The Indian manufacturing sector has undergone a major transformation, invigorated by significant reforms announced by the government. The manufacturing sector is currently emerging as one of the core growth sectors in India, targeting both local and global markets. Government spending on the creation of supporting infrastructure, incentive schemes and subsidies, and the continued availability of skilled labour have significantly boosted manufacturing and allied sectors.
India is emerging as an alternate manufacturing investment destination to China. There are many manufacturing companies that are planning to shift their manufacturing bases to India from elsewhere and are actively pursuing production plans in different segments.
Need for manufacturing site selection analysis
Selecting a manufacturing location requires a long-term vision and strategy, Therefore, choosing a manufacturing location requires a distinct approach that entails a long-term vision and strategy, different from other sectors. Prior to entering a new market, it is important to conduct a location analysis. This strategic and methodological decision-making process involves multi-attribute analysis as there are various factors or attributes to be considered when choosing a location for a manufacturing facility. The relative importance of these can vary across different industries and should therefore be evaluated on a case-by-case basis.
Critical success factors for manufacturing site selection
Based on our extensive experience in leading site selection analyses for various companies that established manufacturing facilities in India, we have identified a two-phased approach to the process. The first phase involves identifying the primary factors which are critical for assessment of the site suitability, such as the availability of manpower, access to markets, availability of raw materials, and policy and regulatory environment. Subsequently, the second phase involves evaluating secondary factors that could further improve the site’s feasibility, along with a thorough assessment of potential risks and vulnerabilities.
The availability and cost of utilities play a significant role in site selection for new manufacturing companies as these can significantly impact the overall cost of production. Many Indian states are competing to provide adequate infrastructure, and utilities such as uninterrupted power supply, water and natural gas all of which are deciding parameters. India is a power surplus country; large coal reserves and growing renewable energy installations in the country are likely to fulfil the industrial sector’s growing energy needs.
| Success factors | Description |
| Availability of Raw Materials | To reduce transportation costs, many companies choose to locate their manufacturing plants near the source of their raw materials. For instance, Maharashtra has the highest concentration of cotton textile industries because of the easy availability of raw materials. Similarly, Maharashtra and Karnataka are popular states for wine-manufacturing companies due to the proximity of grape-growing regions. |
| Availability of Manpower | The availability of skilled manpower is yet another deciding factor for the selection of a manufacturing site. Availability of manpower, number of educational institutions and Industrial Training Institutions (ITIs) are also considered as the key elements. |
| Proximity to Market | Cost of distribution is an important factor. Industries that cater to consumers often prefer to set up their operations near areas with high population or high demand to minimise the cost of distribution. |
| Infrastructure Facilities | Transportation infrastructure, including seaports, airports, and road networks, is a key factor to consider when selecting a manufacturing plant location. Export and import-oriented companies tend to locate their production facilities near ports with adequate infrastructure. |
| Availability & Cost of Utilities | An uninterrupted supply of utilities like power, water, natural gas, and their cost will play a significant role. Industries such as textile, fertiliser, pulp & paper, and cement are major water-consuming industries and mainly prefer water-sufficient locations. |
| Availability of Land & Cost | The availability and cost of the required land are the key factors to consider. Additionally, the availability of government land, along with its allocation policies, timelines, and options for scalability, can have a significant impact on the site selection process. The Operating Expenditures (OPEX) model is emerging over the Capital Expenditures (CAPEX) model as it is a better alternative to buying land and building a facility. |
| Market Conditions & Competition | The current market conditions and level of competition in the location should also be assessed to determine the success of the proposed site. The existence of competition will enhance the manufacturing ecosystem. |
| Political Conditions, Policy, and Regulatory Environment | To facilitate the establishment of production facilities, manufacturers prefer a stable political environment and a proactive state. In addition, tax & incentives, labour laws and local regulations will significantly influence the site selection process. |
| Ecological & Environmental Factors | The impact of environmental regulations will vary depending on the location and the specific industries involved, resulting in differing effects. In fact, various factors such as temperature, topography, rainfall, wind speed and direction are considered while choosing a manufacturing site location. Additionally, past occurrences of natural hazards like earthquakes, floods, and storms are carefully assessed to determine potential risks. |
Conducting a location analysis for the setting up of a new manufacturing plant is essential as a well-executed analysis can identify the most appropriate location to achieve optimal business success. To ensure effective decision-making in choosing a plant location, it is recommended to conduct the location analysis exercise in a systematic manner, by avoiding subjective preferences, and instead relying on objective criteria to minimise risk. Failure to address these issues may result in significant challenges for the business.