China-PLUS-One is an opportunity for Indian companies

Regardless of size, Indian companies have a rare chance to invest in scale and capacity and expand into international markets.

Regardless of size, Indian companies have a rare chance to invest in scale and capacity and expand into international markets.

Trade relations between the United States and China have not been at their best in recent years. Add to that the supply chain disruptions caused by the pandemic, exacerbated now by the war in Ukraine… disruptions that have caused global majors to look beyond China for manufacturing bases or partners, in an approach now called “China PLUS One Strategy”. Aries of Srivats, MD, Wheels India, a leading manufacturer of automotive components, said the opportunity for companies of all sizes was just waiting to be seized. Even if the effects are not felt immediately on the ground, the initiatives taken today are likely to bear fruit in the medium term, he underlined. Edited excerpts from an interview:

Can you take us back in time to why global companies are turning to China?

When large manufacturing entities in the United States and Europe moved production to China in the 1990s, they knew they had the benefit of a low-cost manufacturing base and also had access to a large market for large numbers of products. It offered a scale where making big investments in China made sense. Businesses were able to be profitable. China has emerged as a manufacturing powerhouse with global supply chains highly dependent on China. Many international companies as well as Chinese companies have become part of the global supply chain.

And how has that changed in the recent past?

The shift in perspective toward China came during Trump’s presidency with his theme “Make America Great Again.” He introduced a tariff structure that made it prohibitive for Chinese products to enter the United States. It was the start for many investors and companies in the United States to consider de-risking China from a purely economic perspective. And they started looking for other sources of supply.

Has the pandemic accelerated the global supply chain risk reduction strategy?

During the pandemic, there has been a lot of disruption in many economies. This was exacerbated by the fact that different countries were blocked at different times. When major economies emerged from the pandemic, there was a sudden demand. China’s stance globally has become relatively anti-Western in its trends and outlook during the pandemic. China’s Zero COVID policy meant there was an industrial lockdown and supply chains were unable to deliver consistently. There was also the shortage of containers. As a result, delays between countries have lengthened. The reliability of the global supply chain has declined. Not only the United States, but even Europe, which was sourcing from China, was forced to look elsewhere for both availability and reliability of supply, as well as the factor cost. Zero COVID policy, supply chain disruption issues, high freight rates and delivery times from China – the confluence of all these factors has resulted in a China+1 strategy for many global companies. As China’s economy shuts down, global companies are exploring alternative manufacturing locations.

So what does this mean for Indian manufacturing?

This is a big opportunity for Indian manufacturers. Given the scale of Chinese exports, India will have great opportunities. Although we have to compete with other countries in this respect, in basic manufacturing sectors such as automotive and automotive components, engineering-related products and chemicals, a new world of opportunity is opening up. is open. Global companies cannot avoid India as they need to consider reducing their supply chain risks. India’s manufacturing cost advantage remains an important factor from the perspective of least cost sourcing for global companies. It is important for Indian companies to realize what has gone well for China. Reliability, low cost, good quality and fast delivery have enabled global majors to source from China. For Indian companies, there are a few factors [to review]. Many of them have so far turned to the domestic market for their business and exporting has only played a role when they have spare capacity. This will now need to be seen as a separate business opportunity and they will need to invest in proprietary capability to give the customer confidence that they can produce in volumes and at scale to make economic sense for both buyer and seller. . The quality of work should be high. It is a basic passport that is necessary to gain credibility in the global market.

Are Indian companies ready to take advantage of this opportunity?

The establishment of the global supply chain has been built over a period of time. The experience of some of these companies in India is relatively less. If India can scale up its capabilities and capabilities quickly, I think there will be great opportunities to take from China+1 to make it an India+1 model for a lot of companies in the future. Indian exporters have matured, but bad experiences outlast good experiences. There are specific quality expectations in each country. So a lot of time has to be spent understanding these quality expectations of global customers in different geographies. Reliability of supplies, high product quality and timely delivery will be important. Moreover, Indian companies will need to continue to support global companies even as domestic demand increases. It will have to be a separate long-term business they engage in. And, as you go global, a local presence in target markets may also be necessary, as it is especially useful in difficult times. India has another advantage. The economy is expected to grow faster than most other major economies in the world. Even though it will not be as high as that exhibited by China in the 1990s and 2000s, there is still a big opportunity for Indian companies in terms of scaling up and India could still replicate the success story. Chinese.

What can the government do to facilitate this transformation?

The Indian government has already done a lot, especially to improve the ease of doing business. They have encouraged new businesses to reduce their taxes. Ten years ago, no one would have imagined that the tax rate would be so low. The PLI program is a big step towards local manufacturing and technology localization, strengthening our own manufacturing. It was a very positive step. However, Indian companies need to feel comfortable with their vision for the future, especially coming out of the pandemic, overcoming supply chain issues and general uncertainty. What is encouraging, however, is that manufacturing has been constrained more by supply-side issues than by demand. Overall, companies are not able to produce enough products and it is really supply chain issues that affect the global economy.

Indian companies have generally been conservative – they tend to take the approach of safety first, glory if possible. Won’t precious time be wasted if they take the same approach now?

It’s a classic case of risk and reward. Being a niche player in the international market is one thing, but mass production requires investments in scale, capacity and service. It’s kind of a new business for Indian companies. They should consider separating this opportunity from the household business. It is higher risk, but scaling is possible and the rewards can be high. International companies will only look to those who are willing to invest and persevere in their goals.

What areas do you think are best suited for this emerging scenario?

In manufacturing, any field that offers scale can be an opportunity. Where there is a relative labor trade-off and where there are requirements for physical skills as well as software skills, India might be more competitive. All in all, any product in which there is a healthy mix of labor India would be profitable. Moreover, in areas where we have specific manufacturing skills that are otherwise scarce globally, India could expand its scale, skills and expertise. If Indian companies are ready to invest, there is an opportunity to become part of this global supply chain.

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