Financial Aspect: Manufacturing White Goods in India
The cost of production in white goods manufacturing can vary significantly depending on many factors, including the size and type of the product being manufactured, the materials used, the cost of labor and other production expenses, and the efficiency of the production process. In general, the cost of production tends to be higher for larger and more complex products, and the cost of raw materials and other input costs can also influence it.
The cost of production in white goods manufacturing has changed significantly over the years, driven by various factors, including technological changes, market conditions, raw materials and other inputs.
One of the main drivers of change in the cost of production in white goods manufacturing has been the adoption of new technologies and production processes. Over the years, manufacturers have developed more efficient and cost-effective ways of producing white goods, including advanced automation and robotics, lean manufacturing techniques, and improved supply chain management. These advances have helped reduce the production cost for many white goods products, making them more competitive in the market.
Another factor that has impacted the cost of production in white goods manufacturing is the cost of raw materials and other inputs. For example, fluctuations in the price of metals and other materials used in the production of appliances can significantly impact the cost of production. Similarly, changes in the cost of energy and other utilities can also affect the cost of production, particularly for products that use large amounts of electricity or other forms of energy.
The market share and growth rate of different white goods products can also impact the cost of production. For example, products that have a high market share and are in high demand may be able to command higher prices and may have lower production costs due to economies of scale. On the other hand, products with a lower market share may face more intense price competition and may need to find ways to reduce production costs in order to remain competitive.
Cost of Production comparison between Refrigerators, ACs and LEDs
The cost of production for refrigerators, ACs (air conditioners), and LEDs (light-emitting diodes) can vary significantly depending on several factors, including the size and type of the product being manufactured, the materials used, the cost of labor and other production expenses, and the efficiency of the production process.
One of the main differences in the cost of production between these three types of products is the cost of raw materials. For example, refrigerators typically require a larger amount of materials, such as metals and insulation, which can drive up the cost of production compared to other types of white goods. ACs also use a significant amount of materials, including metals, plastics, insulation, refrigerants, and other specialized components. On the other hand, LEDs typically require smaller amounts of materials, such as semiconductor wafers and packaging materials, which can result in lower production costs compared to other types of products.
Labor costs can also be a significant factor in the cost of production for these three types of products. For example, refrigerators and ACs may require more labor-intensive manufacturing processes, particularly for assembly and testing, which can drive up production costs. LEDs, on the other hand, may have lower labor costs due to more automated manufacturing processes.
Efficiency is another essential factor that can impact the cost of production for these three types of products. More efficient production processes can result in lower production costs, as they may require fewer resources and result in less waste. Factors that can impact the production process’s efficiency include the factory’s layout, the use of advanced manufacturing technologies, and the workforce’s level of training and expertise.
The White Goods industry in India reached $ 13.66 billion in Financial Year 2021. Out of this, the largest market share comprised Air Conditioners, Refrigerators and LED products.
According to India Brand Equity Foundation (IBEF), a government export promotion agency for the distribution and sale of Indian products internationally, the white goods industry in India is highly concentrated, with a select few segments like that of ACs, refrigerators and washing machines capturing over 75% of the market share. This trend is a positive sign for the future for those looking to invest in companies from this segment.
- The air conditioner market in India is expected to increase to $9.88 billion by the financial year 2026 from $3.84 billion in the financial year 2021, at a compound annual growth rate of 20.8%.
- The refrigerator market in India is expected to increase to $6.72 billion by the financial year 2026 from $3.88 billion in the financial year 2021, at a compound annual growth rate of 9.5%.
- The LED lights market in India is projected to increase to $8.12 billion by the financial year 2026, from $3.56 billion in the financial year 2021, at a compound annual growth rate of 18.64%.
- India’s market for personal care appliances, including dryers, trimmers, and straighteners, is expected to increase to $1.36 billion by the financial year 2026, from $435 million in the financial year 2021, at a compound annual growth rate of 21%.
- The dishwasher market in India is expected to increase to $93.5 million by the financial year 2026, from $45.6 million in the financial year 2021, at a compound annual growth rate of 10.8%.
There is significant potential for growth in the rural market and tier-2 and tier-3 cities in India, as consumption is expected to rise in these areas with increasing brand penetration.
The demand for consumer durables in India is also expected to grow with increased investment in rural electrification and infrastructure.
Foreign direct investment (FDI) in the white goods sector in India has been a significant contributor to the country’s economic growth in recent years. The white goods industry, which includes appliances such as refrigerators, washing machines, and air conditioners, has attracted a large amount of FDI due to the growing demand for these products in India.
According to the Department for Promotion of Industry and Internal Trade, electronic goods attracted $3.2 billion in foreign direct investment inflows between April 2000 and June 2021 in India.
One of the main reasons for the attractiveness of the white goods sector in India is the large and growing market for these products. With the increasing prosperity of the middle class, there has been a significant increase in the demand for white goods in India. This has led to several foreign companies setting up operations in the country to meet this demand.
In addition to the large market, the white goods sector in India has also been attractive to foreign investors due to the favorable business environment in the country. India’s government has implemented several policies to encourage FDI in the sector, including tax breaks and subsidies for foreign companies.
The entry of foreign companies into the white goods market in India has had a number of benefits for the country. These companies have brought with them advanced technology and management practices, which have helped to improve the efficiency and quality of the white goods produced in the country. In addition, the presence of foreign companies has led to increased competition in the market, which has benefited consumers through lower prices and a more comprehensive range of products to choose from.
A number of countries have invested in India’s white goods industry, either by setting up their own production facilities or entering into partnerships with local companies. Some of the countries that have made significant investments in India’s white goods industry include:
- Japan: Japan has a solid domestic white goods industry and has made several investments in the Indian market. Japanese companies such as Panasonic and Hitachi have established production facilities in India and have a significant presence in the market.
- South Korea: South Korean companies such as LG and Samsung have also invested significantly in the Indian white goods market. These companies have established production facilities in India and have a strong presence in the market.
- China: China has also invested significantly in India’s white goods industry. Chinese companies such as Haier have established production facilities in India and have a significant presence in the market.
- United States of America: Some companies from the United States, such as Whirlpool, have also made investments in India’s white goods industry.
- Europe: A number of European companies have also invested in the Indian white goods market, including companies from countries such as Germany and Sweden.
- Taiwan: Taiwanese companies have also invested in the Indian white goods market, including Godrej.
Loans provided by banks
Banks in India may offer a variety of loans to white goods manufacturers to support the growth and development of their businesses. Some common types of loans that may be available to white goods manufacturers in India include:
- Term loans: These loans have a fixed repayment period and are typically used for long-term financings, such as purchasing machinery or equipment, expanding a facility, or consolidating debt.
- Working capital loans: These are the loans that are used to fund the day-to-day operations of a business, such as purchasing raw materials, paying employees, and covering other expenses.
- Equipment financing: These loans are specifically used to finance the purchase of machinery or equipment needed for a business.
- Trade finance: These loans are used to finance international trade, including importing and exporting goods.
- Export credit: These loans are specifically designed to support the export of goods and services.
- Government-backed loans: There are also a number of government-backed loan programs in India specifically designed to support the growth and development of small and medium-sized enterprises, including those in the white goods industry.
To qualify for a loan, white goods manufacturers in India may need to provide collateral, such as equipment or property. They may also need to meet other requirements, such as demonstrating a strong credit history and solid business plan.
Anurag Dhole is a Research Intern at Tatvita. Presently he is pursuing his bachelors in the Liberal Arts department at the Savitribai Phule Pune University.