For decades, India’s northern neighbour China, has been called the ‘world’s factory’. Many global firms set up their manufacturing units in the country owing to the availability of cheap labour and China’s pro-market economic policies.
In fact, the Communist government manipulated and kept the price of Yuan artificially low to make their exports competitive in global markets, and this has helped China for almost three decades.
However, due to the recent showdown between the US and China over tariffs, many global firms are looking elsewhere for a secure and better future. The US and China has been engaged in a trade war following the imposition of tariffs on Chinese exports. This has clearly upset the Chinese and its plan of dominating the world through commerce seems to be in tatters now.
Following the imposition of ‘Trump Tariffs’, today more than half Chinese exports (total export is almost 600 billion dollars) to United States receive custom duty. The global companies, which made China manufacturing base in 1990s and 2000s, are severely hit by the rise of ‘protectionism’.
To adjust to new realities of global trade rules, global companies are looking for a new ‘world’s factory’. In light of this, Foxconn is moving its assembling process of iphone X in India to avoid the impact of ongoing US-China trade war. The company will invest 2.5 thousand crores to assemble the iPhone X series in Tamil Nadu.
The move will create 25,000 jobs in the country and make India a manufacturing hub of smartphones across the segments.
The next move of the company will be to make Amazon Echo speakers, displays, and printed circuit board (PCB) in India.
Foxconn is the largest electronics manufacturer in the world and fourth largest Information Technology company by revenue. The company already manufactures smartphone units of Xiaomi and Nokia at the assembly units located in Andhra Pradesh and Tamil Nadu, which employ more than 27,000 workers and more than 90 percent of them are women.
The reason behind this move is that the rising per capita income and prosperity in China have increased labour cost very rapidly. As per estimates, the labour cost in China is double of that of India, therefore, many companies have moved or are considering to move their manufacturing base in India. Acer’s spin-off manufacturing arm Wistron announced agreements with Indian government officials to rent land for local production purposes. The electronics manufacturer, Samsung, Toshiba, Panasonic, and Sony are considering cuts in their investment in China and set up factories in India.
Many countries in South Asia and Southeast Asia like Vietnam, Bangladesh are competing to replace China in manufacturing sector. However, given the availability of cheap labour, a large English speaking population, and expertise in Industry 4.0, India is perfectly poised to replace China and become the new ‘world’s factory’.
The Modi government is trying to encourage the companies to set up manufacturing base in India through various policies implemented under Make in India programme. The manufacturing giants like Foxconn have realized this opportunity; these companies are now shifting the manufacturing operations to India. “Until now, India has made for India,” but “Soon India will make for the world,” said Josh Fougler, who runs Foxconn’s operations in India.
As Trump’s ‘Made in America’ rhetoric translates into action, further woes to manufacturing in China is expected. But one thing the Indian government should keep in mind that it has to focus more on land and labour reforms if it wants to take advantage of the big manufacturing move from China to India.