NEW DELHI: ‘Made in India’ could be the next big economic story with the country challenging China’s position as the leading global manufacturing hub within five years, says a new report.
Right now, China is the favourite choice for outsourcing manufacturing while India is preferred for information technology, finance and customer services, said Capgemini, Europe’s largest computer consultancy.
But “there’s a very keen interest in moving more manufacturing to India”, said Roy Lenders, vice president at Capgemini Consulting Services and the report’s author.
In fact, “India could challenge the position of China as the manufacturing centre of the world in the next three to five years”, Lenders said, citing a survey of 340 mainly Fortune 500 global manufacturing companies.
“What surprised us was when we asked about their plans for the next three or four years, they said outsourcing manufacturing (to India) was a higher priority than outsourcing back office work”, he said in a telephone interview from Utrecht in the Netherlands.
“If we look at the respondents’ plans for the coming years, manufacturing will become the number one activity to be off-shored to India”, Lenders said, with lower costs the key factor driving the trend.
“The results in favour of India were overwhelming”, he said.
In fact, manufacturing outsourcing looks set over coming years to surpass India’s flagship IT and business process outsourcing activities in importance, he said.
Right now, China’s share of the world’s manufacturing exports is more than 8% while India stands at just under one%.
But “the interest of global manufacturers in manufacturing in India is very high compared to China. In terms of trend there will definitely be a move. China has a reason to be worried”, Lenders said.
However, India must improve its infrastructure with nearly half of the firms surveyed that had already outsourced manufacturing to India complaining about a lack of manufacturing and supply chain infrastructure.
India’s ramshackle infrastructure of potholed roads, dilapidated ports, shabby airports and erratic power is regularly cited as an obstacle to economic growth along with the maze of red tape.
It has already taken some steps to promote an export-led manufacturing boom by setting up special economic zones or SEZs - havens of economic freedom that drove China’s industrialisation.
But even more “substantial investments” need to be made, Lenders said.
The lead factor driving India’s new manufacturing popularity is price, he said. Some of the main manufacturing sites in China are becoming too pricey.
Chinese manufacturing wages are $250 to 350 a month whereas they average $100 to 200 dollars per month or lower in Thailand and other parts of Asia. In India, factory jobs start at $60 a month.
Analysts often point to South Korea’s Hyundai Motor’s $1bn car plant in the southern city of Chennai which opened in 1998 and turns out thousands of export-bound cars annually as an example of what could be the future for the Indian economy.
Hyundai has been moving production of its smallest cars to India to exploit lower costs. Now other firms have followed suit.
India’s Auto Components Manufacturing Association expects global sourcing of parts from the country will double to $5.9bn next year and hit $20bn in seven years.
All the international players “are looking at India as the new sourcing hub,” said association vice-president J C Chopra.
Others setting up manufacturing facilities in India include Finnish telecom leader Nokia, South Korean steel heavyweight Posco and US computer giant Dell.
And the companies don’t only have their eyes on foreign markets. India’s huge domestic market of 1.1bn people is also a draw along with its push to boost infrastructure.
“India is building like hell, improving its infrastructure, so a lot of suppliers would like to be there,” said Lenders.