Asset Light

Imagine two entrepreneurs starting a clothing brand. One builds an enormous factory to manufacture everything in house, taking on heavy debt and fixed costs. The other simply designs the clothes and outsources every bit of actual production to specialised manufacturers, keeping its own balance sheet almost entirely free of factories and machinery. The second entrepreneur is running an asset light business.

An asset light business model deliberately minimises ownership of heavy fixed assets like factories and manufacturing equipment, often by outsourcing production to contract manufacturers, in order to run on a smaller capital base while focusing the company's own resources on design, brand, distribution or other areas it believes it can differentiate in. This structure typically allows a business to generate a higher return on capital employed, since a smaller asset base means less capital is tied up generating a given level of profit.

Many of India's fastest growing consumer brands over the past decade have deliberately built asset light models, leaning on contract manufacturers, including India's own growing EMS and ODM base, to handle production entirely, while the brand itself focuses purely on product design, marketing and customer relationships.