Off late there has been a lot of debate as to which is a better sourcing destination – India or china.Going by just volumes China is far head of India in both value and variety of products shipped ,especially to the US market, but India is emerging as a strong contender with recent changes that shift the balance in its favor.
While India will not be able to overtake china as a sourcing base it will be able to take away a major share in low technology manufacturing such as apparel,shoes,Handicrafts and the such while China will continue to lead in high tech goods.India will emerge as an “alternate source” for those looking for a more stable,quality conscious and environmentally freindly supply source with a long term horizon.
A few compelling reasons for retailers to develop a sourcing base out of India :
1. A stable supply base governed by democratic economic policies which are linked to the world unlike China where demand is artificially created and supply is pegged to control price and consumption.
2.Almost all regions in china have raised labor wages.The rise is varied from 20 % in coastal china to 65 % in cities like Shenzhen.They now range from $150 to $300 where as they are low and stable at about $100 to $ 150 in India.At most they go up to $ 200 for skilled labor in some of The Indian Factories.
China has done this to lower the income gap which was giving rise to frustration among the working class and also to boost domestic consumption.
Being a free market economy Domestic consumption in India has always been high which is one reason for poor export outlook.Companies can make a lot more money by selling to Indians and they only go for export for engaging spare capacities or for securing bulk deals.With an increased focus on world markets this manufacturing base will drive the export growth.
3.Chinese currency Renminbi which was pegged again in 2008 to help the exporters fight recession , may be allowed to free float under pressure from IMF and other world bodies.
Indian Rupee has always been free floating and remains stable at about Rs.45 to a dollar with maximum 10 % fluctuation on either side beyond which the government may need to intervene.It has not happened so far except during the 2008 economic crisis when Rupee became too strong effecting dwindling exports negatively.
4.As customers ask for products which have been produced in more environmental friendly and sustainable manner the retailers will be forced to ask for questions such as chain of custody,effluent treatment,carbon footprint,labor friendliness etc.With strong laws governing Indian Manufacturing it will have a definite win over China which has ignored these for a long time.
If China pushes for the environmental compliances now they will most certainly scar the low cost image it has created for itself.I understand that many Chinese provinces are pushing environmental issues which is adding cost to the manufacturing bases there.Many others may follow soon.
5.Infrastructure has been a major concern for India for a long time.But the last few years have seen the strengthening of the rail road network and development of sea and air ports.Today India can boast of some of the best airports in the world and soon the number of sea ports with container handling capacities which are many times over their current capacities will be a reality.Public Private partnership model has not only brought in the required investment but has also ensured before time completion of projects as most projects have a severe penalty clause for overruns.
6.Last but not the least – India today has the largest pool of skilled English speaking manpower which is below 35 years of age.As they work hard and play harder a new consumption pattern is beginning to emerge which will fuel domestic consumption and thus attract huge investments in manufacturing of goods and services.The rise of the “Indian middle Class” which is as big as the US population is now a reality.
Manufacturing industry in both SME and large scale industries has to gear up to keep up with the rise in demand.Most of the MNC’s which were earlier importing are now having their own manufacturing bases in India now.This will help in raising the production and quality standards of Indian enterprises as they will have to compete with International competition.It will certainly help in making the “made in India” label more valuable than ever before.