In 2010, China overtook the U.S. to become the world’s largest manufacturer. By 2018, the country accounted for 28% ($4 trillion) of global manufacturing output, putting it more than 10 percentage points ahead of the United States. At this time, manufacturing accounted for almost 30% of China’s total economic output.
In a post-COVID world, could China’s reign as the world’s manufacturing hub soon be over?
What are Long-term Impacts of COVID-19 on China’s Manufacturing Industry?
When COVID-19 raged through parts of China back in January, supply chains around the world took a major hit. Lockdowns, factory closures, and reduced work schedules led to production and shipping delays, frazzled supply chain managers, and unhappy customers.
In the months that followed, China committed to rebooting its economy and resuming business as usual. But its supply partners have not forgotten the impact of such large-scale disruption.
There’s no question that China’s credibility has taken a major hit, and the country is facing an unprecedented global backlash. The ongoing tariff wars between China and the U.S. already had several global companies uneasy about the stability of manufacturing in China, and the COVID-19 pandemic has only served to exacerbate these concerns.
As risk mitigation becomes a number-one priority around the world, many industries will be reluctant to rely solely on China to meet their manufacturing needs. Instead, organizations may look to reshore their production, manufacture somewhere closer to home, or otherwise shift their facilities to new geographies to ensure that they have strong contingency plans in place.
For India, an emerging manufacturing giant, this could be a golden opportunity.
Is India Well Placed to Replace China as the World’s Manufacturing Hub?
India is widely considered to be China’s closest competitor in the manufacturing sphere, with the population and economic potential to ultimately match China’s output.
Given China’s weakened position in the global economy, now would be the prime time for India to drive investment through attractive deals and establish itself as the new epicenter of global manufacturing.
In May, Bloomberg reported that India was developing a land pool almost twice the size of Luxembourg that will be used to encourage businesses to move their manufacturing out of China and into India. But establishing the 461,589 hectares of industrial land won’t be enough for India to get ahead in this latest economic race. To succeed, the following factors must be considered.
What Can India Learn from China?
In the last few decades, China has become a manufacturing powerhouse thanks to its effective infrastructure and logistics network, recently bolstered by the Massive Belt & Road Initiative. The Country boasts the largest expressway and high-speed railway networks, as well as seven of the top 10 Cargo-Ports, and more than one-quarter of the world’s total power generation. India must look to China as its instructor in industrialization.
How Will India Develop New Manufacturing Capabilities?
China’s dominant position as a global manufacturer for so many years has led to the development of advanced manufacturing skill sets — a factor that has caused many companies to hesitate in moving production to countries with lower-skilled workforces.
To rival China, India will need to bolster its capabilities to manufacture increasingly complex products and machinery. This means training and upskilling the workforce, particularly as an increase in automation changes the scope of manufacturing roles. In-demand specialist skills include 3D-printing experts, analytics engineers, and data scientists.
India’s Biggest Competitors?
For organizations looking to relocate their manufacturing out of China, India isn’t the only option. In the past two years, just 5% of organizations relocating their factories out of China have come to India, while 50% went to Vietnam and one-third to Taiwan and Thailand.
In June, the India Times noted that several of India’s developing nation peers are ahead of the game. Vietnam, South Korea, Taiwan, and Indonesia each have unique offerings for investors and have also begun capitalizing on the recent backlash against China.
What’s Holding India Back?
Several factors have the potential to stall India’s rise to the top.
Firstly, relocating an entire supply chain is no mean feat, particularly during a time of such uncertainty and disruption. No matter how appealing India’s offering, organizations will likely be hesitant to make rushed decisions, especially if cash flow is tight post-pandemic.
Secondly, India is not well connected in the world’s major supply chains thanks to its lack of involvement in multi-national trade agreements. In 2019, for example, Delhi withdrew from the RCEP trade agreement with other Asian nations following seven years of negotiations. As a result, Indian manufacturers tend not to benefit from tariff-free exports.
Thirdly, while China has a big domestic market for consumer goods, India’s domestic market has been declining for several years.
Finally, India’s high crime rate is likely to deter some prospective investors.
Whether India has the aptitude to emerge as the world’s manufacturing hub remains to be seen. But China, and other rival nations, certainly won’t give up without a fight.