Expert Says Tensions with China will Rise to the Point that Companies will be Forced To Move Manufacturing Out

China has enjoyed more than 20 years dominating global manufacturing, cementing its status of so-called "Factory of the World."

Supply Chain Digest Says...   India is also projected to pass Germany and Japan to become the world’s third-largest economy over the next 10 years or so, behind only the US and China. What do you say? Click here to send us your comments   Click here to see reader feedback

Can India steal the crown?

There’s lots of talk by companies leaving China, primarily for geo-political concerns and reducing risk.

But it’s not easy to pull out of China, especially when alternatives, especially for complex manufacturing (versus say apparel) are not abundant. But that’s where India hopes to go.

Boeing, Apple, Samsung and Nokia are among the companies that are increasing manufacturing in India.

In a recent article on CNBC.com, however, Vikram Barhat writes that “India’s dream of becoming the new factory of the world will have to overcome longstanding hurdles. A formidable bureaucracy, lagging infrastructure and labyrinthine red tape have forced many foreign businesses to either shun India or shutter their local operations.”

A lack of skilled labor and questions around manufacturing quality are also issues.

But maybe things are changing. India’s Tata Boeing Aerospace recently began rolling out the first batch of complex vertical fin structures for Boeing’s 737 family of airplanes. The vertical fins previously been made by Xi’an Aircraft Industry in China.

But Apple is facing hurdles in its drive to have 25% of iPhones made in India, from about 5%-7% of Apple products currently. A recent report in the UK’s Financial Times claimed Apple is running into issues with its first foray into India-based manufacturing with poor quality of products.

Barhat quotes Vivek Wadhwa, a Silicon Valley-based entrepreneur and academic with interests in the country as saying that “India will take two to three years to learn the ropes in these advanced fields, but they will get there.”

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However, Barhat also notes that the supply chain advantages that China has built over the years in scale and speed of production will be difficult for India to reproduce any time soon. China also benefits from an ecosystem of regional support that India will struggle to equal for many years.

On the other hand, India is now growing faster than China. The International Monetary Fund’s estimates India’s GDP growth at 6.1% for 2023, far outpacing China’s 4.4% growth.

India is also projected to pass Germany and Japan to become the world’s third-largest economy over the next 10 years or so, behind only the US and China.

Also in India’s favor: the growing tensions between the US and the Chinese government.

“It is only a matter of time before tensions with China rise to the point that companies will be forced to move manufacturing out,” Wadhwa also told Barhat. “India is the best alternative.”

So can India really drive its manufacturing sector, and reach the 25% target set by the government almost a decade ago?

That is unclear, but slowly but steadily, Western companies seem serious about moving out of China and to India for sourcing of a growing array of products.

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