How Hafele is adapting to India’s emerging quality ecosystem offers insights into how greater good can be derived out of adversity. To transform the challenge into an opportunity, the company is making its manufacturing bases outside India compliant with BIS standards, significantly increasing its domestic sourcing, and preparing to shift its global supply chain to India by setting up an industrial park for vendor partners.
“Every adversity, every failure, every heartache carries with it the seed of an equal or greater benefit” – NAPOLEON HILL
When the government of India started tightening the noose on imports of poor-quality furniture components and finished furniture, like other suppliers Hafele too set out to make its manufacturing bases compliant with the new Quality Control Orders (QCOs). The company manufactures just 10 per cent of the products it sells, and most of its suppliers are located outside India.
“Throughout our 100-year history, we at Hafele have sourced our products from the best manufacturers worldwide. We work closely with our suppliers and help them develop their processes and technologies in the interest of collective growth. As a family-run global business, this has been Hafele’s core philosophy,” says Frank Schloeder, managing director of Hafele India.
The QCOs pertaining to furniture make BIS certification compulsory for many furniture components including hinges, ball bearing runners, laminates and wood-based panels. These QCOs are in various stages of implementation, with those for laminates and panels already in place while for fittings they will come into effect this year.
These steps are part of the government’s action plan to develop India as a global manufacturing hub for furniture. According to a report by Invest India, the nodal investment agency set up by the Ministry of Commerce and Industry, the domestic furniture market is expected to grow from $17 billion (Rs 1.45 lakh crore) in 2021 to $37 billion (Rs 2.98 lakh crore) in 2026. [The Furniture Industry Transformation, Aug 2, 2023].
Hafele has been part of the collective representation by the furniture fittings industry, in advising the government to postpone the implementation date for the QCOs. The industry wants more time so that players can become compliant and domestic capacity can be augmented. Almost 90 per cent of the current domestic consumption of fittings is catered to by imports, mostly from China.
Quality certification is not easy for overseas manufacturers, as the process can take as much as nine months to complete. With the government steadily widening the ambit of quality control to cover more products, compliance will get increasingly challenging for brands that deal in multiple categories and have geographically diverse supply chains.
To address this emerging challenge, Hafele has decided to increase sourcing from India significantly. “We will achieve 30 per cent domestic sourcing by the end of 2025, and more than 50 per cent in the next 2-3 years,” Schloeder says while explaining how Hafele is adapting to India’s emerging quality ecosystem.
According to Schloeder, over the past two years, his team has screened the entire supplier base that is available in India for door hardware and furniture fittings. “We have visited 100s of suppliers and audited several dozens of them for their legal, financial and quality compliance. We now have a complete overview of the potential suppliers and can confidently source from India in large quantities.”
In door hardware, including door closers (except the concealed variety), lock systems and handles, Schloeder says that almost the entire supply chain will be shifted to India. The same will happen with furniture fittings, but with a lag, as the supplier base has not yet matured. “The domestic manufacturing of ball bearing runners is the most advanced, and we are in a position to choose from the best manufacturers aligned with our vision and quality roadmap.”
Interestingly, only a handful of manufacturers in India have the capability to produce furniture hinges, which are a complicated product comprising up to 80 components and requiring strict tolerances. New investment has started flowing into this category, but it could take 3-5 years to fructify.
While the benefits of local sourcing are obvious – the brand gains from reduced working capital and warehousing infra, shorter lead times and a better carbon footprint – the changing economic scenario has spurred Hafele, and many others, to firm up their domestic manufacturing.
But Hafele is seeing this as only the first step toward the fulfilment of its long-term vision of ‘make in India for the world’, says Schloeder. “Indian manufacturers can be very competitive. We want to empower them to become organised so that they can supply to our markets across the world because after making in India we want to make for the world. India is Hafele’s third largest market after Germany and the USA. We want to leverage this opportunity to emerge as a strong global supplier.” Germany-based Hafele is a €1.8 billion enterprise with presence in most geographies.
Schloeder considers India the best market to be in. “There is so much going for the home improvement industry in India. The rise of the middle class is reflected in the increasing number of real estate bookings and the demand for better and larger homes. We are seeing the emergence of organised interior contracting, thanks to start-ups innovating the business to provide convenience and transparency to the customer. We also view India’s emerging quality ecosystem as an opportunity. Such developments create space for companies like us, which have a diverse portfolio of products and are responsive to changing market trends.”
Hafele has several business verticals which, according to Schloeder, are well synergised and complement each other. While door hardware, furniture fittings, bathroom fittings and kitchen appliances are mature categories, with furniture lighting and quartz surfaces the company is addressing nascent yet fast-growing markets he says.
The other leg of Hafele’s supply chain agenda is to bring its international vendor base to India. Schloeder reveals that following the approval of the board, the company is in the advanced stages of setting up an industrial park for its overseas suppliers who wish to enter the Indian market.
“Most of our vendors are family-run enterprises in Europe with whom we have strong business relations. We will support them with knowledge about the local market and help them develop solutions that are a great product market fit. We believe that this approach will help us remain asset-light, and also give us the agility that is required to succeed in this challenging market.”
The location of the proposed industrial park is to be finalised soon, and construction will start thereafter. According to Schloeder, Hafele’s growth in India in the coming years will act as a magnet for investment from its global partners. But this is a work in progress and he prefers not to reveal more details.
He does however quip, “It would not be wrong to consider us as the Apple of the home improvement industry.”