Indian Manufacturing Ecosystem and China, a rough road ahead

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By SK Nag

Huawei prosecution in the US has indicated where the World is heading. This is nothing but the first indicative step of decoupling China from the rest of the World. China’s organized technology spying in different sectors has been a concern for the rest world. So it is a matter of time we will soon see China’s exposure is reducing in the world market if they are not changing their foreign policy to develop a better and healthy relationship with the world.  

Of late, the World is planning the strategic decoupling of China from its respective manufacturing ecosystem. Over the years, China has developed a strong ground connection through an unbeatable competitive advantage with the globe’s manufacturing value chain. Their reach to the sector has been expanded beyond China’s domestic boundary, integrating all domestic stakeholders with the global counterpart at respective levels. They effortlessly proliferated and created a seamless production process reaching all the global customers’ doorstep using their ahead of time thinking. This journey to the manufacturing world was predominantly unopposed until Corona came into light. India imported goods worth $ 62.40 billion from Apr’19 to Feb’20 indicates our dependence on them. They are supplying goods worth around $ 2500 billion to the entire world. The world market is now seeking to have a possible alternative in the fast-changing supply chain domain. Regionalization is fast replacing globalization under the slogan ‘go-local’.  

China has not entered into the global market overnight. They strategically penetrated the market through a long market invasion strategy. Their Govt. has subsidized their manufacturing cost through various incentives. Power tariffs are very low for the manufacturing sectors. Besides Power, they are provided with many export-oriented product incentives attracting more SSI & MSMEs in the export business. They have dedicated a few cities with earmarked product categories. Their industry-specific manufacturing city has been planned by the Chinese Govt long ago. Road & rail connectivity is of world-class quality, making the transport cheaper. The export market contributes significantly to the Chinese economy. Their consistent trade-balance indicates their economic strength.  

Finding a possible option to do away with China from the manufacturing value chain ultimately is a strategic call and a long-term process. This cannot be achieved in a short term manner. China has put in many efforts to establish its manufacturing strength, making the world ecosystem Chinese dependent. It made others learn to live with ease with their lowest price and faster doorstep delivery, competing local markets. By understanding customer pain points, they have developed a customized export model to mitigate their remote existence. Their business model is tightly coupled with the destination countries’ value chain to dominate the customer countries’ production process.
They have divided the World into numbers of segments based on market-specific needs. India and its subcontinent markets are classified as price-sensitive customer zones, whereas the European market is quality sensitive. This segmentation strategy made them more customer-oriented and brought them closer to the customers’ pain point resulting in overwhelming success. They finally became a major exporter of the World and predominantly built their economy around the export market.
China’s technology innovation to contain the cost to be relevant in the world market has gone too far. They outwit other competitors with their frugal technology and comparable cost. But with the changing global relationship, China should plan to rewrite its foreign policy to restore the business relationships and political peace. Their hostile behavior is always making others nervous and doubtful to maintain sustainable relationships. Recent political issues had made the business as usual critical. Therefore, politically redefining the relationship is an immediate imperative that will reshape the world’s economic transaction with China. Border issues with them mandated the Indian Industry to decouple its ancillary supports immediately. China cannot be their trusted and sustainable destination anymore.  

If taken in haste, the World will be severely impacted by a short supply of inventories with decoupling decisions. It is seemingly absurd to snap any ties due to their long association facilitating the global industry. Many business setups in India have become relevant based on the conducive pricing they receive from China for their input materials. Alternatively, indigenous sourcing might be an un-viable option due to the high cost and paucity of time to develop compatible alternate manufacturers. Chinese dependency should be eliminated through a planned withdrawal process to avoid unnecessary distress on India’s business ecosystem like a nuclear plant’s decommissioning.

(SK Nag is Chartered Engineer, Energy Expert and industry mentor. The views expressed are personal opinion of the author. He can be reached at saibal.iim@gmail.com )

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