In recent years, U.S. companies have been reevaluating their supply chain strategies, with a growing number of executives viewing China as a risky proposition. As a result, companies looking to diversify China for Manufacturing operations are poised to favor neighbor India.
A survey reveals that a significant percentage of U.S. executives would choose India over China if both countries could manufacture the same materials.
According to a survey conducted by UK market research firm OnePoll, 61% of the 500 executive-level U.S. managers surveyed would opt for India over China for manufacturing if both countries offered the same capabilities.
Furthermore, 56% expressed a preference for India in serving their supply chain needs over China in the next five years.
The survey also indicated that 59% of respondents found it “somewhat risky” or “very risky” to source materials from China, compared to 39% for India.
Factors Driving the Shift:
Several factors contribute to the increasing interest in India as a manufacturing hub. Warming ties between the U.S. and India, exemplified by President Joe Biden and Prime Minister Narendra Modi’s collaborative efforts, play a crucial role.
The “friendshoring” policy, aimed at encouraging U.S. companies to diversify away from China, has made India an attractive alternative. This became evident during Modi’s state visit to the White House, where the parties signed deals on defense, technology, and supply chain diversification.
Long-Term Investment Strategy:
Companies are not merely viewing India as a short-term pivot to avoid tariffs but as a long-term investment strategy.
Samir Kapadia, CEO of India Index and managing principal at Vongel Group, emphasizes this, noting that the U.S. and China relations remain tense, while dialogues and agreements between the U.S. and India continue to evolve.
Challenges and Risks:
Despite the optimism surrounding India, U.S. firms remain cautious about certain challenges. The survey revealed concerns about quality assurance (55%), delivery risk (48%), and intellectual property (IP) theft (48%). Notably, the recent incident involving an Apple supplier, Pegatron, temporarily ceasing operations due to a fire, raised concerns about India’s supply chain capabilities.
Cautionary Notes and Realities:
While India is emerging as a promising alternative, experts caution that completely shifting supply chains away from China may not be feasible. Amitendu Palit, senior research fellow at the Institute of South Asian Studies, suggests that what Apple has achieved in India may not be replicable for many other companies immediately. China, with its robust investment environment, will likely remain a cornerstone of U.S. supply chain strategy.
Vietnam as an Alternative:
In addition to India, Vietnam has been considered a viable option in the “China plus one” strategy. The Vietnamese market experienced a more than 14% surge in foreign direct investments in the past year. However, experts point out that Vietnam may not offer the same benefits as India, emphasizing that the world’s most populous country provides access to a vast customer base that Vietnam cannot match.
As U.S. firms navigate the complexities of global supply chains, India has emerged as a preferred alternative to China. The shift is driven by concerns about the risks associated with sourcing materials from China, coupled with the encouragement from the Biden administration to diversify supply chain operations. While challenges and cautionary notes exist, the evolving relationship between the U.S. and India suggests a long-term commitment to fostering a mutually beneficial partnership. As the business landscape continues to evolve, monitoring these trends will be crucial for companies seeking to optimize their supply chain strategies.