The last five years of Indian development have help in a wave of basic shifts, rapidly reshaping the global manufacturing landscape. From trade wars to the pandemic, natural disasters to geopolitical tensions, and assertive industrial policies, a falls of events is transforming the once-dominant made in China label on the American market.
As a result, India’s ascension in the global supply chain has put the focus back on cultivating the right talent, further Strong infrastructure, and streamlining trade regulations. In this latest newsletter, we will discover a spree of events transforming the once-dominant Made in China label on American products and the need for India to redirect its attention from China’s growth tale and concentrate on overcoming domestic challenges through India manufacturing initiatives.
Shifting Tides of Trade: India's Rising Influence on Global Manufacturing
A Complete study by the Boston Consulting Group (BCG) illuminates the historic shifts occurring in the global manufacturing arena. Over the past half-decade, US imports from China have seen a 10% decline in inflation-adjusted terms from 2018 to 2022.
In stark contrast, imports from India manufacturing sectors have surged by an impressive 44%, showcasing India's growing influence on the American market. This trend is mirrored in Mexico and the Association of Southeast Asian Nations (ASEAN), with respective increases of 18% and a staggering 65%.
Meanwhile, one of the retail trends is America's retail giant, Walmart, which is at the lead of this example shift, increasing its sourcing from Made in India products across various categories. From food and consumables to health and wellness, general goods, apparel, shoes, home textiles, and toys, Walmart is strategically positioning itself to tap into India manufacturing prowess. With a target of sourcing $10 billion worth of goods annually from India by 2027, Walmart's move signals a significant endorsement of Made in India as a mark of quality and reliability in global manufacturing.
Why India? Unraveling the Allure of Indian-Made Goods
India's appeal as a manufacturing hub is not only a matter of chance but a result of strategic advantages. The Boston Consulting Group (BCG)'s calculations reveal that the average landed cost of Made in India goods imported into the US is 15% lower than domestically produced goods. However, China's cost advantage is a mere 4%, with an additional 21% increase for goods subject to US tariffs related to the trade war.
India manufacturing enjoys a significant edge in labour costs. Over the period of 2018 through 2022, the United States experienced a notable decline of 28% in the import of mechanical machinery from Made in China sources. In contrast, the US observed an increase of 21% in imports from Mexico, 61% from ASEAN, and a significant 70% from India manufacturing industries.
Despite global trends of wage inflation outpacing productivity gains, India has managed to keep this imbalance in check. While the US and China experienced 21% and 24% increases in productivity-adjusted labour costs, India maintained a competitive 18% rise. Furthermore, our research hopefully notes a transformative shift in recent years, witnessing improvements in ease of doing business, similarity of rules, and infrastructure development. The growing middle class further eases the entry for multinational corporations (MNCs), aligning expectations and facilitating smoother transactions that strengthen Made in India exports.
QIMA Sourcing Survey 2023
QIMA's recent sourcing survey hold up the growing preference for India manufacturing among American businesses. With South Asia, led by India, continuing to rise in prominence, 42% of US- and EU-based questionee named South Asian countries among their top three sourcing partners.
The Accessories, Jewelry, and Eyewear sector consider Made in India as the most preferred supplier market, with 45% naming it among their top three choices. It is followed by the Promotional Products industry, where 44% of businesses chose India as a supplier. The Textile and Apparel sector, commonly known as India's "bread and butter," ranked third, with 40% of businesses considering it their preferred supplier.
This contrasts with a decline of 33% for Southeast Asia in Q1 2023. India and Vietnam are perceived as equally significant overseas sourcing partners, highlight India’s broad appeal beyond textiles. Addressing India's fail to interest share in the global supply chain, ViTWO prescribes a three-pronged strategy:
First on the list is acquiring the right talent, point up the need for skilled labour across various industrial domains. Secondly, ViTWO underscores the importance of Strong infrastructure, drawing parallels with China and Singapore's investments in port infrastructure. Lastly, a elegant trade approach, including regulations and export promotion, is crucial for India manufacturing to rise in the competitive global supply chain arena.
Reshaping Supply Chains: A Strategic Shift Away from China
The long-term trend of decreasing reliance on China among Western buyers is evident, with only 73% of US-based and 85% of EU-based respondents naming Made in China among their top three sourcing partners—a five-year low.
Anticipating potential delays, the policies hint at the emergence of regional regulatory systems. The recent introduction of carbon border adjustment mechanisms in Europe, the US, Japan, and China exemplifies the lack of a globally coordinated approach.
This shift is reflected in procurement volumes, with 61% and 58% of US- and EU-based respondents, respectively, reporting reduced purchases from Made in China in Q1 2023 compared to the previous year. While China remains a linchpin in global supply chains, the decline in the popularity of Made in China goods among Western buyers signifies a broader reconfiguration of global manufacturing dynamics.
The shift toward Made in India is not just a substitution but a strategic diversification, marking a new era where India manufacturing and exports are becoming synonymous with quality and competitiveness on American shelves.
The Bottomline
With China proudly projecting a GDP growth of 5.4% this year, ViTWO offers a refreshing perspective on India's impact as it surpasses China with a projected growth of 6.3%. Meanwhile, as India gears up for General Election 2024, a potential slowdown might be averted like in the past. On the other hand, there would be a surge in sustainable growth-oriented policies focusing on education, carbon emissions, technological access, and economic support.
On a macroeconomic level, China has been making policy adjustments to boost domestic demand. It highlights the shift from investment-focused GDP to internal consumption. Therefore, India may remain steadfast on foreign trade, addressing headwinds to secure its global position through India manufacturing excellence.
In ViTWO's Finance visionary lens, India stands at a crossroads, armed with tailwinds of global interest and poised to conquer headwinds through a strategic focus on talent, infrastructure, and trade dynamics. The journey to global prominence may be arduous, but with the right strategy, made in India can emerge as a formidable player on the world stage.