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Category: Global Supply Chain

Global Supply Chain News: As Companies Leave China, Work may Go to India

  India Increasingly moving Upscale, has Many Advantages
June 9, 2020
SCDigest Editorial Staff

There is much talk and maybe some action in companies moving some or even a major share of manufacturing out of China.

But, say two authors writing on the Harvard Business Review web site, the country to benefit most is likely to be India.

Supply Chain Digest Says...

Logistics in India often remains a challenge, though they note Indian managers can often shield US buyers from the messiness of getting goods on ships

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Vijay Govindarajan of Dartmouth University and Gunjan Bagla of consulting firm Amritt write that "America's relationship with the two most populous countries in the world, China and India, is undergoing a stark, rapid and perhaps permanent transformation."

A rapidly increasing share of the US population has an unfavorable view of China, driven in part by its handling of the coronavirus outbreak there and the heavy-handed reaction to protestors in Hong Kong.

"CEOs are confidentially asking their supply chain teams to develop additional sources that are completely independent of China," the authors say, adding that there are other pressures, such as employees not wanting to travel to China, and of course US political pressure and tariffs designed to reduce US reliance on Chinese manufacturing.

Bloomberg reported in March that "electronics makers are past the point of no return in their gradual migration from China." Apple, for example, announced it was moving 20% of its iPhone production out of China in favor of India.

There are lots of factors in India's favor. Those include an English speaking workforce, highly skilled labor, low cost labor, and a domestic market of 1.3 billion people whose disposable income is growing.

The article notes US executives have until recently thought of India as a source of spices, textiles, apparel, jewelry and handicrafts.

While India does export billions of dollars of these products to the United States, India has moved much further up in the value chain, the authors say, noting aerospace company Sikorski manufacturers in India, and that the Ford EcoSport is manufactured in Chennai, India for the U.S market, as just two of many example.

The authors cite sources saying India can also supply medical devices, energy efficient green transportation, power semiconductors, switches, and rectifiers to US customers.

"We call this phenomenon "India Inside," where much of what is imported from India goes unnoticed by both American consumers and the media, but is nonetheless crucial to the fabric of the US economy," Govindarajan and Bagla say.

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In fact, according to India's Ministry of Commerce, Indian companies export billions of dollars each in categories as diverse as: furniture, medical and surgical instruments, electrical machinery, ships and boats, vehicles, boilers, parts made of plastic, steel and aluminum, organic and inorganic chemicals and more.

An Incremental Approach

Govindarajan and Bagla have several recommendations for companies considering a move to Indian sourcing.

That includes pursuing a "China Plus One" strategy, which could involve "Carefully selecting some low-risk or high-reward programs to try out in India, while maintaining your Chinese base. Work with multiple Indian partners as you get started."

The authors also note that what you have learned in order to succeed in China may not serve you well in India, so it is important initially to approach India with humility and curiosity.

"Indians love America and American culture but react strongly to what they perceive as American arrogance," Govindarajan and Bagla note.

The pair also says US companies should not early on actually invest in factories in the country.

"It is often best to start out as a buyer than as an investor. This gives more flexibility, reduces overhead, and limits initial risk," they add.

They also caution that India has a very federated approach to government – rules can vary widely across its 28 states.

They also note that for now, logistics in India often remains a challenge, though they say Indian managers can often shield US buyers from the messiness of getting goods on ships and headed to America.

Govindarajan and Bagla end by quoting one executive from a major American retailer as telling them that "Given amount of dependence on China, the only alternative country that can have the scale, the skills and the space to service American demand effectively is India."

Do you see India becoming a major sourcing destination? Let us know your thoughts at the Feedback section below.


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