Is China’s Loss India’s Gain?
December 31st, 2019, World Health Organization (WHO) reported emergence of certain virus originating from Wuhan city of China; which has now become a global pandemic. The pandemic till date has confirmed 11+ million cases leading to 700K deaths globally, with America ingloriously topping the list, and India standing at the number 3 position. China’s mishandling of the crisis has helped loosen the coronavirus on the world - and is thus facing a global backlash of hostility, animosity, a growing mistrust of China. This unprecedented whiplash of international fraternity could very well destabilise China’s reign as the world's factory of choice. Facing the “economic distancing”, China is threatened by the economic punitive measures by US and Japan, and others; many have already started pulling out their manufacturing units from China.
So whose gain is it anyways?
Putting all eggs in one basket is not a wise thing to do and therefore companies like Mazda are already moving part of their production from China to Mexico or elsewhere. China is threatened by lower labour cost of many other countries like Thailand, Bangladesh, Vietnam, Philippines and even India. India isn’t the only country pushing the “Make in India” campaign, but even Japan has announced a stimulus package of $2.2 Billion and asking its companies to pull back from China and manufacture in Japan. China, the preferred manufacturing destination has been already facing the flak since last two years as a result of US-China trade war. Many companies have moved their manufacturing facilities out of China and moved 50% to Vietnam and 30-40% to Taiwan and Thailand. India too got some of this share, though a measly 5%.
So what is the new world order?
As quoted by Padma Bhushan Awardee Prof. Jagdish Sheth, Founder, India-China-America (ICA) Institute, that “India has all the ingredients but needs a recipe to take advantage of the new world order”. He further goes on listing these ingredients as Big consumer market, Infrastructure Investment Opportunities, Digital Talent etc. Further in his book Chindia Rising he mentions that India needs to reposition itself from a low tech – restricted domestic economy to a high tech – integrated global economy one. Ostensibly, India has been eying for the companies looking to move their manufacturing base out of China. Or grab companies planning to replicate a OnePlus strategy over India. But is it that simple? India lacks far behind from China in GDP and infrastructure to support investments according to the Global Competitiveness Report 2017-2018 (too old reference). Despite so many positive indications of India, becoming the top most destinations for the companies moving out of China would be a tough nut to crack. India still has miles to go to become a second global sourcing destination and take advantage of the MNCs China de-risk plan. The Indian supply chain got much badly affected due to the lockdown and hence it is less likely that India will benefit directly from a China de-risk plan.
The speed and disruptiveness of technological change has not only led to the emergence of fourth Industrial Revolution by the convergence of digital, physical, and biological technologies but has also created lots of challenges and opportunities. India not only has to adopt global standards and benchmarks, but has to invite Foreign Direct Investments in various sectors and then export it out to the world. According to the Swiss bank estimate, India’s foreign direct investment (FDI) pipeline has doubled to $175 billion as compared to $87 billion last year from sectors like construction, electronics, infrastructure, textiles, food processing and pharma. Therefore India to increase its export output through its “Make In India” program needs to bring in FDI in other sectors like automobiles, pharmaceuticals and defense services too.
This is possible only if India makes like-to-like (reference to China) manufacturing destination for global players with a plug and play model and better ease to do business conditions. Only then it is an opportunity for India. When many other countries are cupping their hands to catch on the opportunity, India needs to be faster and better to gain competitive advantage over other competing countries.
Further, India needs to encourage the culture of innovation in the country by embracing risk and focus on the future. As suggested by Gerard J. Tellis in his book “Unrelenting Innovation”, “Organizations build these traits by providing incentives for enterprise, empowering product champions, and encouraging internal markets.” India needs to ramp up its investments in innovation and convert inputs into outputs. India is ranked 52 as compared to 14th ranking China in the 29th edition of global innovation index 2019. India needs to create innovation clusters all over the country, and not keep it skewed towards west and south of India as is the case currently according to NITI Aayog and Institute for Competitiveness report India Innovation Index 2019.
Supply chain is contingent on fighting perishability and ensuring transparency. Perishability depends on the temperature and humidity making the product deteriorate over a period of time exercising demands on the supply chain. On the other hand the consumers are demanding higher level of transparency, they seek information on product ingredients and raw materials, where the products come from, and the conditions in which they were produced. Therefore Indian government has to give huge economic incentives to promote innovation and R&D facilities in India. Also India needs to keep an eye on how China deals with its “Economic Distancing” crises.
The opportunity of snatching China’s downfall spoils is massive, but not a cakewalk either. If managed swiftly and efficiently, India’s economic transformation would be magical.
