So, in today’s article we will find out about the foreign companies which are present in China; and whether they are shifting to India due to the recent outbreak, which shows that Chinese lab was involved. I am not going to argue whether the Chinese started the virus or not; but their recent actions tend to point at them.
Let’s start what everyone had come for; many companies in the world outsource China to make a product. Mainly designs are developed in the home country and the manufacturing part is given to the Chinese. For instance, Apple-designed in California, Manufactured in China (only done to maximize profit).
These manufacturing companies are in China for decades. So, why did these companies choose China as one of their manufacturing bases decades ago?
How it all started?
China was known for agriculture rather than industrial hub; but due to the industrial revolution they started attracting companies with cheap loans, cheap labor costs, less corporate tax, raw materials, land, governance; investment in road, port and rail infrastructure; and solid engineering and technical skills provided a strong platform for manufacturing exports.
So, one might argue that even India has skilled labor, minimum labor wages, land, and all. So, why can’t companies move to India?
Because, the starting up a business in India is challenging due to the number of approvals needed, and the lack of a ready infrastructure to move in and start in no time. One often ignored subtext of China’s rise as a manufacturing hub is that; it is an authoritarian state (a communist country). Once the government clears a project it is very rare to go against them like courts or face any protests from local communities, NGOs, or unions. On the other hand, India’s democratic institutions are relatively robust, and governments find it difficult to take unilateral decisions.
The Supply Chain:
China has a very strong supply chain management system an entire manufacturing cluster that works like an assembly line. Because the companies are running there for decades and they have built their supply chain such that; everything is available at one place; from raw material to finished products with the help of land with power, water, infrastructure; and then exported with logistics, road access, railways, and ports to facilitate the transportation of goods.
China has also planned its industrial hubs in such a way, that factories and their suppliers are close to each other. It is not easy to replicate the China model. It has the largest expressway network in the world. The world’s largest high-speed railway network, seven out of the world’s top 10 cargo-ports, three out of the top 20 busiest cargo-airports, a high-tech telecommunications system, more than a quarter of the world’s total power generation.
But more importantly, supply chains are not built overnight. Establishing a network of suppliers, creating industrial capacity, and ensuring quality at low cost is not easy. It takes time, and it takes a lot of know-how.
It requires huge capital, and it is not that easy to shift a company’s manufacturing unit to a different country; as the cost involved in these are Thousands of Crore like land, machines, infrastructure, and it is set up over time; it’s not like moving manufacturing units and set up a new one somewhere else without spending a fortune.
The Chinese judiciary system is very quick and efficient, this is very important to the companies as it supports industries and their requirements. According to the foreign companies, the Indian judiciary is not quick and efficient as China. For instance (totally different topic but counts), the Nirbhaya case took almost a decade to bring them to justice.
The laborer’s wages are less and labor reforms policy is well balanced and Chinese laborers are skilled. It’s not that they know everything since they are born; but they are trained by the companies over a period, which requires huge capital and time.
Due to the above reasons (not limited to), it is very difficult to move the units to India. So, this means that companies won’t move to India at all? Yes and No, because India is not the only country where they can move their units; countries like Vietnam, Mexico, Thailand, Bangladesh, and others come into the picture.
Vietnam is offering cheap labor wages, ease of doing business, quality control and costs of moving existing supply chain from China to Vietnam is inexpensive and easy (Nike has already done this). Google and Microsoft are planning to move their production like mobile phones and personal computers to Thailand and Vietnam. Few companies like toys and textiles have moved or in the process of moving to Bangladesh. Mexico gives benefits like lower shipping costs as it is nearby the U.S., an advanced supply chain, and an inexpensive and experienced workforce.
This does not mean that only one country gets benefited; it just gets distributed to many countries and if you think that this is happening only due to this pandemic; No, it started from the last year due to the trade war between US and China (which is a whole other story), the pandemic is just a boost.
So despite what anyone says, China isn’t going anywhere. At least, not anytime soon.
Thank you for reading and hope to see you in the next one.