The novel coronavirus outbreak (COVID-19) which originated in Wuhan, China, put the global supply chain at high-risk disrupting the business of many large manufacturers like Samsung, Nike, Adidas, Apple, etc. who relied heavily on factories in China. Augmenting this was the US-China trade war which also nailed the decision for large corporations to shift its production facilities out of China. A few weeks earlier, we read about Japan allocating USD 2.2 billion to help companies shift out of China. Then came news of Korean companies like Posco and Hyundai Steel showing interest to set up factories in Andhra Pradesh, and German Footwear manufacturer Von Wellx to set up factory in Agra, India. What followed was news about Apple in talks with the Indian government to shift USD 40 billion China business to India. This truly sounds like a great opportunity but how will India get a larger share of business shifting out of China in 2020?
Where is the business going from China?
Keith Krach, an undersecretary for economic growth, energy and environment in the US government, said in an interview that the Trump Administration is ‘turbocharging’ an initiative to remove global industrial supply chains from China as it examines various ways to ‘punish’ Beijing for its mishandling of the Covid-19 pandemic. The coronavirus (COVID 19) pandemic provided a similar reason for other countries too, to decentralize their business and reduce dependency on China alone. China will soon cease to be the manufacturing capital of the world. Business from China is going to other countries like India, Indonesia, Vietnam, Malaysia, Taiwan, and Thailand.
Unluckily, so far India has not been able to play any trump card to lure more companies to India from China. As per a study by Nomura Group, a Japanese financial group, the fallout from China resulted in 56 companies shifting production out of China. Of these 3 relocated to India, 26 to Vietnam, 11 to Taiwan, and 8 to Thailand.
Why Vietnam has got the maximum share?
Vietnam has emerged as a strong contender to grab the biggest share in the COVID-19 shift in globalization. Why Vietnam scores, is mainly due to these factors: –
- Geographical and cultural proximity to China.
- An autocratic communist regime which has no bureaucracy and democratic red tape.
- Once the legislative clears the project, there are no additional hurdles.
- GDP between 6-7%, after its liberation in 1986.
- It invested in infrastructure, skill-based education system, and health.
- Ranks at 70th position in the latest World Bank’s Ease of Doing Business rankings.
- Manufacturers access ASEAN free trade area and preferential trade pacts with countries throughout Asia and the EU, as well as the USA.
In India, it’s easier said than done
In India, setting up any business is no cakewalk. Even after a MNC (Multi-National Corporation) / foreign company gets clearance from the Government of India, to set up production in India, they often have to deal with corrupt bureaucrats, obsolete labor laws, local NGO’s and activists who oppose the setting up of the factory, limitations in procuring larger parcels of land especially if it is not a part of an EPZ (Export Promotion Zone). These deterrents are not only time-consuming but also often lead to additional costs for the company.
However, the Indian government under the leadership of PM Modi is working to get more companies to shift to India. It is counting on its newer policies, young demographics, digitalization, and cheap labor to attract those companies that are looking to move out of China.
How will India get a larger share of business shifting out of China in 2020 – steps in the right direction?
India’s GDP growth rate has been more promising than other major global economies, but in terms of FDI (Foreign Direct Investment) in manufacturing, India is performing below its full potential (0.6% of GDP). FDI has always been an indicator of a foreign company’s confidence and willingness to invest in a country. The government in April 2020, reached out to more than 1,000 companies in the U.S. including Abbot and Medtronic in sectors including medical equipment suppliers, food processing units, textiles, leather and auto part makers to offer incentives for manufacturers seeking to diversify their supply chains and move resources to India. After all, FDI provides a developing nation like ours an opportunity to create additional jobs and earn revenue. Prime Minister Narendra Modi’s ‘Atmanirbhar Bharat Abhiyan’ (Self-Reliant India Movement) announced on May 12, 2020, while addressing the nation, talks about increasing the FDI in sectors like defense, etc.
– Statewise strategies to attract foreign investment
0n April 30, 2020, PM Narendra Modi in a meeting with Finance Minister Nirmala Sitharaman, Home Minister Amit Shah, Minister for Commerce & Industries Piyush Goyal, MoS (Finance) Anurag Thakur, along with senior officials of the government, discussed statewise strategies to increase FDI. He asked them to look into the problems of foreign investors, take more proactive steps to help them in getting the state clearances in a time-bound manner, and to handhold the investors through the entire process. UP Chief Minister Yogi Adityanath’s government has begun to offer several facilities to giant corporations of the US, including FedEx, UPS, Cisco, Adobe, Lockheed Martin, Honeywell, Boston Scientific, and others if they shift factories and bases from China to the state of Uttar Pradesh.
– Production Incentive Scheme (PLI) for Large Scale Electronics Manufacturing
In March 2020, Union Cabinet chaired by Prime Minister Narendra Modi, announced a production-linked incentive (PLI) scheme for the electronics sector with an outlay of over INR 40,000 crore to attract foreign investment in the sector.
– Improved ranking in Ease to Do Index
Today India ranks in 63rd place among 190 countries in World Bank’s Doing Business Report 2020 (released on October 24, 2019) having moved up 14 positions in its rank as compared to the earlier year.
– Single electronic platforms at ports
The Government has created a single electronic platform to improve electronic submission for documents at ports to improve its import and export process.
– Resolving insolvency
The process has been speeded up. What earlier took 4.3 years is now reduced to 1.6 years.
Companies like Apple, Microsoft, Google, and others across the globe have incurred major losses on account of the pandemic and are looking at moving their manufacturing facilities out of China to other countries. The shift in globalization post-coronavirus (COVID19) will be based upon three pillars – Cost of Manufacturing, Risk in trade policies and Resilience against future shocks like the current pandemic. To become the next manufacturing capital of the world, India is taking every extra effort in the coming days to get more companies to set up manufacturing facilities in the country. Better late than never, the process has begun!