Manufacturing costs in China
The Deloitte survey, Global Manufacturing Competitiveness Index (GMCI), 2016, forecasted India to outbid China in low cost manufacturing competitiveness in the next five years. According to the survey, while China will lose the powerhouse of low cost manufacturing competitiveness, the Mighty Five – the five Asia Pacific nations, Malaysia, India, Thailand, Indonesia and Vietnam – will emerge the choice for low cost manufacturing in place of China. India will be the frontrunner with four countries chasing behind, the survey said.
Among the top 15 countries in Global Manufacturing Competitiveness Index, India will move to 5th rank in 2020 from the present position of eleventh. India will outpace South Korea, Taiwan, Mexico, Canada and Singapore in the race. USA, China, Germany and Japan will continue to be the top 4 countries in the global competitive index. The factors advantageous to India’s strength are large pool of English speaking scientists, researchers and engineers , coupled with low wage ( estimated at US $ 1.72 /hour 2015) , the survey said.
The global influences of currency turmoil, recessions and the ebbing of big trade blocks evoked a new landscape of manufacturing. The world is divided into two shapes of workshops – low cost manufacturing and high tech with high value manufacturing
The survey said that China is in the transition period and would move to high tech manufacturing. This would cede more space to India in the low cost manufacturing competitiveness. Currently, manufacturing goods in China is only 4 percent cheaper than USA, given the wages in China increased by 80 percent since 2010 due to Yuan appreciation, the survey said.
China jittered over India’s fast growth in manufacturing competitiveness. Chinese media and the think tanks raised eyebrows. With Apple of USA considering to shift its manufacturing facilities, along with supply chain, from China to India and India breaking the world record of largest number of satellite launch with single rocket, the Chinese were aghast with India’s progress in low cost manufacturing.
Chinese media (Global Times) was perturbed over Apple shifting to India. It said, “if Apple expands in India, more global tech giants may follow suit and China is likely to see a further transfer of the supply chain, given India’s abundant supply of working-age labour and low labour costs. China cannot afford losing jobs “.
Even the Chinese domestic companies are contemplating to shift to India in the attraction of low cost competitiveness. The decisions of Chinese largest telecom company Huawei Technologies Co Ltd and a number of Chinese vendors to set up smart phone manufacturing plants in India have shaken the Chinese daily. It beaconed China’s loss of competitive edge and forecasted India to be on the way to become the world’s new hub for low cost manufacturing. Vivo China has already set up a smart phone manufacturing unit in India. Xiaomi, ZTE, One Plus, Gionee are in the queue to open their manufacturing shops in India.
With India launching record breaking 104 satellites in single rocket, Director in the new technology department of Shanghai Engineering Centre for Microsatellite, Dr. Zhang Yongho said “It indicates that India can send commercial satellites into space at lower cost, giving the country’s competitiveness in the global race for burgeoning commercial space business.”
China’s slide in GDP growth shadows China’s future for its dependence on manufacturing. China grew 6.9 percent in 2015 – a sharp slide from 11-12 percent growth since 2012. The slowdown is likely to intensify to 6.3 and 6 percent in 2016 and 2017 respectively. One of the reasons was the slow growth in manufacturing activity, due to lower demand in the export, resulting in excess capacity. Manufacturing share in GDP slipped from 41 percent in 2007 to 36 percent in 2014.
Chinese concern for losing its manufacturing edge was unveiled when China introduced Made in China campaign, immediately after Made in India. “Make in India” and “Made in China” evoked similar resonance for creation of job opportunities. But, conceptually they are different. While “Make in India” was a call to establish world’s biggest manufacturing hub in the area of low tech and low cost, “Made in China” was to build up China’s manufacturing competitiveness into high tech, such as bullet trains, super computer, advanced roboting, 3D printing, Smart, connected products (IoT) and others.
Despite the positives, India has many challenges. Make in India initiative is yet to act as a foolproof policy tool to attract investors. The main barriers to the investors are land acquisition, multiple tax system, delay in GST scheme. These are yet to be overcome. Make in India unleashed some ease of doing business procedures so far. (IPA)