One of the great lessons of the COVID-19 pandemic has been the importance of diversifying to survive supply chain disruptions. Several companies flourishing in China pre-COVID are now exploring other options and looking slightly west to China’s neighbor in South-central Asia, India. Could India be a viable option for your business?
Let’s look at a few companies who’ve made the move, and see if their reasoning resonates with your situation.
Perhaps no American company is as closely associated with Chinese manufacturing as Apple. But Apple has decided to assemble its new iPhone 14 in India, and for good reasons:
- Labor costs are significantly lower in India.
- Apple views China’s COVID-Zero policies as too restrictive. Execs worry that another shutdown could disrupt production.
- The market for smartphones in India is exploding, and the country has committed to building widespread 5G infrastructure. The Indian government recently announced that more than 200 cities will have 5G service in the next six months. The goal is to bring 5G to 80 to 90 percent of the country by the end of 2024. It’s good public relations for Apple to manufacture phones in a country where it can make substantial sales, and building the phones in India also cuts down on shipping costs to that market.
- India has less tense trade relations with the U.S. than China, so there’s little threat of a punitive tariff being imposed arbitrarily.
Analysts expect exports of India-made iPhones to hit $2.5 billion in the fiscal year ending March 2023. That would double the previous fiscal year’s output.
Apple’s commitment is certainly a positive development for India’s Prime Minister, Shri Narendra Modi, whose signature “Make in India” program has sought to build up the republic’s industrial sector. Make in India offers production-linked incentives (PLI) to boost home-grown companies, such as Mumbai-based PharmNXT Biotech, which plans to build a 4,000 sq. ft. manufacturing facility for single-use bioprocessing devices. But Modi’s plan also contains enticements for foreign companies to outsource their manufacturing. Make in India has lured a few U.S. companies to India, including Cisco Systems, which will build a facility in the city of Pune to manufacture hardware products.
In many respects, India is a sleeping giant that is just starting to awaken. India has the world’s second-largest population, and despite widespread poverty, it is the third-largest economy in purchasing power after the United States and China. India is a potential powerhouse worth tapping into. So, what are some of the advantages of manufacturing there?
- No language gap — English is widely spoken throughout India.
- Cost-effective workforce — As mentioned earlier, labor costs are substantially lower in India than in China. Workers are abundant, from skilled laborers to highly trained engineers.
- Proximity to a burgeoning market — India’s appliance and consumer electronics market, which was $10.93 billion before the pandemic in 2019, is expected to grow to $21.18 billion by 2025. The electric vehicle industry is expected to expand also, as financing is projected to rise to about $50 billion by 2030. There are roughly a billion consumers in India; companies producing goods they need can reap a windfall.
- Increased investment — India’s Department for Promotion of Industry and Internal Trade reports that total foreign direct investment reached $58.77 billion in FY 2021-22.
- Government support of industry — The Indian government has authorized production-linked incentives to spur economic development. In September 2021, $3.53 billion was approved for the auto and drone industries. In May 2021, the government approved $2.47 billion to produce advanced chemical cell batteries. In September 2022, Digitimes reported that India was considering doubling its incentives to encourage PC manufacturing.
A couple of other companies who have chosen to manufacture products in India are worth mentioning because they illustrate how companies are not only building for export but the Indian market as well.
Chicago-based Abbott, the maker of Similac infant formula, recently built a manufacturing facility in Jhagadia, Gujarat, to take advantage of India’s large and growing nutrition market. The company made a few minor concessions to Indian culture to effectively penetrate the market. For example, Abbot is producing a special version of its popular children’s nutritional supplement PediaSure flavored with saffron and almonds. And, to help the locals deal with the repercussions of spicy food, Abbot sells the antacid Digene. Abbot’s Brufen is a popular substitute for ibuprofen to treat aches and pains. By tweaking its offerings for the Indian population, Abbot’s mere 14,000 India-based employees generated $1.09 billion in sales within India in 2014. Abbot Vice President Bhasker Iyer told The Harvard Business Review that the company saw, “an opportunity to serve the unmet healthcare needs of a 1.2 billion population.” As a result, India today is Abbot’s largest market globally.
Another power player in India’s transformation is General Electric, which has 10 factories, including its newest in Pune. That plant serves as a global supply source for GE’s diverse businesses, ranging from aviation and turbo machinery to wind turbines and diesel locomotives. Banmali Agrawala, President of GE South Asia, believes that “In the future, manufacturing will be far more decentralized.” Half of the Pune factory output is disbursed globally, but half is sold to the domestic market in India.
The Indian economy is on the rise. However, there are still challenges to outsourcing manufacturing there, which include:
- Power availability — Almost nowhere is power available for a full 24 hours a day, and power is expensive.
- Transportation — Lack of infrastructure makes transport expensive and slow.
- Process inefficiencies — Lack of infrastructure can encumber production planning, supply chain management, transportation, and maintenance.
- Complex and expensive intellectual property law enforcement — While enforcing intellectual property rights in India is still a challenge, the Indian government has taken positive steps to strengthen its IPR regime over the last five years. IP protections seem to be moving in the right direction.
The Indian government is aware of these shortcomings and is working on a range of remedies. With enough time and investment, the country will be able to fully support the industries looking to call India home.