India hopes to overtake Vietnam as the region's leading manufacturer as businesses move away from China, but it must first reduce tariffs and boost the effectiveness of its supply chain.
A "friendshoring" strategy has been adopted by the US as rivalry with China grows. The Biden administration has pushed American businesses to relocate their electronics and technology manufacturing activities from China to more welcoming nations in the Asia-Pacific region, especially Vietnam and India.
“Both Democrats and Republicans see China as a challenge. And every boardroom in the U.S. is asking a CEO what their derisking strategy from China is,” said Mukesh Aghi, president and CEO of the U.S.-India Strategic Partnership Forum.
Because of their low labour costs, India and Vietnam are appealing manufacturing options for international businesses and investors. With exports expected to total $96.99 billion in 2023 compared to India's $75.65 billion, Vietnam is still far ahead of the latter country.
Vietnam has a reputation for producing high-quality electronics. Vietnam has a competitive advantage because India is just entering the market, according to Samir Kapadia, managing principle at Vogel Group and CEO of India Index.
While Vietnam has had a trade and investment agreement with Washington since 2007, India's relationship with the United States has improved, particularly following Prime Minister Narendra Modi's official visit to the White House in June.
Vietnam also has a simpler proposal than India, which Aghi pointed out has "29 states and every state has a policy which may be different." This is another significant benefit for Vietnam.
“Vietnam has an upper hand when it comes to economies of scale manufacturing where its mostly manual labor,” Nari Viswanathan, senior director of supply chain strategy at software firm Coupa.
Viswanathan stated that industries like garment manufacturing, which have low profit margins and high labour costs, "will not move the needle" for India.
Tech companies in the US are moving more and more of their supply chains to this South Asian nation. In December, the Financial Times revealed that Apple had informed component suppliers that it will be sourcing its next iPhone 16's batteries from Indian manufacturing. Since 2016, when CEO Tim Cook paid Indian Prime Minister Narendra Modi a visit, the company has considered growing its operations in India. Additionally, Google plans to start producing Pixel phones in India during the upcoming second quarter.
The 10% import tax on information and communication technologies in India is one barrier to the nation's goals of becoming a manufacturing hub.
Andy Ho, chief investment officer of VinaCapital, states that this is greater than the typical import tariffs in Vietnam, which are approximately 5%.
Lowering import taxes is a part of the government's strategy to entice foreign companies to manufacture goods in India, but the country's import levies were formerly designed to safeguard local producers.
“2024 will be a year of Prime Minister Modi winding down many of these tariffs, but he’s going to do it focused on an industry by industry basis, and not a country by country basis,” Kapadia added.
For instance, India reduced import duties from 15% to 10% in January for some metal and plastic components used in the production of mobile phones. This helps businesses like Dixon Technologies, which makes phones for Xiaomi, Samsung, and Motorola, and Apple.
"Where we will see the most traction early on as India strives to capture market share is in Vietnam, given its control over electronics production and exports to the United States. This covers a wide range of plastics, metal parts, and mechanical goods, according to Kapadia.
In January and September of last year, India's electronics exports to the United States came to $6.6 billion, up from $2.6 billion in the same period in 2022, as per a LinkedIn post by Pankaj Mahindroo, the chairman of the India Cellular and Electronics Association.
However, Ho from VinaCapital cautioned that decreasing import taxes is "not a source of sustainable advantage in attracting FDI investment over the long-term."
“What foreign investors tend to be more concerned about is ease-of-doing business issues — especially the flexibility to hire and fire workers — than taxes and tariffs. This is Vietnam’s main source of long-term advantage over India,” Ho said.
Despite India's goal of having a mature economy by 2047, long shipping and road delivery times are caused by the country's inadequate infrastructure.
Aghi warned that these delays lessen the South Asian country's attractiveness to foreign businesses. "A ship in Singapore can be unloaded in eight hours and be on a truck to prospective factories, but the same ship in India will be stuck in a custom warehouse for days," Aghi said.
"China is probably ten years ahead of India in terms of infrastructure, so the nation needs to put in more effort to ensure that infrastructure is built," he continued.
According to India's interim budget, the country's federal government plans to invest $30.7 billion, or 2.55 trillion rupees, on railway improvements.
“India is well on that path of modernizing systems in logistics to enhance on-demand supply chain models for importers and exporters and this factors in all kinds of new roads and ports. I think that will be a priority before automation,” Kapadia said.
However, Kapadia pointed out that Vietnam's cordial ties with China give India a significant advantage.
Vietnam and China are closer than they could be in a lot of respects. And for the next ten to fifteen years, supply chain managers and US corporations should be concerned about it, he cautioned.
Three months after US President Joe Biden visited Vietnam, Chinese President Xi Jinping signed agreements with the country on trade, infrastructure, and security.
″[China and Vietnam are] constantly shaking hands and handing each other medals every time they see each other,” Kapadia said.
“I think the bigger players are going to be factoring in some of the political calculus regarding China’s relationship with Vietnam, and holding back their decision making until India can prove that they can really compete in electronics manufacturing to date,” he added.
