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The Ascent of India's Tier-2 Cities: A New Sourcing Frontier for Global D2C Brands
The Ascent of India's Tier-2 Cities: A New Sourcing Frontier for Global D2C Brands

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  The global supply chain is undergoing a tectonic shift. For decades, manufacturing was concentrated in a handful of hubs, while India remained a secondary player. But today, as geopolitical tensions, rising costs, and supply chain disruptions force brands to rethink their strategies, India’s tier-2 cities are emerging as the next frontier for global Direct-to-Consumer (D2C) brands.

India’s D2C market is experiencing explosive growth, with projections indicating it will more than double by the end of the decade (source: industry reports). With hundreds of D2C brands already operating in the country, India is no longer just a consumption market—it’s becoming a manufacturing and sourcing powerhouse.

But why tier-2 cities? The answer lies in a potent mix of cost efficiency, skilled labor, improving infrastructure, and government incentives. This op-ed explores the key drivers behind this shift and why global D2C brands—from fashion to electronics—are increasingly turning to India’s smaller urban centers for sourcing and manufacturing.

1. The Tier-2 Advantage: Market Dynamics & Consumer Evolution
A. The Rise of India’s Next Billion Consumers

Tier-2 and tier-3 cities now account for the majority of India’s online shoppers, driving a significant share of total e-commerce sales (source: e-commerce reports). Cities like Guwahati, Coimbatore, and Lucknow are outpacing metros in time spent on shopping platforms.

  • Social commerce is booming, with most consumers in these cities discovering products via social media.
  • Leading beauty and cosmetics brands derive a substantial portion of their sales from non-metro markets (source: company reports).

This shift is fueled by:

  • Rising internet penetration
  • Affordable smartphones and data plans
  • Growing disposable incomes
B. Why This Matters for Global D2C Brands

For international brands, sourcing from tier-2 cities means closer proximity to a booming consumer base. Instead of importing from distant hubs, brands can manufacture locally, reduce lead times, and tailor products to regional preferences, creating a competitive edge.

 

2. The Economic Imperative: Cost Efficiencies in Tier-2 Manufacturing
A. Labor & Operational Savings

Tier-2 cities offer substantial cost advantages over metropolitan hubs:

  • Labor costs are significantly lower, by as much as 30-33% (source: industry reports).
  • Commercial rent and industrial land costs are roughly half those of tier-1 cities.
  • Total cost of operations (TCO) is 10-35% lower, making these cities ideal for cost-conscious brands.
B. Case Studies: Global Brands Leveraging Tier-2 Manufacturing

Case Study 1: Fast Fashion Sourcing from Tamil Nadu & Gujarat

A leading global fashion retailer sources a significant portion of its apparel from India, leveraging cost-efficient manufacturing hubs in cities like Tiruppur and Surat. 

Key advantages include:

  • 40% lower labor costs compared to China.
  • Shorter lead times due to proximity to raw materials.
  • Government incentives, such as subsidies for export-oriented units.

The brand now sources billions annually from India, with tier-2 cities contributing a growing share of domestic sales.

Case Study 2: Sportswear Manufacturing in Punjab & Karnataka

A major sporting goods company manufactures most of its India-sold products locally, with key hubs in Jalandhar and Tumkur. 

Benefits include:

  • 30% lower wages than in metropolitan areas.
  • Improved logistics due to regional infrastructure upgrades.
  • Strong domestic demand, with tier-2 cities driving half of India's revenue.

Key Takeaway: Tier-2 cities offer foreign D2C brands a dual advantage—cost-efficient domestic production and export competitiveness.

 

3. Beyond Cost: Talent & Infrastructure Maturity
A. Skilled Workforce Availability
  • A growing share of India’s tech and manufacturing talent now resides in tier-2 cities.
  • Cities like Lucknow and Coimbatore rank among the top for employability and engineering talent.
B. Infrastructure & Connectivity Gains
  • Government initiatives like the Smart Cities Mission and UDAN scheme are boosting infrastructure.
  • Industrial parks and co-working spaces are expanding rapidly, supporting business growth.

 

4. Government Catalysts: "Make in India" & PLI Schemes
A. Policy Tailwinds
  • FDI liberalization allows 100% automatic investment in most sectors.
  • Production-Linked Incentives (PLI) offer substantial subsidies across key industries.
  • Special Economic Zones (SEZs) in tier-2/3 cities provide tax breaks and customs benefits.
B. State-Level Incentives
  • States like Karnataka and Tamil Nadu offer additional subsidies for tier-2 investments.
  • Dedicated funds are being allocated for urban infrastructure development.

 

5. The Road Ahead: Strategic Recommendations for Global Brands

For D2C brands eyeing India’s tier-2 cities, here’s the playbook:

  1. Localize Supply Chains Partner with regional manufacturers to cut costs and lead times.
  2. Leverage Government IncentivesTap into PLI schemes and SEZ benefits.
  3. Invest in Last-Mile Logistics Collaborate with local logistics providers for efficient distribution.
  4. Adapt to Regional PreferencesCustomize products for tier-2 consumers.

 

Conclusion: Tier-2 Cities—The Future of D2C Sourcing

The rise of India’s tier-2 cities is not a fluke, it’s a structural shift driven by economic logic, policy support, and consumer demand. For global D2C brands, the choice is clear: adapt to this new sourcing frontier or risk falling behind.

As major international brands double down on tier-2 markets, the message is unambiguous: India’s smaller cities are no longer the future, they are the present.
  

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As a global trade strategist, I connect international buyers with reliable Indian manufacturers. Leveraging in-depth expertise in marketing, brand management, and cross-border operations, I empower brands to scale efficiently and navigate global markets with confidence.

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