WHY INDIA IS LESS LUCRATIVE THAN OTHER SOUTH ASIAN COUNTRIES IN CASE OF SETTING MANUFACTURING HUB’s?
- INTRODUCTION:
Many blue-chip companies who had their manufacturing plant setup in China have started to shift their base to other countries because of countries trade war with other countries, increased labour cost, and difficult supply chain distribution. In addition, as countries have begun adopting the "China plus one" strategy to lessen their reliance on China, most of these businesses have chosen South Asian nations as the best location for their manufacturing hubs.
Nonetheless, most businesses have chosen Vietnam, Thailand, and Malaysia over India as the ideal location for the establishment. The below mentioned Chart shows what companies have favoured as their future location for their business.
Company
Industry
Moved to
Harley Davidson
Automotive
Thailand
Hasbro
Toys
Vietnam and India
Kayamtics
Consumer Robotics
Malaysia
Nintendo
Video games
Vietnam
Panasonic
Electronics
Malaysia
Proton pacific
Packaging
India
Samsung
Electronics
Vietnam
Skechers
Footwear
Vietnam
Steve Maiden
Footwear
Cambodia
Foxconn
Electronics
Vietnam or India
Goertek
Technology Hardware
Vietnam
Pegatron
Electronics
India and Indonesia
Compal Electronics
Electronics
Taiwan
Delta Electronics
Electronics
Thailand
- Reason for India not being an Ideal location.
The exit of top automobile companies like Ford General Motors, Harley Davidson, Man truck and Bus have questioned India of being the most lucrative destination. Main reasons being
- Hefty tariffs
- Archaic labour laws
- Acquisition of land without conflict
- Non-availability of stable and cheap electricity
- Dynamic regulatory environment
- Rising competition
- Long registration procedures
- Reasons of favouring other Countries:
From the above table we can make out that majorly countries have favoured Vietnam and Thailand as their ideal location, such that Vietnam is rising to be a major player in electronics manufacturing industry, main reasons being:
- Infrastructural developments in such countries are way ahead than that of India.
- Other countries have made huge investments in healthcare and education industry.
- Vietnam’s close proximity to China’s manufacturing hub Shenzen makes it a thriving destination.
- Other countries currency are more stable than Indian rupee.
- Cheaper price over land purchasing rights.
- Cheap labour wages and operational expenses.
- Efficient supply Chain distribution.
Advantages & Disadvantages of setting up business in India.
Advantages
Disadvantages
Business reforms like implementation of SEZ policy.
Political instability
Emerging world economy
Hefty tariffs
High Digital competitiveness-the capacity to adapt and develop digital technologies.
Stringent laws
Massive consumer market
Archaic rules and regulation
China’s declining competitiveness
Non- Availability of skilled labour
Ease of doing business.
Competition from other nations
Fragmented nature of Indian market -As different states act as different nations.
What initiative is India taking?
- One of major initiative taken by Indian government to attract foreign players is by building Special economic zone (SEZ).
- Other initiative’s taken by Indian government to empower local population and reducing reliance on foreign products is by implementing “Make in India” scheme.
- In order to accelerate growth in manufacturing, Government of India (GOI) has espoused the strategy of developing Industrial Corridors in cooperation with State Governments.
- National logistics policy which aims to lower the cost of logistics and lead it to par with other developed countries.
- Production linked incentive scheme and FAME which proposes to give a push to manufacture electrical vehicles and seeks to encourage adoption of EV’s.
From the above points, we could conclude that India is currently not the First choice for Big Foreign Players for bringing in their manufacturing, but the changes that Government is implementing to facilitate smooth Business process may attract major foreign players to setup their manufacturing base in India.
Vaibhav Chordiya | Associate Consultant | vaibhav.chordiya@masd.co.in
Mihir Jain | Associate Consultant | mihir.jain@masd.co.in
Gyanesh Shukla| Partner | gyanesh.shukla@masd.co.in
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