How India is driving business away from China

How India is driving business away from China

India is making the idea of relocation of manufacturing bases out of China more lucrative with special incentives. The pandemic has exposed how volatile supply chains can be and how risky it is to depend on a single supply chain. India is offering land to foreign investors who wish to reduce their reliance on China. For those companies who want to reduce their dependence on China, India is emerging as a viable option. 

Not one or two, but as many as 1,000 companies have reached out to India. They’re engaged in discussions with the Indian officials at various levels. At least 300 companies are actively pursuing production plans, belonging to industries and sectors like mobiles, electronics, medical devices, textiles and synthetic fabric. Korean companies are eager to penetrate the Indian market as the Korean consulate in Chennai has received several requests from iron and steel companies and the hospitality sector. Some startups have also shown interest in relocating from China to India. India is considered the next best alternative for a global manufacturing base.

Apple’s manufacturing partner Foxconn is planning to shift its base to India. South Korean companies, POSCO and Hyundai steel also showed interest in setting up their production base in the country. The Indian government is keen on capitalizing on the shift as it is aggressively promoting the ‘Make in India’ initiative

The Prime Minister of India has chaired a meeting to discuss steps to fast-track strategies and attract investors. Andhra Pradesh, a state in southern India is already in touch with companies from Japan and South Korea. The state is developing an online system for land allotment. As the world has begun financial distancing from China, India is turning out to be a hot spot for new investments. China’s loss could be India’s gain. 

Indian Minister (PWD) Nitin Gadkari has already given a signal, urging industry bodies to attract top companies from the US and the UK. He’s encouraging the idea of more joint ventures and assuring support from the government. He said that permissions will be given considering what works in the country. India became an attractive option after the cut in corporate taxes. The corporate tax was reduced to 25%; for new manufacturing firms, it is as low as 15%. This is an attractive proposition but not enough.

Investors have hesitated to move to India in the past due to change in policies and red-tapism in the nation. These problems are being addressed as India wants to attract businesses away from China. India also faces competition from Vietnam, Malaysia, the Philippines and Indonesia. These are some of the other alternatives that the companies based in China are considering. India needs to offer more incentives to attract big investments in the nation. Niti Ayog and other government agencies are working on a plan to achieve the same. The government is planning to set up dedicated groups that will be directly engaged with the firms that might want to diversify out of China. New Delhi is reported to have already reached out to 100 companies and incentives like capital expenditure benefits are offered to companies looking to relocate to India. 

Historically, land has been one of the biggest obstacles for companies looking to invest in India but not anymore. Reports say that India is developing a land pool nearly double the size of Luxembourg, a small European nation. India is offering 461,589 hectares of land and this includes 115,000 hectares of existing industrial land in the states of Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh. Several other relevant areas have been identified across the country. Most of it is unused land that has access to power and water along with road connectivity and comes in the special economic zones. These areas will easily attract new investments for the Indian economy as they already have a robust infrastructure in place. 

Ten sectors have been hand-picked by the Indian government – Pharmaceutical, Medical Devices, Electronics, Heavy Engineering, Solar Equipment, Food Processing, Chemicals and Textiles to name a few. These are sectors that will promote manufacturing in India. Requests for investments are already coming India’s way. Reports say that India has received enquiries from Japan, the United States and South Korea among the few other nations that have expressed interest in relocating certain factories to India. States have been urged by the government to evolve their programs for bringing foreign investment.

Why are companies moving out of china?

In addition to tariffs, Intellectual Property theft is rampant in China. To counter this, the nation has been working to increase IP protection for several years. In 2008, China published a national intellectual property development strategy. Since then, it has increased legal IP cases, opened specialized IP courts and tribunals to train judges and restructured the state intellectual property office. Despite these changes, the U.S. government continues to punish China for perceived wrongs. Ongoing reform may pave the way for improvement, but the current political environment is moderately favourable at best. 

Another important factor where China lags is sometimes poor working conditions. CSR has become an essential corporate consideration. For most importers, it’s a way to assess their suppliers working conditions and protect their businesses from bad press and factory closures. Manufacturing facilities in China have been constantly criticised for bad labour conditions and sometimes for using forced labour. Redeure offers complete visibility to clients in terms of where they are sourcing their products from. We conduct extensive factory audits and make the necessary checks to ensure that the products were manufactured and developed meeting local legal requirements and standards and ethical values.

Learn:  Why investors are betting on India to be the next manufacturing hub

More than 70% of U.S firms operating in Southern China are considering delaying further investment and moving manufacturing outside the country. Researchers surveyed 219 Chinese and foreign businesses, one-third of which were from the manufacturing sector. According to the survey, U.S. companies feel they were being hurt more than their Chinese counterparts. About 85% of U.S. companies surveyed said they have suffered from combined tariffs. But only 70% of Chinese respondents felt the same. People have been questioning whether companies will leave China since the trade war began. The survey doesn’t reveal specific relocation plans, but it does show those plans don’t necessarily involve moving back west. It can be concluded that it’s no longer a question of whether or not the companies will move out of China, it’s a question of when. Contact us to get more information on sourcing products from India.

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