How to start a factory | Setup Manufacturing Unit

There are three options for those wanting to start a manufacturing unit (or, as some say, a factory) in India:

1. Build a new factory. This would involve purchasing land, machinery, getting proper licensing etc. For the majority of returning Indians, doing all this can be a nightmare — especially when one considers the problems of Indian bureaucracy.
2. Purchase a running factory. You could buy a running manufacturing unit, or even a partnership share in one.
3. Purchase a "sick industrial unit".

While the first two options are self-explanatory, let's discuss why purchasing a sick industrial unit is a choice potential entrepreneurs should consider.

What exactly is a sick industrial unit?

An industrial unit or shall I say factory that goes into financial trouble and is unable to pay its debts can be called a sick unit. In most cases such a factory would have ceased production. Such Factories are taken over by the banks that are owed money. The owners who owe this money usually have walked away owning a lot more than what the factory is worth. One can compare the sale of a sick industrial unit to a power of sale scenario.

Why buy a sick industrial unit?

There are several advantages:

• Infrastructure is already in place. The factory building is present, the electric power license is set up and power just needs to be turned on.
• Licenses already issued. The manufacturing license etc. has already been issued by the authorities to the previous owners. To start a new factory, all this work would have to be done from scratch — licenses obtained, power connections sanctioned. That costs not only money but time, lots of time.
• Banks are motivated sellers. Banks hold some sick units with outstanding loans of several million dollars. Many such sick industrial units can be purchased for about 10 cents on the dollar, or even less if you know how to go about it. Banks are not in the business of running factories and want to clear their books.
• Incentives from banks and state governments. If you have the proper background, banks may be willing to offer incentives for someone to restart the factories. State governments where such units are sitting idle are anxious to get their citizens back to work, and many offer loans for manufacturing units.

More information about how to purchase sick manufacturing units — and why a unit becomes a "sick unit" in the first place — is discussed in my book The NRI Guide.