India to challenge China in manufacturing

In the next 3-5 years, manufacturing could become the primary activity to be offshored to India, and surpass India's IT and business process outsourcing (BPO) activities, states a new survey.

While China has always been considered to be a manufacturing hub and India a services hub, a survey titled 'Offshoring Evolution "" Changing trend in India and China across industries' by Paris-based IT company Capgemini and ProLogis states that India could challenge China's position as the manufacturing centre of the world.

The report reasons that some of the main manufacturing locations in China are becoming too expensive relative to other countries in the region, including India.

While 43 per cent of the companies that offshored manufacturing activities to India have not achieved their initial objectives, the main barrier to success has been the lack of manufacturing and supply-chain infrastructure.

If the Indian government makes significant investments in this infrastructure then it should be able to attract foreign manufacturing activities and realise its potential.

"India is on the threshold of an exciting opportunity in the manufacturing outsourcing space. So huge is the opportunity that reputed respondents in the study have indicated that they see manufacturing activities as the primary activity to be offshored to India within the next 3-5 years, which will surpass India's IT and BPO activities," says Salil Parekh, executive chairman, Capgemini India.

The report also notes that despite China's booming manufacturing industry and rapidly growing consumer market, the clustering of manufacturing centres around major eastern coastal regions has led to a surge in labour and real estate costs.

Wages, being the most significant cost factor, range between $250 and $350 per month. In some parts of Thailand as well as in the Philippines and Indonesia, average manufacturing wages is in the range of $100-$200 per month.

The survey comprised 331 international manufacturing companies, primarily from Europe, Americas and Asia Pacific.

Although executives surveyed indicated strong interest in offshoring manufacturing activities to India in the coming years, they said at present their companies are more successful in offshoring to China than to India.

Eighty-three per cent of the companies that offshored activities to China have achieved or outperformed their expected benefits, compared with 69 per cent for India. However, this varies widely depending on the activity.

Incidentally, the report notes that considering an overall average of the activities offshored to China and India, the closure rate of the corresponding Western facilities is about 10 per cent.