India can be an alternative to China for sourcing materials says Harvard Business Review report
The outbreak of the global pandemic may prompt US-based companies to look at India as a sourcing partner for goods, and become a partial replacement for imports from China, according to a Harvard Business Review article.
The article written by Tuck School of Business Professor Vijay Govindrajan and Managing Director of consultancy Amritt Inc Gunjan Bagla said that heads of several companies are confidentially asking their supply chain teams to develop additional sources that are completely independent of China. “In addition, in the United States there is pressure from employees who are wary of traveling to China, from customers who are concerned (rationally or not) about the safety of foods and other items from the country, from investors who worry greatly about over-dependence on any one country, and increasingly from politicians as well as State Department leaders who want companies to rapidly decouple from China," it said.
The global supply chains being disrupted due to the outbreak of coronavirus that was first reported in China in December last year. Since then it has spread across more than 100 hundred countries, and taking lives of millions across the world.
According to Mukesh Aghi, CEO of the trade group, US-India Strategic Partnership Forum, India can be preferred destination for US companies are looking for alternatives to China. “You have an English speaking workforce, highly skilled, the cost of labor is cheap and more important it is a growing market of 1.3 billion people whose disposable income is growing," the article quoted Aghi as saying.
Citing the $5.7 billion Facebook-Jio deal, the article said that 2020 could mark an inflection point in the bilateral trade of goods between the US and India. “The shift can be attributed--at least in part--to the stresses from Covid-19 and the tariffs imposed on Chinese goods by the Trump administration," it said.
India produces and exports a variety of items including medical and surgical devices, furniture, steel, aluminium, electrical machinery, agri products, among others. US-based companies can procure goods from their Indian companies, unlike in China, where suppliers are not affiliated with the government.
The article suggested an incremental approach in bringing on Indian suppliers, by selecting while maintaining the Chinese base.
However, it said that there could be challenges in the areas of land and labour may discourage foreign companies that want to do business in India.
“First, in order to leverage India as a source of supply, most American companies don’t need to invest in land and buildings, and they don’t need to hire employees in India. In our experience it is often best to start our as a buyer than as an investor. This gives more flexibility, reduces overhead, and limits initial risk," the article said, citing that this will me one of the ways to overcome the challenges.
Despite the federal structure, with policies that varies across states, states such as Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu, and Telangana are generally considered investor friendly.
It suggested companies to turn to external trusted advisors who specialize in US-India business or an employee who has experience in doing business in India as they may need a cultural interpreter and business guide in India.
“Finally, accept that India is a messy democracy and that the flow of goods can still be a challenge. Success in sourcing from India takes time and patience," it said.
28 May 2020