Besides other things one thing that the year 2020 has established is the need for global manufacturing to rebalance its over reliance on China. This need was being felt for past many years, but the following factored appeared to have reinforced this need in 2020:
(a) Major
global economies like US, Japan and India took some aggressive tariffs and
non-tariff measures to correct the imbalances in their trade with China.
(b) Pandemic
induced mobility restrictions exposed the vulnerabilities in the global supply
chain and prompted businesses to diversify their manufacturing more widely.
(c) Geopolitical
aggression shown by Chinese establishment is now increasingly perceived as
potent risk for global supply chain. Political unrest in Hong Kong has may have
also embellished this perception.
A recent survey conducted by UBS
highlighted that “70% in the China CFO survey and 86% in the US CFO survey said
they had moved or plan to move a part of their production out.”
Amongst Asian countries, besides Vietnam,
Taiwan, Japan, Korea and Thailand, India is seen one of the preferred country
for relocation of manufacturing facilities. India is seen o have lowest
manufacturing costs amongst peer, but some skepticism remains about the
ecosystem and administrative hurdles. Despite a strong commitment of the top
leadership to encourage manufacturing base in India, the progress on the
administrative level is perceived rather slow. It is important to note that low
labor cost does not necessarily lad to overall lower cost structure, if the
overall ecosystem (regulation, taxes, logistics, infrastructure etc.) is not
favorable for manufacturing.
The events of Winstron, Narsupura
(Bengaluru, December 2020) and Delhi (Violent protests by farmers, January
2021) are not good omen for this though. Rejecting these events as mere local
politically motivated events might be mistake best avoided; because we are already
in the midst of transition. The decisions are being already taken in board
meetings. No one can deny that sometimes a newspaper headlines on decision day
might impact a 30-40yr plan.
