As China’s manufacturing dominance wanes, Western companies are adopting a “China plus one” strategy, seeking alternative production hubs. China’s aging population, rising labour costs, and tech transfer pressures have prompted this shift. India, with a burgeoning market, democratic values, and business-friendly policies, emerges as a top contender. Challenges like an unskilled workforce and infrastructural gaps persist, but India’s unique manufacturing approach and progress in electronics signal a promising trajectory. Competition from contenders like Vietnam, Mexico, Malaysia, and Thailand remains, but India’s role in global manufacturing is set to grow with continued efforts to overcome barriers.
China, the so-called “world’s factory”, has dominated the global manufacturing landscape for more than two decades. While the factors contributing to China becoming the world’s #1 manufacturing hub are multiple and varied, the global economic dynamics are now changing.
With this evolution in the economic dynamics of the world, a major shift is underway in the global manufacturing landscape too. Most western companies that have outsourced their manufacturing processes to China are now actively seeking viable alternatives to break the Chinese “monopoly”.
A strategy known as “China plus one” is being proactively embraced by the West wherein they are exploring another, equally powerful and productive, alternative to China.
Why “China plus one” is a necessity?
To understand why it is vital to find alternatives to China as a manufacturing hub of the world, it is important to discuss why the West chose China to set up their manufacturing plants in the first place.
Firstly, it is needless to say that China is a huge market itself and up to March 2023, it also enjoyed the position of being the most populous country in the world. However, at one point, China regarded the population growth as a curse rather than a boon. Owing to this, they brought in the one-child policy in the 1980s, which did more damage than good to the economy and the country in general. Even after the policy was rescinded in 2016, China continued to have low birth and fertility rates. The result? A rapidly aging population with a dwindling young workforce.
Apart from that there are many other factors, the major ones being the seemingly ever-rising labour costs in China and the Chinese government’s pressure on international companies to make technology transfers to China.
On top of that, in 2018, the US under Donald Trump imposed huge tariffs on Chinese imports. And the ultimate nail in the coffin was the constant lockdowns in China due to COVID-19 pandemic, which disrupted pretty much everything in the manufacturing game.
Why India is being seen as China’s plus one?
India’s population surpassed that of China in April 2023, reiterating its potential as a humungous market. Moreover, western governments view democratic India as a natural partner, and the Indian government has been proactive in creating a business-friendly environment. This endeavour has already yielded significant success, with tech giant Apple choosing to expand its iPhone production in India, including its most advanced models.
The decision by companies like Vestas, one of the world’s largest wind-turbine manufacturers, to establish new factories in India is indicative of a broader trend. Faced with the various challenges from China, manufacturers are keen on diversifying their production bases. India, with its burgeoning manufacturing sector, providing a viable alternative.
Nevertheless, India faces entrenched challenges, including a largely unskilled labour force, underdeveloped infrastructure, and regulatory complexities, which the current government is working hard to minimise.
India’s Unique Manufacturing Landscape
India’s approach to manufacturing differs from China’s, with an emphasis on domestically manufactured products rather than locating supply chains in special economic zones. This distinction has implications for industries that heavily rely on imported components.
India’s ambition to become the world’s “plus one” in manufacturing is gaining momentum. While challenges persist, India’s progress in electronics and increasing foreign investment signal a promising trajectory. However, it yet remains to be seen how India competes with other contenders who also aspire to be China’s plus one, such as Vietnam, Mexico, Malaysia, and Thailand, each having its own set of pros.
With continued efforts to address barriers and create a conducive business environment, India’s role in the global manufacturing landscape is poised to grow significantly in the coming years. So, is China trailing in the global manufacturing game. Only time will tell, but right now, it is definitely on a declining trajectory.
