telecom Regulatory Authority of India proudly announced that with over 300 million subscribers, India had become the second largest wireless network in the world behind China (10.16 million subscribers were added in March 2008 alone). This is expected to increase to over 500 million by 2010.
The greatest challenge faced by all in the Indian supply chain (forward or reverse) is geographical constraints. There are significant infrastructural issues with anything past a C or D tier city; communication, transportation reach, power supply and connectivity are intermittent at best. There are massive supply and return issues with 73% of the ever growing population living in rural areas, hence the reason that only 5% of sales are through organised retail channel. This drives the question: is it acceptable to get 5% of returns through organised channels?
Disparities between tax regulations of individual states cause further woe. You can spend months trying to understand the different tax rules and regulations across states and still be none the wiser, as they seem to change constantly. The government is currently introducing measures to reduce this pain by standardising VAT across India and abolishing the colonial status of the " Octroi"status of Maharashtra (one of the a states) which impose further taxes and restrictions on goods shipments.
The effect of consumer demand is also significant. In the consumer goods industry it is thought that over 80% of Indian demand for products is for mid to low order goods, so product mix is often not comparable to other geographies. However, the lower end product ranges does not necessary point towards swap rather than repair policies as it might in western countries; labour costs in India are low and many OEMs choose to manufacture parts within India to avoid cumbersome import regulations and costs.
Electrical consumer goods tend to face particularly high return rates due to the fluctuating power supply across India, which surges as much as it intermittently cuts out. This leads to decreased "No Fault Found" rates for power related faults, further affecting material re-utilisation and repair strategies.
The impact of all these limitations must reflect in the reverse logistics strategy of any OEM, retailer or distributor, and perhaps this is why many multinationals struggle to adjust to the Indian climate. In an industry governed by turn-around-times, the concept of centralised returns hubs and repair facilities in such difficult logistical conditions must be carefully planned, assessed, and agreed with all parties before engaging first gear. The challenges for logistics begin with recognition that only 50% of the roads are paved, and that moving product between states requires complex navigation of disparate governance and documents.
Perhaps the saving grace up until now (for OEMs and retailers anyway) has been the relative lack of consumer awareness about return policies and warranties. However, with the help of the internet, consumer understanding is increasing, causing OEMs such as Nokia, Sony Ericsson, Whirlpool, LG, Samsung, and Canon to inject significant investment towards building world class, realistic and sustainable reverse logistics infrastructures which can function in India's somewhat unique environment.
The RLA has now launched the India Focus Committee which is focused on creating a forum to both encourage and promote RL best practices and techniques followed across the globe in India. If you are interested about hearing more about the committee, please contact the RLA for details about upcoming events.
The right passage to India, McKinsey publication by Kuldeep P Jain, Nigel A S Manson, and Shirish Sankhe. Feb 2005
India census- National Commission on population; PRB, 2007
2007 World Population Data Sheet; Population Reference Bureau, 2007
The Mumbai working lunch; The Independent, March 2006
Press release; Telecom Regulatory Authority of India, 25th April 2008
Oliver presently heads all Asia Pacific operations for MGH Consulting Ltd, a niche management consultancy firm specialising in the after sales service and reverse logistics arenas. MGH focuses on both the development and deployment of leading edge service strategies which deliver sustainable, cost efficient, realistic, and competitive solutions to its clients, who are typically blue chip multinationals. Oliver has worked across Central and Eastern Europe, India, China, Australia, and elsewhere in the Asia-Pacific region. He is based out of MGH's regional office in Singapore, although he spends much of his time in India where MGH has established operations.
Oliver is a member of the RLA India Committee For more information, please contact committee chair, Sanjeev Kakar at email@example.com
Feedback and additional inputs from John Mehrmann, ZSL Inc