Business FunctionsManufacturingMarkets & Economy

Strategic reasons for shifting manufacturing to India

Vick Rana , Chairman, Red Ridge Global

Global economy and how businesses function are no longer same today after the COVID-19 outbreak. With manufacturing coming to a stand‐still and still reeling from the havoc caused by the pandemic, global manufacturing brands have been forced to re‐evaluate their strategies and carefully decide the way forward in a way that will reinstate their global operations to normalcy with minimal risk and costs.

Although China is still the global leader in manufacturing and is the “world’s factory,” many global manufacturers have realized the need to seek alternatives to kick‐start operations in a cost‐effective manner. Several global brands are considering India and other Asian countries such as Vietnam, Indonesia, Thailand, and Taiwan as important destinations for setting up their manufacturing plants. Here’s discussing a few critical factors that have contributed to such a strategic decision:

Diversification of location for seamless manufacturing operations:

After the pandemic struck, manufacturing of global brands came to a standstill as most of their factories were located in China. Supply chain was eventually adversely affected, thus compelling manufacturers to think of options that could not only kick‐start their operations but also serve as appropriate long‐term alternatives for ensuring seamless business continuity. Thus, came the idea of diversifying operations and not focusing only on a single country as the go‐to market. Global manufacturers are increasingly wary of becoming too dependent on one country for cost‐efficient manufacturing, as all manufacturers are aiming to reduce manufacturing costs. Thus, this strategic move by manufacturers could be a big gain for India and other Asian countries to become one of the next best global manufacturing hubs.

Incentives for attracting global manufacturers: 

As far as manufacturing in India is  concerned, the  Indian  government  has  announced  attractive  incentives  to  manufacturing and supply chain companies for setting up their operations in India. The political will combined with policy driven importance to local manufacturing is  expected  to  certainly  make  India  one  of  the  best  options  available  to  global  manufacturers.

Demographic, labor, and land cost advantages offered by India: 

India being the world’s 2nd largest population consisting of a relatively much younger population compared to other countries has come to its advantage. With a large part of the population that is readily available to be trained and absorbed into skilled workforce,  India offers a key advantage in terms of cheap labor costs to global manufacturing  brands. Another key strategic reason for global brands to consider India is availability of land for relatively cheaper rates coupled with attractive incentives and tax benefits from the Indian government.

Increasing labor costs in China: 

With increasing and/or fluctuating labor costs in  China due to the after effects of the pandemic, global manufacturers are facing a  precarious situation. Disruption of business has already caused huge losses and the  current cost of manufacturing has increased. This has led manufacturers to reconsider China as the only option for cost‐efficient manufacturing while at the same  time opened doors for other Asian countries including India to seize the opportunity  to become a top player in global manufacturing.

Drastic changes in the global geopolitical landscape:  

Events as Brexit, changing  political regimes has a domino effect of a mindset change becoming more self‐reliant.  Countries around the world are focusing inwards. Regional cooperation amongst developing nations insure us from major instability caused by a bilateral trade war  between east and west, or a global calamity as the recent case. While countries like  US, Japan are incentivizing their nationals to shift their manufacturing base and spread  over a larger canvas of the globe, India and other Asian countries naturally come  across  as  the  next  hotspots  as  strategic  diversification  option  for  global  manufacturing.

Zooming  In,  India  is  currently  investing  heavily  in  education,  infrastructure,  internet penetration, technology, and innovation, which are some of the key driving factors for  attracting global brands to set‐up their operations. However, we still need to do a lot more  by offering attractive financial support including grants and tax credits to manufacturers in  return for engaging local workforce in international standards of efficiency and create an  ecosystem for fueling innovation.

Show More

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Back to top button