Should Supply Chain Professionals Plan for a Shift in Business from China to India?

It’s no secret that labor costs are rising rapidly in China as the country is very quickly moving through their industrial revolution and building an enormous middle class. Many industries are already leaving China in search of lower cost countries to produce goods such as cut and sew items and trinkets, even some electronic assembly and process industries.

The industries leaving China, often called “sunset industries,” follow a pattern we have seen over the past 50 years when production moved from Japan to the Asian Tigers of Taiwan, Singapore, Korea and Hong Kong, and then to China. Now many of these industries are moving to Vietnam, Bangladesh, Myanmar and India because China no longer holds a cost advantage.

Newly elected Prime Minister of India, Narendra Modi, has declared a new program to bring manufacturing to India by offering new incentives and a plan for improving its infrastructure including power grids, roads and ports.

Modi is even touting India’s young, English-speaking, low-cost workforce and a new slogan “Make in India.” You have to wonder if that is a play on the words “Made in China” or just a bad translation, using “make” instead of “made.”

With so much focus on building manufacturing capability, improving infrastructure and reducing bureaucracy, it’s inevitable that many global companies will locate at least some of their production in India to serve both the domestic and export markets.

But there is still a very long way to go. According to a 2014 World Bank Survey, India ranks 46th in global trade logistics performance. Even the domestic logistics processes are complicated by the many different cultural preferences in India’s 28 states and 7 union territories. Yet companies such as Alibaba have made commitments to serve the Indian market, and others are committed to manufacture there.

Supply Chain professionals need to be aware of the pitfalls of doing business in India and consider these things in global supply chain analyses:

- India is approximately two weeks farther to the US by steamship line than China. This means that time to market will be affected as well as inventory carrying costs by adding time in transit. These considerations should be included in your cost analysis and are not trivial.

- The supply base is not yet fully developed, so raw materials and parts often have to be imported for production. Importing into India is still a complicated and non-standardized process. This causes higher than normal requirements for inventory to offset any delays.

- Logistics organizations in India including 3PLs are not well organized and often require very close monitoring and extra effort to control what happens with shipments.

Supply Chain professionals should learn about the great challenges in India and prepare for the inevitable movement of some manufacturing from China over the next few years. It will take more time and effort to maintain control and manage performance in this developing country.

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