How global supply chain realignment is putting India in a spotlight

In 2014, India launched the “Make in India” campaign pitching Itself as the global manufacturing hub, and attracting multinational companies to produce in India. However, boosting manufacturing to 25% of GDP, a key objective of the initiative, has been proven elusive.

Furthering the efforts, in 2020 the Atmanirbhar Bharat campaign was launched, which attracted quite some FDI into the nation. Soon after, as the pandemic hit the world, organizations sought new ways of conducting business for survival and growth. Experiencing the adversities created by logistical challenges and market downturn triggered by the pandemic in 2020, organizations looked to adopt a ‘Beyond China’ strategy in search of diversification and supply chain resilience.

This brought in an opportunity for emerging economies in the region. And India like many others, is exploring ways to build its investment attractiveness and is successfully emerging as a key alternative to becoming the next global supply chain hub.

Many companies are already taking action toward realigning their supply chains in India.

The Boeing Deal

Last month, Boeing announced a record-making agreement with Air India, wherein the U.S. aerospace firm will supply India’s largest airline 220 airplanes valued at approximately USD 34 billion.

The biggest purchase in the history of civil aviation, the deal is Boeing’s third-largest sale of all time in dollar value, and its European rival is in on the deal as well. The Air India order of 470 aircraft includes 250 Airbus passenger jets in addition to 190 737 Max aircraft, 20 of Boeing’s 787s, and 10 of its 777Xs.

“As a company with over seven decades of presence in India, Boeing continues to support the development of indigenous aerospace and defense capabilities in the country. India has many opportunities to offer, and our growth along with an increase in supplier partnerships demonstrates our efforts to progress towards an Aatmanirbhar Bharat [Self Reliant India],” Dave Schulte, commercial airplanes managing regional director of marketing for Boeing’s Asia Pacific and India region

The growth of the Indian aviation industry will create further opportunities for local sourcing, skilling, and service support, he added.

“India will become the world’s third largest commercial aviation market over the next 10 years, and will receive more than 90% of all airplanes delivered to South Asia in the next 20 years,” Schulte said. “The Air India order can enable a ripple effect throughout the economy, supporting job creation and improved economic growth.”

Boeing which currently has 5,000 employees and 300 suppliers in its supply chain in India has plans to significantly expand its Indian footprint. The US Aerospace company is broadening its supplier base in India, supporting its international supply chain and planning to export systems and components for some of Boeing’s most advanced products from India to the world.

Boeing has also announced investments in setting up the Global Support Center and Logistics Center in India, which will also help support Boeing’s customers locally more quickly and efficiently.

Smart Phone giants shift manufacturing

US-based tech giant, Apple, is moving its production away from China and setting up manufacturing plants in India. This shift is believed to bring about a change to the entire supply chain of Apple, including the procurement of raw materials from the suppliers. By late 2022, the tech giant moved 5% of its global iPhone 14 production to India, and the brand looks to expand its manufacturing capacity in the country to produce 25% of all iPhones by 2025.

Echoing the company’s plans to expand both retail and production arms, Apple supplier Goertek is also moving manufacturing capacity out of China faster than observers had anticipated. Foxconn, another supplier of the tech giant is aiming to quadruple its workforce in India over two years. The technology group plans to invest about USD 700 million in a new plant in India to augment local production. Apple is also sending product designers and engineers from California and China to factories in southern India, to train locals and help establish production.

After Apple, the South Korean-based smartphone manufacturer Samsung, is also planning to move its manufacturing from China to India. The company which already manufactures a host of entry-level and mid-range phones in the country, is now looking to manufacture semiconductors for phones in India as the US export restrictions on China increase.

As per reports, the company is prepping to manufacture its next-gen foldable smartphones in the country, and it is planning to make a major investment in India to set up a new manufacturing hub for the same.

India under the spotlight

The aforesaid investments are realizing India’s aspirations to grow into a global manufacturing hub, and highlighting that India’s potential is undeniable.

The International Monetary Fund’s forecast for India’s GDP growth stands at 6.1%, far outpacing China’s 4.4% rise, in 2023. Further, India is projected to leapfrog Germany and Japan to become the world’s third-largest economy over the next decade and become a USD 10 trillion economy by 2035, per a Centre for Economics and Business Research report.

But, effectively tapping the Indian consumer market is not easy. The nation’s dream of becoming the new factory of the world will have to overcome many hurdles on the way. China, over the years, has been able to build the scale and speed of production, which will be difficult for India to reproduce any time soon.

A recent report claimed Apple is running into issues with its first foray into India-based manufacturing with poor-quality of products. Apple which prefers zero defect in production has seen only a 50% yield in their production line at Tata’s casing factory in Hosur. The expansion in India is slow partly because of logistics, tariffs, and infrastructure.

Experts believe, aligning domestic standards with global quality benchmarks is an ongoing process. India will take two to three years to learn the ropes in these advanced fields, but they will get there.

Also, Companies shifting their supply chains to India will need to establish strong local relationships in place through local manufacturing. Companies like Apple and Boeing are adapting the exact strategy and establishing strong local relations, which is believed to work in their favor.

A shift of supply chain to India in their ‘Beyond China’ strategy gives large manufacturers cheaper manufacturing, an abundance of labor, and a consumer base to sell their products and services to.

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