(Source:www.cnbc.com)
A "friendshoring" strategy has been adopted by the US as rivalry with China grows. The Biden administration has pushed American businesses to relocate their electronics and technology manufacturing activities from China to more welcoming nations in the Asia-Pacific region, especially Vietnam and India.
“Both Democrats and Republicans see China as a challenge. And every boardroom in the U.S. is asking a CEO what their derisking strategy from China is,” said Mukesh Aghi, president and CEO of the U.S.-India Strategic Partnership Forum.
Because of their low labour costs, India and Vietnam are appealing manufacturing options for international businesses and investors. With exports expected to total $96.99 billion in 2023 compared to India's $75.65 billion, Vietnam is still far ahead of the latter country.
Vietnam has a reputation for producing high-quality electronics. Vietnam has a competitive advantage because India is just entering the market, according to Samir Kapadia, managing principle at Vogel Group and CEO of India Index.
While Vietnam has had a trade and investment agreement with Washington since 2007, India's relationship with the United States has improved, particularly following Prime Minister Narendra Modi's official visit to the White House in June.
Vietnam also has a simpler proposal than India, which Aghi pointed out has "29 states and every state has a policy which may be different." This is another significant benefit for Vietnam.
“Vietnam has an upper hand when it comes to economies of scale manufacturing where its mostly manual labor,” Nari Viswanathan, senior director of supply chain strategy at software firm Coupa.
Viswanathan stated that industries like garment manufacturing, which have low profit margins and high labour costs, "will not move the needle" for India.
Tech companies in the US are moving more and more of their supply chains to this South Asian nation. In December, the Financial Times revealed that Apple had informed component suppliers that it will be sourcing its next iPhone 16's batteries from Indian manufacturing. Since 2016, when CEO Tim Cook paid Indian Prime Minister Narendra Modi a visit, the company has considered growing its operations in India. Additionally, Google plans to start producing Pixel phones in India during the upcoming second quarter.
The 10% import tax on information and communication technologies in India is one barrier to the nation's goals of becoming a manufacturing hub.
Andy Ho, chief investment officer of VinaCapital, states that this is greater than the typical import tariffs in Vietnam, which are approximately 5%.
Lowering import taxes is a part of the government's strategy to entice foreign companies to manufacture goods in India, but the country's import levies were formerly designed to safeguard local producers.
“2024 will be a year of Prime Minister Modi winding down many of these tariffs, but he’s going to do it focused on an industry by industry basis, and not a country by country basis,” Kapadia added.
For instance, India reduced import duties from 15% to 10% in January for some metal and plastic components used in the production of mobile phones. This helps businesses like Dixon Technologies, which makes phones for Xiaomi, Samsung, and Motorola, and Apple.
"Where we will see the most traction early on as India strives to capture market share is in Vietnam, given its control over electronics production and exports to the United States. This covers a wide range of plastics, metal parts, and mechanical goods, according to Kapadia.
In January and September of last year, India's electronics exports to the United States came to $6.6 billion, up from $2.6 billion in the same period in 2022, as per a LinkedIn post by Pankaj Mahindroo, the chairman of the India Cellular and Electronics Association.
However, Ho from VinaCapital cautioned that decreasing import taxes is "not a source of sustainable advantage in attracting FDI investment over the long-term."
“What foreign investors tend to be more concerned about is ease-of-doing business issues — especially the flexibility to hire and fire workers — than taxes and tariffs. This is Vietnam’s main source of long-term advantage over India,” Ho said.
Despite India's goal of having a mature economy by 2047, long shipping and road delivery times are caused by the country's inadequate infrastructure.
Aghi warned that these delays lessen the South Asian country's attractiveness to foreign businesses. "A ship in Singapore can be unloaded in eight hours and be on a truck to prospective factories, but the same ship in India will be stuck in a custom warehouse for days," Aghi said.
"China is probably ten years ahead of India in terms of infrastructure, so the nation needs to put in more effort to ensure that infrastructure is built," he continued.
According to India's interim budget, the country's federal government plans to invest $30.7 billion, or 2.55 trillion rupees, on railway improvements.
“India is well on that path of modernizing systems in logistics to enhance on-demand supply chain models for importers and exporters and this factors in all kinds of new roads and ports. I think that will be a priority before automation,” Kapadia said.
However, Kapadia pointed out that Vietnam's cordial ties with China give India a significant advantage.
Vietnam and China are closer than they could be in a lot of respects. And for the next ten to fifteen years, supply chain managers and US corporations should be concerned about it, he cautioned.
Three months after US President Joe Biden visited Vietnam, Chinese President Xi Jinping signed agreements with the country on trade, infrastructure, and security.
″[China and Vietnam are] constantly shaking hands and handing each other medals every time they see each other,” Kapadia said.
“I think the bigger players are going to be factoring in some of the political calculus regarding China’s relationship with Vietnam, and holding back their decision making until India can prove that they can really compete in electronics manufacturing to date,” he added.
(Source:www.cnbc.com)