Direct sellers' import cut a shot in arm for contract manufacturers

The industry is aiming to cut the share of imports from the current 30% to 10% by 2020

With the direct selling industry aiming to cut the share of imports from the current 30 per cent to 10 per cent by 2020, it could prove to be a huge boost to the country’s small and medium enterprises (SMEs) that engage in contract manufacturing.

According to the Indian Direct Selling Association (IDSA), currently 70 per cent of the products are produced in India through SMEs involved in contract manufacturing. Once the import content comes down from the current $1.2 billion to $0.4 billion by 2019-20, IDSA feels that it could provide a business boost to the country’s SME sector.

According to Chavi Hemanth, secretary general of the IDSA, “While some direct selling companies would also set up their own manufacturing base in the country, at least 50 per cent of this incremental $800 million business would go to contract manufacturers.”  

Already, some leading direct selling companies such as Amway are setting up manufacturing entities in the country. According to Rajat Banerji, national head of corporate affairs at Amway, who is also the chairman of IDSA, the company’s plant at Tamil Nadu -- which is coming up with an investment of about Rs 550 crore -- would be operational by the end of the current calendar year.

“At least one production line would be operational by the last quarter of 2015 calendar year, and we plan to produce home care and personal care products at the site,” he said, adding that this would not reduce Amway’s outsourcing production work to contract manufacturers.

“Around 35 per cent of our requirement would be met by the plant in the initial phases, while the remaining 65 per cent would be through contract manufacturers,” Banerji added.

Most contract manufacturers are small companies, typically with a turnover of Rs 50 crore, and the manufacturing belts are concentrated around Baddi (in Himachal Pradesh) and Tamil Nadu, Hemanth said.