When choosing the best overseas manufacturer in Asia, two of the most common locations are India and China. Both countries have highly dynamic manufacturing capabilities and unique economic landscapes, with proven skills, strengths, and weaknesses that make them viable choices. However, it is imperative to weigh your choices carefully, considering specific external factors that will affect your supply chain.
First, let’s review the economic landscapes in India and China, followed by five key factors that influence manufacturing in both countries.
India & China’s Economic Landscape
China’s gross domestic product per capita is almost five times India’s at $7,600, and its manufacturing sector is ten times larger at about $3 trillion. Xi Jinping launched a 10-year campaign called Made in China 2025 to shift China from a labor-intensive economy to sectors such as robotics and aerospace. Indian Prime Minister Modi has a goal to bring basic manufacturing to an economy that needs better-paying jobs.
By contrast, over the last two years, India’s consumer confidence has plummeted, construction has slowed, fixed investment rates have fallen, many factories have shut down, and unemployment has risen. Almost all economists agree that two of Prime Minister Modi’s gambles have slowed India’s growth significantly. The first one abruptly voided most of the nation’s currency, and the second one imposed a sweeping new sales tax less than a year later.
In short, China has set its sights on rivaling Germany and Japan, while India is aiming to be where China is now. Let’s look at the five factors below that should be weighed in deciding between India vs. China.
5 Key Factors that Influence India vs. China’s Manufacturing
Pricing: Purchase cost is usually the most important factor when manufacturing overseas, but so is quality, delivery times, and ease of doing business. India’s manufacturing labor is more competitive than China's. In 2014, the average cost of manufacturing labor per hour was $.92 in India and $3.52 in China.
While labor costs are much lower, one must also consider the extra costs that will accrue due to India’s expensive transportation, power, and water costs. Low power availability can be a significant drawback to manufacturing in India. Generally, India’s electrical power isn’t available 24 hours a day, which can significantly reduce productivity and efficiency, and therefore lower output rates.
Wages vary depending on the type of manufacturing in which India and China engage. Major exports in China include textiles, data processing machines and units, steel products, electronic integrated circuits, TVs, electronics, footwear, and furniture. India’s exports include metal castings, pumps, industrial engineering products, jewelry, chemicals, agricultural products, and textiles. Due to this specialization in specific product types, price competitiveness between China and India will depend on the specific product being manufactured.
Logistics: Newer roads and highways, railways, waterways, and airports give China an advantage in logistics. India relies heavily on a massive network of roads that are not always paved or wide enough to transport goods comfortably. For example, a shipment from India’s north can take a week or more to reach India’s south, increasing the potential for delays in the logistics process. Sometimes it is quicker to get a shipment from Shenzhen than from Kolkata. Shipping costs incurred by Indian exporters are twice as high as those in China. However, India’s government is steadily investing in railway, highway, port, and airport development, which is expected to cut transportation time and costs by 20%. China still has sky-high logistics costs, at 18 percent of GDP, versus 8.5 percent in the United States. This increases logistics pressure as manufacturing operations move to lower-cost locations in western China. Pick-up, over-the-road transport, and final delivery are rarely handled by a single company in China, which can make it difficult to determine who has control of the shipment.
Product Expertise: China’s significant advantage over India is its ability to scale. China has created special economic zones and industrial clusters to encourage manufacturers, suppliers, and other relevant parties to be physically close to one another. It provides greater flexibility and the ability to respond to issues such as insufficient quality, non-conforming materials, or other problems. McKinsey actually cites Chinese manufacturers as being five times more productive than their Indian counterparts.
Foreign Language Skills: English is the second official language in India, and executives have embraced it to conduct business. In contrast to China, India incorporates British customs and legal systems, thereby creating a smaller cultural gap to be bridged.
Manufacturing Processes: India’s culture, compared to China’s, has always been to manufacture at a small scale. In certain instances, to keep costs low, China is relocating manufacturing sites to other developing countries, and entrepreneurs are replacing manpower with machines. Overall, China is optimizing its manufacturing processes to stay competitive and deliver larger quantities on tight schedules. India’s manufacturing culture to produce at a smaller scale has at times created a poor image in the eyes of big companies, entrepreneurs, and investors. In addition, India favors family and artisan models, which results in buyers facing greater quality risk and production delays.
In conclusion, both countries offer solutions for different manufacturing needs, and many factors should be considered, including pricing, logistics, product expertise, language, and manufacturing processes. One should account for all factors that will affect their own specific product and circumstances, and determine the best location for manufacturing when choosing between India and China.
