India is NOT the new China

I've been reading quite a bit on the challenges and opportunities of sourcing from India recently. Even though this Electronic Business article is focused on a single industry, I think that it captures many of the challenges and opportunities that companies face across categories when examining the region. Titled "India is not the new China" it also frames the India opportunity (relative to China and Southeast Asia) quite well. For example, "China's comparative advantage a decade ago was abundant cheap labor. China ... [focused] on low-skill, labor-intensive markets it could dominate with inexpensive products and quickly earn foreign exchange for further manufacturing investments. This process requires subsidies for production costs to be squeezed from rural incomes and inevitably results in sweatshop factory conditions and massive migration to urban areas. India's advantage, compared to China's, is a surplus of educated workers. The Indian economic development plan focuses on replacing imported goods with the domestic manufacturing of products requiring skilled labor, rather than promoting the export of low-cost goods."

There are a number of other good summary thoughts in the piece. Consider that "there are no contract manufacturers in India trolling for business with cheap prices enabled by government capital loans they do not expect to repay [as in China] ... This explains the recent interest in Indian factory investments. … India [also] offers a large and growing domestic market, access to the huge market elsewhere in south Asia and a commercial and government environment that is both more familiar and more predictable than China's. India is also a hedge against having too many eggs in an often frustrating—and, for many, not yet profitable—Chinese basket. Operating costs are now rising rapidly at Chinese factories, because the supply of workers experienced in operating machinery has been exhausted in some coastal areas."

As I said, a good meaty summary of some of the macro-economic conditions driving India's export growth and FDI in the region. And further proof that China is not the only game in town for large-scale manufacturing investment in the Asian region.

Jason Busch

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