German interior solutions giant Hafele has unveiled a robust strategy to enhance its footprint in India. The company, led by South Asia Managing Director Frank Schloeder, is aiming to increase its local sourcing from 10% to 50% in the mid-term, establish manufacturing units, and foster a supplier park for exports. However, these ambitions face hurdles, including policy challenges in the furniture industry and new quality control regulations. Hafele expects its Rs 1,200 crore Indian business to triple over the next six to seven years, highlighting India’s pivotal role in its global operations.

Strategic Shift: Increasing Local Sourcing to 50%

Hafele has set an ambitious target to increase its India sourcing from the current 10% to 30% by the end of next year and eventually to over 50% in the mid-term.

Current Situation: Approximately 90% of the company’s sourcing is international, with China being a significant supplier. However, Hafele’s exposure to China is relatively lower compared to other firms.
Planned Transition: Schloeder emphasized a phased approach, transitioning from 10% in December 2023 to 30% by the end of 2024 and exceeding 50% in subsequent years.
This move aligns with India’s “Make in India” initiative, showcasing Hafele’s commitment to localizing its supply chain.

Manufacturing in India: A Two-Pronged Approach

Hafele plans to establish its own manufacturing unit in India to produce select products currently made in Europe. The approach will follow two stages:

India for India: Initially, the manufacturing setup will cater to the Indian market.
India for the World: Over time, the facility will expand its focus to supply global markets, leveraging cost benefits.
Additionally, Hafele intends to develop a supplier park, inviting its European partners to manufacture within India. This collaborative model aims to optimize costs and improve efficiency.

Investment Plans: Multi-Crore Commitment

Hafele is preparing to inject significant capital into its Indian operations.

Direct Investment: Schloeder indicated investments in the "hundreds of crores" for setting up manufacturing facilities and supplier parks.
Aggregate Investment: Including contributions from suppliers, the total investment could reach four-digit crores within five to six years.
These investments underscore the company’s bullish outlook on India’s growth potential.

Projected Growth: Tripling Revenues in Seven Years

Hafele India currently generates Rs 1,200 crore in annual revenue, making it the company’s third-largest market after Germany and the United States.

Growth Forecast: The Indian business is expected to triple or even quadruple in the next six to seven years.
Market Dynamics: Despite volatility in the Indian market, Hafele remains optimistic about its long-term trajectory, citing exponential growth in recent years.

Challenges in Policy and Regulation

Hafele faces obstacles in scaling its Indian operations due to policy-related issues in the furniture industry.

Quality Control Order: The government’s mandate for cabinet hinges, effective January 1, 2025, presents compliance challenges within a short timeframe.
Policy Impacts: While Hafele supports quality control measures to boost local manufacturing standards, it warns that such policies may disrupt imports where domestic manufacturing capabilities are insufficient.

India’s Strategic Role in Hafele’s Global Operations

India is emerging as a cornerstone of Hafele’s global strategy, driven by its significant growth potential.

Market Position: India ranks third globally for Hafele, trailing only Germany and the US.
Vision: Hafele’s efforts in local sourcing, manufacturing, and export readiness reflect its commitment to making India a central hub for global operations.

Bottomline

Hafele’s strategic pivot in India represents a blend of ambition and pragmatism. By localizing sourcing and manufacturing while addressing policy challenges, the company seeks to solidify its position in one of the world’s fastest-growing markets. With investments running into hundreds of crores and a focus on long-term growth, Hafele is poised to make India a pivotal player in its global supply chain and export framework.