China has held the reputation of being the global manufacturing hub for many years. China emerged as a prominent centre of manufacturing during the late 1970s and early 1980s, after the implementation of the nation's economic reforms. As a result of these reforms, China's economy embraced foreign investment, leading numerous companies to transfer their manufacturing operations to China.
In recent years, there has been a substantial change in the worldwide manufacturing sector, as China has been replaced by India as a prominent player. The paradigm shift has been impacted by a variety of factors, spanning from economic factors to geopolitical forces.
“A significant portion of manufacturing, especially where scale is required, is moving from China to India, said Romal Shetty, the CEO of Deloitte-South Asia. He said, “The global firms are moving their manufacturing operations to India as there is no other country in the world outside China that can match the scale that India has.”
"As I talk to clients across, one of the things is China. And therefore, everybody wants to have China plus one strategy to ensure that they do sort of move. As part of that, not necessarily everything is moving to India, but we see significant portions moving to India, especially where scale is required," Shetty said in an exclusive interview with Business Today.
In this article, let us look at the factors contributing to the shift of worldwide manufacturing from China to India. We explore the main motivators, obstacles, and possible consequences for both countries and the global economy.
Diversification of supply chains
The global spread of COVID-19 exposed flaws in global supply systems, prompting businesses to reevaluate the risks associated with excessive dependence on a single manufacturing hub. Extensive disruptions occurred due to the implementation of lockdowns and restrictions, caused by China's dominant position in global manufacturing. Consequently, businesses started exploring ways to expand their supply chains, aiming to enhance their capacity to withstand challenges and minimize susceptibility to comparable risks.
The rise of India as a manufacturing centre offers companies a chance to broaden their production locations, reducing the consequences of unexpected disruptions. Companies can minimize the potential negative impacts stemming from geopolitical tensions, natural disasters, or other unexpected events by distributing their manufacturing activities to various countries.
Ravi Srivastava, the global leader of BCG's operations practice said “For the past two decades, there has been talk of India's potential in manufacturing, often with a lingering question mark. Now, it seems that many pieces of the puzzle are falling into place.”
“What sets this study apart is its comprehensive perspective, not only delving into the reconfiguration of global supply chains but also providing validation to the growing narrative of India as a manufacturing hub,” he added.
Access to the market and the demands of consumers
The growing middle class in India is becoming a major driving force for the expanding consumer market, and global manufacturers are progressively drawn towards it. The rise in people's earnings has led to a significant upsurge in the desire for different products, like cars and electronic devices. Companies looking to gain access to the extensive market in India, catering to both domestic consumption and export, consider the country a strategic manufacturing destination.
Indian officials hope Apple's presence will spur others to come. "Very often you have anchor companies who set the trend," Commerce and Industry Minister Piyush Goyal said in an interview.
"We believe that this will send a strong signal...to other companies in Europe, America and Japan," he added.
Strategic Location and Market Accessibility
Companies seeking to reach markets in the Middle East, Africa, and Southeast Asia can exploit the strategic benefit derived from India's geographical position. Being close to these areas helps the country in terms of better logistics and transportation, which ultimately leads to shorter waiting times and lower overall costs for operations.
The strategic position of India can be utilized by manufacturers to set up regional supply centres, streamline distribution networks, and gain a competitive advantage in accessing various markets.
For instance, the fact that Boeing made a deal is a sign that other major global manufacturers, such as Apple, Samsung, and Nokia, are also increasing their manufacturing operations in India.
“As a company with over seven decades of presence in India, Boeing continues to support the development of indigenous aerospace and defense capabilities in the country,” Dave Schulte, commercial airplanes managing regional director of marketing for Boeing’s Asia Pacific and India region, wrote in an email.
“India has many opportunities to offer, and our growth along with an increase in supplier partnerships demonstrates our efforts to progress towards an Aatmanirbhar Bharat [Self Reliant India].”
Infrastructure Development
Although India has had longstanding issues with its infrastructure, there have been significant advancements in this area in recent times. Infrastructure development, including transportation, logistics, and connectivity projects, has been given top priority by the government in terms of investments.
The ongoing advancements in infrastructure not only tackle the logistical difficulties but also boost the overall business atmosphere. With the improvement and dependability of transportation networks, India becomes increasingly appealing to global manufacturers who are in search of a well-connected and easily accessed operational hub.
"India has a large labor pool, a long history of manufacturing, and government support for boosting industry and exports. Because of this, many are exploring whether Indian manufacturing is a viable alternative to China," Julie Gerdeman, the CEO of supply chain risk management platform Everstream, told Insider.
To conclude, the transfer of worldwide manufacturing from China to India is a complex occurrence influenced by a blend of economic, strategic, and geopolitical elements. India has become a more appealing choice for manufacturers due to the increasing labor costs in China, along with the necessity for diversifying supply chains and the proactive government initiatives in India.
India's increasing number of consumers, combined with its advantageous position and improving infrastructure, boosts its attractiveness by enhancing market accessibility. With the continuation of this trend, China and India are expected to experience notable economic changes, leading to a significant transformation of the global manufacturing scene.