India is slowly gaining from the recent global shifts in manufacturing, sourcing and supply chains at the expense of China.
A half-decade of disruption that has included trade wars, the pandemic, natural disasters, severe supply bottlenecks, Brexit, the war in Ukraine, and increasingly assertive industrial policies is profoundly redrawing the map of global manufacturing for export. While US goods imports from China declined by 10% from 2018 through 2022 in inflation-adjusted terms, they rose by 44% from India, 18% from Mexico and 65% from the 10 countries of the Association of Southeast Asian Nations (ASEAN), a recent study by Boston Consulting Group has pointed out.
For example, US imports of mechanical machinery from China shrank by 28% from 2018 through 2022, but increased by 21% from Mexico, 61% from ASEAN, and 70% from India.
India has emerged as one of the winners in global manufacturing over the past five years, with its exports to the US surging by $23 billion, a 44% increase from 2018 to 2022, while China experienced a 10% decline in exports to the US during this period, the study reveals.
Indian products are also gaining favour on the American shelves which have high consumer visibility. Walmart, America's biggest retailer, is increasing its sourcing from India which means its stores in the US are selling more products with the Made-in-India tag.
Walmart aims to source across categories where India has expertise, including food, consumables, health and wellness, general merchandise, apparel, shoes, home textiles, and toys. It is on track to reach its target of sourcing $10-billion worth of goods from India each year by 2027, Andrea Albright, executive vice president, sourcing, at Walmart, has told ET. India is already one of the top sourcing markets for the world’s largest retailer with annual exports worth about $3 billion, according to the company.
India-made apparel, homeware, jewellery, hardlines and other popular products reach customers in 14 markets, including the US, Canada, Mexico, Central America and the United Kingdom via Walmart’s Global Sourcing office in Bengaluru, which opened in 2002.
Why is India more attractive?
India enjoys a strong advantage in direct manufacturing costs as an export platform. As per BCG's calculations, the average landed cost of Indian-made goods imported into the US, including factory wages adjusted for productivity, logistics, tariffs and energy, is 15% lower than if the goods are made in the US. By contrast, the average US landed cost from China is only 4% lower than US costs and 21% higher for goods subject to US tariffs related to the trade war.
Wage inflation has outpaced productivity gains in most regions, but India enjoys an edge on this count. Labor costs adjusted for productivity rose by 21% in the US from 2018 through 2022, for example, and by 24% in China. Similarly, productivity-adjusted labor costs rose by 22% in Mexico and by 18% in India, the BCG study calculates. Nevertheless, these two countries remain among the world’s most cost-competitive sources of manufacturing, and Mexico is the most competitive near-shore option for the US.
A growing preference for supplies from India
Another study on sourcing too finds a growing preference for sourcing from India among American businesses, 'QIMA Sourcing Survey 2023: Disruption, Diversification, Digitization' by QIMA, a quality control & supply chain audits company, says that after rising through the ranks of preferred procurement partners in the past few years, India maintains its high appeal as a supplier market.
South Asia has continued rising through the ranks of most important buying regions for the West, with 42% of US- and EU-based respondents naming one or more South Asian countries among their top three sourcing partners, as per the survey. By contrast, the respective value for Southeast Asia has dropped to 33% in Q1 2023.
Looking at individual countries, the two regions’ respective leaders, India and Vietnam, are viewed as equally important overseas sourcing partners for the West: both were named among the top three sourcing geographies by over a quarter of respondents headquartered in the US and the EU.
India’s appeal as a sourcing partner goes far beyond textiles, says the survey. Viewed by industry, India as a supplier market was the most popular among businesses working in the Accessories, Jewelry and Eyewear sector (where 45% named it among their top three), followed by Promotional Products (44%). The Textile and Apparel sector, traditionally viewed as India’s “bread and butter”, came in third at 40%.
Looking at businesses that significantly changed their buying geography, India was the destination of choice for multiple industries, including Printing and Packaging, Homeware and Gardenware, Accessories and Promotional Products. Between half and one-third of respondents in these sectors reported significantly increasing their sourcing from India in the past 12 months.
Western buyers are carrying on the long-term trend of decreasing their their reliance on China, as seen from the ever-shrinking percentage of respondents naming China among their top three sourcing partners: 73% of US-based buyers (a five-year low) and 85% of EU-based ones, as per the Qima survey. In terms of procurement volumes, 61% and 58% of US- and EU-based respondents, respectively, reporting buying less from China in Q1 2023 compared to 12 months ago.
Yet, China still remains a key piece in global supply chains even as they shift to other countries.
While the popularity of Made-in-China goods among Western buyers keeps inching downward (reaching a five-year low for US-based respondents), the reverse is true for businesses based in Asia (outside of China), where 85% of respondents named China among their top three sourcing partners in 2023, compared to 65% in 2019, as per the survey. The shift of Western supply chains away from China is likely a factor in this, as many of China’s regional competitors rely on Chinese raw materials to fill the orders being redirected to them.
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