Western companies are desperately looking for a backup to China as the world’s factory floor, a strategy widely termed “China plus one.” India is making a concerted push to be the plus one, writes The Wall Street Journal (May 10, 2023).
Only India has a labor force and an internal market (population) comparable in size to China’s. Western governments see democratic India as a natural partner, and the Indian government has pushed to make the business environment more friendly than in the past.
It scored a coup with the decision by Apple to significantly expand iPhone production in India. Now it will boost iPhone production to around 20 million units annually in India and triple the number of workers to 100,000. Apple had previously built up a state-of-the-art supply chain almost entirely in China to make its laptops, iPhones and accessories. Its presence helped the entire manufacturing sector in China.
China still towers over every other country in global manufacturing, a position it cemented when multinationals flooded in after it joined the World Trade Organization in 2001. But a growing list of factors has prompted companies to search for a backup. First, there were rising labor costs in China and pressure from the Chinese government to transfer technology to Chinese competitors. Then there were President Trump’s tariffs on Chinese imports in 2018, Covid lockdowns from 2020 through last year, and now a push by Western governments to decouple their economies from China.
Many countries are competing to be the “plus one,” with Vietnam, Mexico, Thailand and Malaysia in particular contention.
India must still overcome entrenched problems that have kept it a bit player in global supply chains. Its labor force remains mostly poor and unskilled, infrastructure is underdeveloped and the business climate, including regulations, can be burdensome. Manufacturing remains small relative to the size of India’s economy. It can take longer to get land and approvals to set up a factory in India and getting visas for expatriate technicians, managers and engineers is time consuming.
Nonetheless, it is making progress. Its manufactured exports were barely a tenth of China’s in 2021, but they exceeded all other emerging markets except Mexico’s and Vietnam’s. The biggest gains have been in electronics, where exports have tripled since 2018.
Classroom discussion questions:
- Why are companies now looking to India and away from China?
- Compare India to Mexico as an alternative location for a U.S. manufacturer.