‘India’ the future of global manufacturing

India beats China and other South Asian Nations to become the future power house of global manufacturing.

The last half-decade has seen tectonic shifts in global manufacturing. 

Trade wars, the pandemic, natural disasters, supply chain disruptions, Brexit, the Ukraine war, and assertive industrial policies have all contributed to a manufacturing migration. 

A recent BCG report found that organizations are adapting, rethinking supply chains, diversifying suppliers, and embracing new strategies for a more resilient future. 

We mapped out the major trends of this global manufacturing migration for you.  

The China + 1 strategy

Geopolitical uncertainties and elevated US tariffs are prompting a notable shift away from China as the primary export hub for various industrial sectors in the US market.

More than 90% of North American manufacturers surveyed in this report have relocated some production from China in the past five years—and a similar percentage plan to make such moves in the next five years. 

As a result, Mexico, Southeast Asia, and India are rapidly emerging as future export manufacturing powerhouses. Each of these three regions provides competitive cost structures, abundant labor pools, and scale across various industries. 

What is India’s advantage over its competitors?

The affinity towards India in the redistribution of manufacturing is evident in trade data.

The BCG report we reviewed, points out that while US imports from China declined by 10% from 2018 through 2022, they rose by 18% from Mexico, 44% from India alone, and 65% from the ten countries of the Association of Southeast Asian Nations (ASEAN).

Why is India leading the way as the next manufacturing hub for the US? 

At Bzaar, we deep-dived into 7 data-driven reasons that will answer this question. 

1. Lowest labor costs

India has the lowest manufacturing wage cost in the region, according to data from Euromonitor, the World Bank, ILO, and UNIDO analyzed by Morgan Stanley. At $0.8 per hour, India's manufacturing wages are 20% lower than Indonesia, almost half of Vietnam and the Philippines, about a third of Thailand, and a sixth of Malaysia.

On the other hand, China's manufacturing labor costs have surged to $7.1 per hour, significantly higher than India and other Southeast Asian countries. 

India has been recognized as the nation with the most economical manufacturing costs, surpassing China and Vietnam, according to the US World & News Report. 

India’s global cost advantage becomes incontestable.

2. Young and English-speaking population

According to a recent Pew survey, India currently has a median age of 28, while China's median age is 39. This indicates that India's demographic advantage, with a younger population, is likely to persist throughout the century. 

EY India's report estimates that around 26% of India's population is below 14 years, approximately 67% falls between 15 to 64 years, and only 7% is above 65 years. In comparison, the US has about 17% of its population over 65, and Europe has over 21%. 

With its youthful population, India is poised to be the world's largest source of human resources and has the potential to harness the consumption power of its younger demographic.

Your young Indian clients and employees will naturally be inclined towards innovation, flexibility and competition.   

Moreover, communication for English-speaking populations is also significantly easier with Indian manufacturers than with Chinese manufacturers. English is far more prominent and widely spoken in the Indian sub-continent as compared to China. 

3. A rich cultural legacy of handmade crafts

India is undisputedly the oldest civilization for handmade crafts. 

Apart from the 200 million skilled artisans spread across the sub-continent, India has an abundant agricultural network for sourcing sustainable raw materials. India is the world’s largest producer of jute and the second-largest producer of cotton, after China.  

With climate change a reality, young Indians are also experimenting with an array of sustainabale materials—from bamboo, cactus leather, cork, recycled plastic to coconut & banana fibre.  

This way India provides an end-to-end ecosystem for manufacturing; possessing both raw materials and skilled production.

4. Supply chains are poised for large-scale production

The Federation of Indian Export Organizations predicts the nation’s exports to rise to $900 billion in 2023-24 from $770 billion the previous year, due to rising demand from companies around the world.

Indian products are gaining popularity on prominent American shelves. Walmart, the largest US retailer, has increased its sourcing from India, resulting in a higher presence of products labeled "Made-in-India" in Walmart stores across the US. The company is on target to achieve its goal of annually sourcing $10 billion worth of goods from India by 2027. 

In the aircraft manufacturing sector, Boeing is reportedly sourcing more of its supplies from India and will potentially set up a manufacturing facility in the country. Tesla is aiming to double the sourcing of its auto parts worth $1.9 billion from the nation. JP Morgan projects that Apple will move 25% of all iPhone manufacturing to India by 2025.

These moves by major MNCs across major industries indicate that India’s manufacturing units are in shape for scale, as well as international quality and safety standards. 

5. A digitized workforce that is remote-ready 

India offers some of the cheapest internet data rates in the world. Making 750 million Indians smartphone users, from a population of 1.48 billion, that's almost 50%.

Wide mobile ownership and cheap data has also allowed India’s click-to-pay system or UPI (Unified Payment Interface) to penetrate the remotest parts of the country. UPI handles 220 million transactions per day, in an economy where the unorganized sector employs more than half of the workforce. Due to its ease with non-banking users and high security, UPI now accounts for almost 75% of total transactions in the retail segment from 2022-23.

With India having the largest diaspora in the world, the country is also developing solutions for cross-border real-time payments for remittance, using UPI or other forms of click-to-pay. 

Indian HR leaders also report a digital adoption rate of more than 50% for Indian employees across sectors, reflecting a digitally mature environment. 

For offshore businesses, these digital skills, resources and payment modes are green flags that promise efficient operations. 

6. Lower import duties than China

By BCG's analysis, the overall cost of goods produced in India and imported into the US is 15% lower than the equivalent cost of domestically produced goods in the US. 

The average cost of US imports from China is only 4% lower than domestic US production costs and increases by 21% for goods affected by US tariffs related to the trade war.

India has a significant competitive edge in direct manufacturing costs as an export hub.

7. A competitive domestic market 

As the world’s fifth-largest economy, India's tipped to become the third-biggest by 2027, according to the International Monetary Fund, with the country seeing rising spending power among its middle-class, benefiting firms with premium brands. 

While a recent report by Goldman Sachs predicts the affluent class in India to nearly double to 100 million people within the three years. India’s e-commerce market is also booming—gross value has jumped 140% in the past three years. 

These numbers string a strong suggestion—India has the added advantage of having a mature, design ready domestic market when considered as the next manufacturing hub.

India undoubtedly holds a large share in the future of global manufacturing. First movers to the country are likely to gain the opportunity to establish capacity while labor, land, and other factors are abundant and very affordable. 

Yet not without its fair share of pain points. Manufacturing in India can come with challenges like its weak transport and electricity infrastructure, cultural differences, and differing labor laws to name a few. 

This is where Bzaar plugs the gaps and makes sourcing from India stress-free. Click on the button to learn more.

Source with Bzaar