The manufacturing industry in India is a fast growing sector that has been gaining considerable momentum since the advent of Make In India and the implementation of GST. It is projected to reach a value of USD 1 trillion by 2025 and has the potential to account for 25-30% of the nations GDP.


If you want in on the action in this sector and intend on starting your own manufacturing business, you will first need to have a clear idea on a number of elements relevant to the industry. First off, you will need to ask yourself why you want to start a manufacturing business.


Starting a manufacturing business requires a huge level of commitment in terms of resources, both financial and intangible. You will need to invest a considerable amount of time and money, with a large financial investment being required at the initial stages in order to procure the required raw materials, machinery, and equipment. You might not be able to pay off the starting capital until the end of the manufacturing process when your product is finally sold.


You might already be having an idea of what you're going to produce; in case you don't, you will need to carefully evaluate factors like demand, availability of raw materials, location and geography, transportation and production costs, among a list of other variables before arriving at a product that would best suit you.


Market Research

The next step is to conduct the appropriate degree of market research to arrive at a clear understanding of how you can optimize your start and progress. Market research can also help mitigate business risks, identify any harmful or potentially harmful trends in your sector, and discover valuable sales opportunities.


Here are a few areas of research worth looking into:


Product:
Once you have an idea of what you want to produce you can go on to the next step and research your product through and through. Get a good idea of what it is and its place in the market. An in-depth analysis of the costs involved at every stage of production, including necessary facilities, logistics, raw materials, machinery, and employees will help you get a good understanding of how you need to go proceed.


Customers:
It is of utmost importance to be clear on who's going to buy your products. Conduct an appropriate research to identify your target audience. This will help you develop an effective marketing strategy to communicate with them. Your product and its target audience also has a role in determining which route to take by way of sales. If your product has a smaller market, you can conduct direct sales yourself, while with a larger audience, you can take the wholesale route.


Competitors:
You might not be able to readily match many established players in the market but you can learn a lot by just observing your competitors. Look at the way they conduct their business, and the strategies they employ and adapt them to your specific business needs wherever you see fit. Inversely you can observe some of the things they aren't doing and explore those areas to set yourself apart. You can also create a niche for yourself by targeting a more local demographic and gradually work your way upwards.


Costs:
There are many levels of costing in the manufacturing business such as fixed costs, variable costs, direct and indirect costs. Mapping out your costs will help you conduct business more effectively. It will also help you arrive at the right pricing for your product in the market. Let's take a look at some of the costs applicable to your business:

  • Direct costs: These are costs attributed to production, and include cost of raw materials, labour, machinery and equipment. Fuel and electricity can also be classified as direct costs.

  • Indirect costs: These include costs pertaining to administration, factory overheads, utilities etc. Depreciation of equipment and facilities are also treated as indirect costs.

  • Variable costs: These are costs that are dependent on the volume of production. They rise with an increase in production and fall with a decrease in production.

  • Fixed costs: Costs which do not change with the volume of production are fixed costs. These include investment of facilities, machinery and equipment.

 

Evaluating all these costs will help you ascertain the cost per unit of your product, which in turn will help you price your product correctly.


Business Plan

In order to set your business rolling, you will need to strategize and formulate a business plan. An effective business plan is one which identifies your goals, determines whether they are attainable and sketches out the methods you are going to employ to attain those goals.

Your business plan can contain information about your company, your product, raw materials, facilities and machinery required, your manufacturing process, the target audience for the product, manufacturing costs, logistics, management modules, details regarding how many employees you will need, marketing strategies, etc. You can also hire the services of professionals to help you sketch out your business plan.

Financing

The next step is to chalk down a plan regarding how you will generate the required funds to set your business in motion. Here are a few funding options that you can look into:
 

  • Bank loan: Bank loans are usually a standard route to take when looking for funding for your business. SME finance options might be something you want to look into and many banks have multiple options for collateral free business loans.

  • Venture capital: These are funds received from investors for start ups and small businesses that are deemed to have long term growth potential. It is an essential form of fund generation, and is often accompanied by the mentorship of the Venture Capitalist.

  • Self-funding: This is an effective way of funding your start-up business. You can invest your own savings into your company and get your family or friends to contribute. In most cases, family and friends are flexible with interest rates. Self-funding also helps you focus your time and attention on growing your business rather than on fundraising. A quick internet search on self funding can give you a more in-depth idea of what it is, and its pros and cons.

  • Angel investments: These are individuals who provide capital for start-up businesses. They can also offer relevant market insight which help you start out your business. Many successful companies have started out with funds from angel investors, although this could result in the investor expecting higher equity in your company.
     

Go through our article on Capital Generation Opportunities for more information on financing your business. You can also get in touch with a Relationship Manager for advice and assistance suited to your specific needs.


Policies & Regulations

The manufacturing industry has a large variety of subsectors within it and each has its own set of policies and regulatory bodies that are key to its establishment and functioning. It will be important for you to look into the various Acts & regulatory bodies relevant to your business. Here are a few:

  • The Micro, Small and Medium Enterprise Development (MSMED) Act, 2006
  • Industrial Disputes Act, 1947
  • The Trade Unions Act, 1926


There are many more Regulations, Acts and laws that you need to be aware of and it is advisable to hire a business lawyer who can counsel you on matters crucial to the setting up of your business.


Starting your own business will be a significant milestone which presents its own set of challenges and learning opportunities. Here's wishing you the best for your new venture.


For more information, take a look at this article on running a manufacturing business.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.