From Marketing to Manufacturing Dynamics of Accelerating Contract Manufacturing Business

If you are good at marketing, you can be a manufacturer too! This statement could be misleading, but it is true.

The Indian cleaning market is witnessing an influx of contract manufacturers, which can instantly enable an aspiring entrepreneur to transform into a manufacturer; a distributor to become an entrepreneur selling products under his own brand; a supplier to increase his offerings of products to clients; a manufacturer assembling parts to make products, and much more.

Clean India Journal wrote of this trend way back in 2021 when contract manufacturing had just started picking up. What is this business model and why has its demand gone up? How will it benefit the industry at large, as well as individual businesses?

Let’s understand the dynamics of contract manufacturing, which will reshape the cleaning product manufacturing segment and accelerate growth of the industry over the next three years. An analysis by Mohana M, Editor-Clean India Journal.

India, which has been an import market for decades, is fast developing into an export market. Industry sentiments are upbeat with manufacturers claiming that “there is nothing that we cannot make in India… we can make any product locally”. One major driving factor that has driven market confidence is the phenomenon of contract manufacturing, which has more than doubled in the last few years. The Indian cleaning market is witnessing corporate giants from other industries who have chosen this model to make inroads into manufacturing cleaning products. Many top brands from the cleaning segment have also outsourced production to contract manufacturers.

The contract manufacturer’s existing infrastructure and production capabilities allow for faster setup and production, enabling the manufacturer to respond quickly to market demands and gain a competitive edge.

– Debtosh Chatterjee

Here are some reasons why engaging with contract manufacturers can make business sense, explains Debtosh Chatterjee, CEO & MD-Mrinmoyee Supply Pvt. Ltd:

Expanded product portfolio: By partnering with contract manufacturers, an equipment supplier can quickly expand its product offerings without having to invest heavily in new production facilities, equipment or specialised expertise. This allows them to provide a comprehensive range of products to their clients, meeting a broader set of needs and increasing their competitiveness in the market.

Cost savings: Contract manufacturing can help reduce costs associated with production, such as capital investments, overhead expenses, labour costs and raw material sourcing. Contract manufacturers have often achieved economies of scale by relying on specialised production processes and established supplier networks, which can lead to cost savings for the manufacturer.

Flexibility and scalability: Contract manufacturing provides flexibility in adjusting production volumes based on demand fluctuations. It allows manufacturers to quickly scale production levels up or down without the need for significant infrastructure investments. This agility can be particularly advantageous in industries with seasonal demand patterns or uncertain market conditions.

Expertise and specialisation: Contract manufacturers often specialise in specific areas or technologies, bringing valuable expertise and knowledge to the table. They may have access to advanced manufacturing techniques, quality control systems or regulatory compliance expertise. By leveraging the contract manufacturer’s specialised capabilities, the original manufacturer can ensure high-quality products and meet industry standards.

Speed to market: Partnering with contract manufacturers can accelerate the time to market for new products or product variations. The contract manufacturer’s existing infrastructure and production capabilities allow for faster setup and production, enabling the manufacturer to respond quickly to market demands and gain a competitive edge.

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How to choose a Contract Manufacturer

In the contract manufacturing ecosystem, there are two kinds of customers:

Mature customers who know exactly what they want: They have already developed the product, have defined specifications and have a significant market presence that ensures volumes. The contract manufacturer — to put it simplistically — merely has to manufacture the product. Beyond this, they have no other responsibility.

The other kind of customer has neither the technical knowledge, nor the volumes to make the manufacturing process viable. This is very common in India.

Here are a few pointers:

• Choose someone who understands your product well, and can deliver exactly what you want, right from using the right ingredients to ensuring a certain kind of packaging.
• Define benchmarks for product quality, well in advance.
• Already developed formulations have a shorter go-to-market runway than products that need to be developed from scratch.
• A good partner can also reverse engineer a product.
• An experienced contract manufacturing partner can suggest all the ways in which a product can be used.
• A contract manufacturer can also advise a customer on which product will work in what market.
• Manufacturing a product is not enough. The contract manufacturer should also have equipment and protocol to test the longevity and performance of the product over time.

Hence, it’s essential to carefully select and manage contract manufacturers to ensure a successful partnership. Factors such as the contract manufacturer’s reputation, quality control processes, production capacity, financial stability and intellectual property protection should be thoroughly evaluated before entering into an agreement. Effective communication, collaboration and a well-defined contractual relationship are also crucial to ensure a mutually beneficial and successful partnership.

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Diversify to grow

Revachemical Director Jigar Shah’s perspective aligns with the growing trend of manufacturers opting for contract manufacturing to expand their product portfolios and address various market demands. Let’s break down the key points he makes:

Cross-selling and outsourcing: Manufacturers may choose contract manufacturing to cross-sell products or outsource certain manufacturing processes to enhance their offerings. For example, a tissue manufacturer might outsource handwash manufacturing to expand their washroom hygiene range. Similarly, a tools manufacturer with a strong distribution network might consider supplying chemicals; by finding a contract manufacturer, they may do so without investing in a chemical production facility.

 

Manufacturers may choose contract manufacturing to cross-sell products or outsource certain manufacturing processes to enhance their offerings. For example, a tissue manufacturer might outsource handwash manufacturing to expand their washroom hygiene range.

