Why Third-Party Manufacturing is the Way to Business Post-COVID-19
India is no longer a purely service-driven economy where manufacturing and agriculture play second fiddle. Now, manufacturing is emerging as one of the fastest growth drivers of the Indian economy.
As per IBEF data, the size of the consumer electronics market alone will be in the ballpark of 20 billion USD. Currently, it stands at around 10 billion USD. In India alone, the electronic contract manufacturing business is expected to rise to USD 152 billion by 2025, according to Elcina.
However, the impact of the COVID-19 pandemic will undoubtedly affect the speed of the industry’s growth in the short run. But that should not dent the confidence of manufacturers because the times ahead promise tremendous prosperity.
In fact, owing to the pandemic-induced retail business boom, (remember groceries, foods flying off the shelves of supermarkets), contract manufacturing saw a spurt in demand globally. For example, IRI POS scanner data shows that retail pizza sales increased 43% in 2019; Asian food sales increased 35%, and spices and seasonings increased 32%.
How do you think these extra demands were met when principal manufacturers were severely stained? Of course third-party manufacturers.
Hence, to get the market rolling again, manufacturers will have to look at alternative and innovative production strategies and third-party manufacturing is one of them.
In this article, we’ll look into the applicability of contract manufacturing and understand the opportunities it offers.
Cash in Pent up Demand with Third-Party Manufacturing
Third-party manufacturing allows manufacturers to benefit from the pent up cash demand by capitalising on it immediately, besides creating sustainable long-term production solutions. But before we come to the hows of this opportunity, we have to talk about the underlying challenges it poses.
What’s keeping people from spending?
One thing that this Covid-19 pandemic taught everybody is that the future is uncertain. And this hard-hit realisation led to a radical change in consumer behaviour. People are more cautious now.
They are cutting down on discretionary expenses. But, even after vaccines (and now with the rise of the Delta variant, and the global rise in Covid cases), uncertainty has remained the buzzword.
Frequent lockdowns and unlocks affected people’s minds. There is no certainty about normalcy, even when markets are almost open in full capacity in different geographies. People still fear the possibility that they may have to restrict and lock themselves in their houses again.
If you look closely at the market and marketing post the second wave of COVID-19, the whole ecosystem tells people to conserve money. The advertisements for two kinds of products- investment and insurance are on the rise. The market is pushing people to take knee-jerk reactions.
So, that was about the variables that affect spending in the current time. Now, you may ask, where is the opportunity in it? Where is the market if people are not spending enough? Understandable. That’s the question we answer next.
Why do People Spend?
The entire ecosystem of consumerism thrives because people like to consume. The desire to consume goods doesn’t go away easily. Some circumstances sometimes get better off the human desire to consume goods. One can assume the same happened in this Covid-19 crisis.
But it’s not entirely true when there are clouds of uncertainty around. People tend to save more yet take money aside for durable goods. The recent Nielsen survey conducted in 12 Indian cities says that about 1/3 people surveyed had intentions to buy a home appliance in a fortnight.
It’s also true that some industries enjoy immunity even in trying times; the electronic consumer industry is undoubtedly one of them. When asked about other discretionary expenses in the same Nielsen survey, there were some contradictory responses; people said they would show restraint regarding other discretionary expenses.
Let’s try to extrapolate this consumer behaviour, the underlying thinking that came to light in the mentioned Nielsen survey:
People are still willing to spend. It’s just that they want to channelise their spendings where they can get maximum value out of their investment.
For example, when people know, the prospects of travelling using their vehicle are not so bright in these Pandemic times, they will not buy a car. While the likelihood of them spending more time at home is enormously high, they would purchase a good air conditioner that gives comparatively more value in current circumstances.
On the other hand, there are people who wanted to upgrade their homes, get new appliances, make life at home more manageable but could not do so because of continual lockdowns — that’s the mass of people who created this massive pent-up demand.
That’s where the opportunity lies for all electronic manufacturers and brands. And a mere policy change and shift towards third-party manufacturing can do wonders for them. Today, contract manufacturers have the expertise and infrastructure to produce at scale. Therefore, brands can take advantage of it.
Further, we are discussing why this shift is essential not only for opportunities presented by this pandemic but also for a stable manufacturing environment in the long run.
Lessons for Manufacturing from Coronavirus Pandemic
The COVID-19 pandemic highlighted the gaps in the current manufacturing environment. As a result, markets witnessed shortages of essential and critical medical equipment. All of it points towards the structural problems the current manufacturing ecosystem has.
And it’s not limited to developing economies like India. The whole world, including the advanced and developed economies, saw shortages and disruptions that followed.
Hence, a lot of problems arise from the complexity of the supply chain. Brands and manufacturers do not have consistent backers. There is no alternative line of defence for them if they face shortages. They are not ready to face fluctuations. If brands somehow get their current supply chain in control, they get complacent.
It is a time when brands can do a course correction and employ intelligent and innovative manufacturing systems . The kind of quality and consistency third-party manufacturers deliver today; they alone can solve most of the structural problems facing the manufacturing industry.
Amid the pandemic, the whole world realised the pace of innovation and demand-supply management in manufacturing is nowhere near where it should be in the twenty-first century because brands are not letting it loose.
Even when brands offshore production to third-party manufacturing companies, they keep high-value designs, assemblies, and production to themselves. It neither helps those brands nor the contract manufacturers working with them.
Hence, it’s time to create a thriving manufacturing environment where brands trust third-party manufacturers, their research and development. And grow together and faster while keeping enough space for innovation.
Since our focus today is on opportunities in the electronic manufacturing space, we are slightly narrowing our discussion to how you can capitalise on them.
The best start is cashing in this pent-up demand and preparing a foundation for stable manufacturing. As we mentioned earlier, switching to contract manufacturing is the easiest way to unlock this potential.
For electronic manufacturing, you can trust Oakter as your next third-party manufacturing partner. Oakter has a proven record of delivering quality at pace. Take a look into the company’s offerings here!