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.