Jigar Shah

 

Pan-India presence and bandwidth limitations: Larger players with nationwide presence and distribution networks may face limitations in manufacturing certain products due to production capacity constraints, or the need to focus on their core competencies. Contract manufacturing allows them to leverage their network to expand sales by tapping into specialised manufacturers’ capabilities to fill product gaps.

Market maturity, competition and cost factors: The maturing market, increasing competition, rising manpower costs and the need to derive value from expenditure are driving manufacturers towards contract manufacturing. By outsourcing production, manufacturers can respond quickly to market demands, reduce costs and access specialised expertise, thereby gaining a competitive advantage.

Regional manufacturing to reduce transportation costs: In a vast country like India, transportation costs can be significant. Manufacturers may opt for contract manufacturing in specific regions to reduce these costs and ensure faster delivery to local markets.

E-commerce and convenience: The rise of e-commerce has changed buyer preferences. Convenience plays a crucial role, with buyers preferring to walk into retail stores like D-Mart and directly purchase supplies instead of going through intermediaries. This has encouraged modern businesses to engage in contract manufacturing for institutional products with private labels, simplifying the procurement process.

Start-ups and new entrants: These ventures often prioritise marketing and market penetration over capital expenditure for setting up manufacturing facilities. Contract manufacturing provides a viable alternative, allowing them to focus on their strengths while outsourcing production to specialised manufacturers.

Overall, these factors reflect the evolving market dynamics and the strategic advantages that contract manufacturing offers to manufacturers seeking to expand their product offerings, improve efficiency and meet customer demands effectively.

Contract Manufacturing, in fact, is a great ROI model for start-ups, opines Prakash Hosadurga – Director – Triangle Innovations Pvt. Ltd. “We did face challenges when we started six years ago. The initial years went in R&D, followed by the impact of Covid. Sales of our manual walk-behind sweeper began just over a year back.”

The decision to engage in contract manufacturing “while continuing our research and development efforts to create electrical machines, we can generate revenue”.

Not all machines manufactured abroad can be customised for Indian requirements. We are innovating on India-made, India-conducive, Indian user-friendly, international-quality machines at economical costs.

Prakash Hosadurga

India is ready

The advantage of manufacturing locally in India is the presence of ancillary component manufacturers who have been producing the parts required for manual sweepers. Prakash emphasises that India has a robust manufacturing capability and supporting industries, making it capable of producing a wide range of products for both local and international markets.

Unlike in the past, just like China, India today has a much higher manufacturing capability. “India is moving towards becoming a manufacturing hub for the global cleaning market.

Prakash and his team are working on bringing out a range of made-in-India cleaning machines. “Not all machines manufactured abroad can be customised for Indian requirements. We are innovating on India-made, India-conducive, Indian user-friendly, international-quality machines at economical costs.”

By establishing a viable business model and leveraging contract manufacturing, Prakash and his team aim to sustain their operations while investing in innovation for the next couple of years.

Interestingly, the core of all kinds of manufacturing is “quality”, asserts Harshil Manwani, CFO, Sindhu Ultramarine. He emphasises the importance of recognising strengths and weaknesses within a company. “We identified our competencies in R&D, creating new solutions, production, on-time delivery and quality. However, we are weak in marketing and rely instead on our product quality to serve as effective marketing, ensuring customer loyalty and return.”

The strategy employed by top MNCs helps them excel in marketing while outsourcing product manufacturing to trusted contract manufacturers. Citing an example of Dixon Technologies, a top contract manufacturer of earphones, Harshil says, “they have earned recognition as ‘the brand behind the brands’ by manufacturing quality products for top brands. This demonstrates the power and potential of contract manufacturing.”

We identified our competencies in R&D, creating new solutions, production, on-time delivery and quality. However, we are weak in marketing and rely instead on our product quality to serve as effective marketing, ensuring customer loyalty and return.

Harshil Manwani

 

With more and more manufacturers entering this space, the cleaning equipment industry will prefer to find a manufacturer and diversify. The evaluation of a contract manufacturer goes beyond their brand, focusing on factors such as quality production, timely delivery, consistency, and other traits that contribute to their qualification. This will lead to healthy competition, with superior and unique offerings, allowing only the best manufacturers to thrive.

Actualising innovations

Innovation plays a crucial role in enhancing the competitiveness of contract manufacturing. Sindhu Ultramarine, for example, has developed powder chemicals that can be transformed into a cleaning gel, significantly reducing transportation costs and the overall product expenditure. This innovation aligns with sustainability and net-zero goals by reducing the need for excessive packaging materials and eliminating plastic bottles.

The international market also shows a strong demand for such environment-friendly solutions. “Our 9gm pouch can make a 250ml solution. The number of cartons needed to pack the chemical pouches will reduce and we will do away with plastic bottles.”

To conclude, the Indian cleaning market’s fragmentation and the complexity of manufacturing cleaning products have fuelled the growth of contract manufacturing. Manufacturers are prioritising providing a complete basket of cleaning products to meet buyer requirements. At the same time, the demand for quality products provides new entrepreneurs and start-ups with an alternative revenue model through contract manufacturing.

This trend of contract manufacturing and a focus on meeting buyer requirements will continue for the next four to five years. Over time, this will pave way for multiple brands with innovative technologies to excel in the local and international markets to gain prominence.