India’s design and manufacturing capabilities provide an edge

The pandemic has caused so much change that observers of history will refer to a pre-covid era and a post-covid era. We made deft moves with a storm of unicorns, the government accelerated incentives to promote indigenization, the A 76,000 crore semiconductor package will give us design and manufacturing capabilities, and there have also been other policies to promote the Make-in-India ecosystem.

While on paper it looks like we have everything it takes to grab a bigger slice of the global pie, it’s important to look at where the trade is going lately.

Recent developments such as the war in Ukraine, climate concerns and the struggle between the United States and China have sent favorable winds to Vietnam, allowing it to emerge as one of the most preferred destinations for electronics. . US imports from Vietnam rose 33%, with electronics and machinery accounting for the bulk.

Hài Pòng in the spotlight

Hài Phòng, Vietnam’s third largest city, is the country’s new high-tech production hub, with Samsung, Intel, LG, Panasonic, Foxconn, Pegatron and many more settling there. The port city’s proximity to manufacturing clusters and a 12-hour highway to Shenzhen give it an edge. The country’s electronics industry now accounts for around 40% of its exports.

Vietnam got the ball rolling, moving into the Plus 1 space that strategists have been talking about. Its low labor costs, attractive tax incentive policies, geographical location, favorable global trading conditions and numerous Free Trade Agreements (FTAs) have worked in its favour. It rose from the 47th position in the world ranking in 2001 to the 10th position in 2020, compared to exports which represent 1.8% of the total value of electronics exports in the world. Geopolitics has only helped this trend gain momentum with manufacturers seeking robust supply chains.

Globalization in question

What we have seen recently is that globalization, which suggests the world is one family with the free flow of goods and services spanning all geographies, has come under threat. Former US President Donald Trump moved quickly to subdue China, with the CHIPS for America Act passed in January 2021 to mark a turnaround after decades of expansion in Asia.

China’s zero covid policy has halted factory work and broken global supply chains. Several major Taiwanese computer makers with factories in Shanghai, including Quanta Computer, Compal Electronics, Wistron, Inventec and Pegatron, reported double-digit declines due to the shutdowns. Vietnam has played its cards well, fitting into the space created by China’s rigid stance.

On the borders of India

The same factors that propelled Vietnam may also put India in the ideal position. India’s biggest advantage in the Plus 1 space is its end-to-end design and manufacturing capabilities. Vietnam is known for its strong midstream business and local companies mainly focus on assembly. Upstream activities, involving design and production, are mostly carried out abroad.

Vietnam does not have the engineering talent that India has. Not only is India considered the most digitally savvy country in the world due to the largest Gen Z workforce, but we have a huge domestic market. And we are closer to Africa, Middle East and European markets.

However, the business creation process must be fast, logistics and transshipment must be completed for a sustainable competitive advantage. Although India has created many Production Linked Incentive (PLI) programs that address certain disabling factors, stronger supply chains are crucial. It is important to control transport and travel costs and reduce the carbon footprint. Even Mexico, due to its talented workforce and shorter supply chains, reaps the benefits of near offshoring from being closer to the United States.

The coming era will increasingly be defined by complex disturbances that disrupt the terrain at all times. Resilience should be viewed as an important capability, rather than just focusing on efficiency-based manufacturing at the lowest possible cost. For the Indian market to really get on the radar of multinationals, we need to build those capabilities and fix the missing pieces. And fast… so that we are the safest in China Plus.

Dr. Ajai Chowdhry is chairman of the Epic Foundation and co-founder of HCL.

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