The emergence of China as the manufacturing centre or factory of the world has given wings to many global manufacturing corporations and solved their supply problems with significant cost advantages. Modern supply chains are intertwined with the Chinese ecosystem, and it is expected that it will not be fully possible to replace them in the global supply chain soon. However, every global company will be interested in minimising the risk posed by China. Additionally, supply chain disruptions caused by diminishing cost advantages, the Covid-19 pandemic, geopolitical conflicts, and the China-US trade war have created a further need for self-sufficiency and alternative options for conventional manufacturing locations such as China.
The China-Plus-One (C+1) strategy is one of these tactics that is becoming increasingly popular. Companies are looking to countries other than China to set up their supply chain facilities to mitigate future supply chain risks. Possible locations include South Asian emerging countries such as Vietnam, Bangladesh, Thailand, Indonesia, Malaysia, and India. Mexico is also an attractive destination for global manufacturing and sourcing, but South Asian countries are more relevant to the China-Plus-One strategy due to their proximity to China. India, with its unique advantages, is proving to be a promising destination for companies looking to implement the C+1 model.
India is witnessing growth in the global supply chain industry. Even amid challenging global economic conditions, India is expected to witness a GDP growth of 6.0 to 6.8 per cent in 2023-2024. The Indian economy has shown consistent and robust growth, making it an attractive choice for companies thinking about relocating.
This trend has already started, with several global companies shifting their production and sourcing to India. Apple, for example, has ambitious plans to produce iPhones, iPads, and MacBooks at its Chennai factory in collaboration with Foxconn and Wistron. Korean giant Samsung already operates a world-class facility in Noida, India, the largest mobile phone manufacturing facility. Aerospace giant Boeing is exploring options in Indian states to relocate its manufacturing and critical supply chain activities. Tesla is also considering India as an option to set up a manufacturing facility for its cars. Walmart plans to import $10 billion worth of goods from India annually and recognises its potential as a manufacturing hub.
India has many unique advantages. It has a young population and low labour costs, a former characteristic of China. Compared to Vietnam, labour costs in India are significantly lower, making the country an attractive manufacturing destination. Due to its colonial heritage, the Indian population has a strong language advantage over other South Asian countries. Although, there is skills gap compared to China, targeted training and the introduction of new technologies can close this gap. With a strong domestic consumption-based market, India is a good candidate for the global supply chain.
Economic growth in India will be strengthened through the expansion of public digital platforms and initiatives such as PM GatiShakti, the National Logistics Policy, and production-related incentive programs to increase manufacturing output. For example, India has seen rapid growth in the construction of national highways. Budget expenditure increased from Rs 1.4 lakh crore in FY20 to Rs 2.4 lakh crore in FY23, leading to an increase in capital expenditure.
Policy reforms, including the introduction of the National Logistics Policy, aim to make Indian logistics globally competitive. The World Bank's Logistics Performance Index 2023 ranks India at 38th, better than Vietnam, which is at 43rd. This shows the potential of the Indian supply chain ecosystem to provide a competitive advantage over other South Asian countries and be the preferred choice for the China-Plus-One strategy of global companies.
Of late, India has invested heavily in improving its digital infrastructure, introducing initiatives such as e-waybills, UPI, and GST. India's improved business ecosystem and strong startup culture have resulted in many new companies becoming unicorns in recent years. This demonstrates India's technical prowess, its ability to grow rapidly, innovate, and scale. It has a robust political system that gives its economy a strong position as an ally of international organisations. However, India's goal of being the plus-one partner in the global supply chain system may face stiff competition from Vietnam, Thailand, Bangladesh, and other Asian countries as India lags in a few indicators such as ship turnaround time, labour productivity, skilled workforce, etc.
The world sees India as an ideal replacement or alternative for China. India has numerous positive attributes and the potential to be a partner in global supply chains. It can de-risk the global supply chain and provide global supply chain companies with a demographic advantage, a technological edge, a strong economy, a Startup culture, and a huge domestic market. India's potential as a supply chain partner is immense, and industry leaders should leverage this opportunity to build robust and resilient supply networks in India.