The Us-china trade war trig­gers re­lo­ca­tion of pro­duc­tion bases pav­ing way for In­dia and South­east Asia to reap ben­e­fits

Millennium Post - - Front Page - SUBRATA MAJUMDER

The global trade war be­tween the US and China may prove to be a boon for In­dia and South­east Asian coun­tries. The tur­moil has trig­gered re­lo­ca­tion of the pro­duc­tion bases from China to other emerg­ing na­tions like In­dia and South­east Asia. With the trade war in­ten­si­fy­ing, re­sult­ing in the ero­sion of low-cost pro­duc­tion base in China due to high tar­iff by Trump ad­min­is­tra­tion on al­most all prod­ucts, the big firms are scouting around for an­other low-cost hub out­side China.

MNCS, hav­ing big­ger foot­prints in China, are now con­sid­er­ing to shift their pro­duc­tion bases to low-cost coun­tries such as In­dia, Vietnam, and In­done­sia. Re­lo­ca­tion is of two types, ac­cord­ing to one con­sul­tant. One group in­tends to shift part of their pro­duc­tion bases and an­other group con­tem­plates to shift the whole of their pro­duc­tion out of China.

Lead­ing Ja­panese me­dia Nikkei Asia car­ried a re­port head­lined “South­east Asia, In­dia, and even US ben­e­fit as in­creased taxes add to wage con­cerns”. It said that “South­east Asia and In­dia have be­come safe heav­ens from US Pres­i­dent Don­ald Trump’s bar­rage of tar­iffs”. Even­tu­ally, footwear, gar­ments, and elec­tronic in­dus­tries have be­come the tar­get ar­eas for some Tai­wanese com­pa­nies to re­lo­cate pro­duc­tion bases, ac­cord­ing to a me­dia sur­vey. The sur­vey showed how the Tai­wanese com­pa­nies were re­lo­cat­ing their pro­duc­tion bases to In­dia and South East coun­tries to counter the trade war.

Feng Tay En­ter­prises, a Tai­wanese firm, which man­u­fac­tures footwear and sup­plies to Nike and Adi­das, stopped adding ca­pac­ity in China and has set up pro­duc­tion bases in South­east Asia and In­dia. The com­pany was un­nerved by the trade con­flict and it has only

around 10 per cent of pro­duc­tion left in China. Ac­cord­ing to its direc­tor Joe Lin, the com­pany’s pro­duc­tion in China would drop fur­ther with the si­mul­ta­ne­ous in­crease in ca­pac­i­ties in South­east Asia and In­dia. Its sec­ond unit started pro­duc­tion last year in In­dia, with an in­ten­tion to in­crease ca­pac­ity fur­ther.

Delta Elec­tron­ics, a Tai­wan­based con­tract man­u­fac­turer of elec­tronic parts and sup­plier to Ap­ple, Sony, HP and many other global man­u­fac­tur­ers, an­nounced that it would utilise its Bangkok base Del­traelctronic (Thai­land) which in­vested in In­dia and Slo­vakia to counter un­cer­tain­ties due to the trade war.

These cases ex­em­plify the strength of In­dia as a place for global man­u­fac­tur­ing in view of the global re­lo­ca­tion process. It spawns am­ple op­por­tu­ni­ties for FDI. The big­gest ad­van­tages are its vast do­mes­tic mar­ket and sus­tain­able growth, which ex­cludes it from the pres­sure

of ex­port dom­i­nated growth, un­like Vietnam.

In­deed, China emerged as a big in­vestor in In­dia. It has be­come the cat­a­lyst for the start-ups in In­dia and the driv­ing force for the growth of the elec­tronic man­u­fac­tur­ing in­dus­try. Chi­nese pri­vate eq­uity play­ers were on an in­vest­ment binge in In­dian start-ups. Last year, they in­vested $2.95 bil­lion, which was five times more than the $579 mil­lion in­vested in 2016, ac­cord­ing to Ven­ture In­tel­li­gence. IT and It-en­abled sec­tors were the fo­cused ar­eas of Chi­nese pri­vate eq­uity in­vestors.

Sim­i­larly, Chi­nese com­pa­nies played a key role in es­tab­lish­ing a strong plat­form for man­u­fac­tur­ing mo­bile phones in In­dia. Do­mes­tic man­u­fac­ture of mo­bile phones clocked 397 per cent growth in be­tween 2014-15 and 2016-17. Al­most all the lead­ing Chi­nese man­u­fac­tur­ers, like Xi­ami, Oppo, Huawei, One Plus, Cool­pad,

ZTE, and Gionee have set up their man­u­fac­tur­ing units in In­dia.

China also in­tends to in­vest in In­dian in­fra­struc­ture heavily. Last year, China’s Sany Heavy In­dus­try planned an in­vest­ment of $9.8 bil­lion in In­dia, while Pa­cific Con­struc­tion, China For­tune Land De­vel­op­ment, and Dalian Wanda planned in­vest­ments of more than $5 bil­lion each.

Re­lo­ca­tion of pro­duc­tion bases is likely to sup­port the transna­tional man­u­fac­tur­ing prac­tices in the world. Transna­tional man­u­fac­tur­ing is the new era in world man­u­fac­tur­ing. It is fo­cused on GVC (Global Value Chain) value-added man­u­fac­tur­ing in the lure of low-cost pro­duc­tion. To this end, labour in­ten­sive in­dus­tries in de­vel­op­ing coun­tries have worked well for transna­tional man­u­fac­tur­ing through the GVC net­work.

Firms in de­vel­oped coun­tries have es­tab­lished a transna­tional man­u­fac­tur­ing net­work, com­bin­ing their high tech know-how with lower wage labour in de­vel­op­ing coun­tries. Even­tu­ally, pro­duc­tion has be­come in­creas­ingly frag­mented across the borders through the grow­ing preva­lence of GVC for the pro­duc­tion of com­po­nents and parts in low wage coun­tries. South­east and East Asia emerged as po­ten­tial part­ners for this new pat­tern of pro­duc­tion.

In­dia trailed be­hind in this race. In­ad­e­quate avail­abil­ity of skilled work­force, lack­lus­tre in­fra­struc­ture and lim­i­ta­tion of a scale of pro­duc­tion were ma­jor de­ter­rents for In­dia to be a po­ten­tial part­ner in GVC.

With China los­ing the low-cost ad­van­tages in value chain man­u­fac­tur­ing be­cause of trade con­flicts, which will even­tu­ally curb China’s ex­port power, In­dia has the op­por­tu­nity to join the stream for low-cost value chain man­u­fac­tur­ing, va­cated by China and strength­ened by the re­lo­ca­tion of pro­duc­tion bases. Known as the place for labour-in­ten­sive in­dus­tries and as­signed as a con­tract man­u­fac­turer for footwear and elec­tronic items by the Tai­wanese firms, re­lo­ca­tion of pro­duc­tion bases will likely re­jig In­dia’s po­ten­tial for the transna­tional man­u­fac­tur­ing prac­tices.

In­dia has an edge over the South­east Asian coun­tries like In­done­sia, Thai­land, and Vietnam, which have perked up as po­ten­tial ar­eas for re­lo­ca­tion of pro­duc­tion bases. Though the wage level in these coun­tries is more or less sim­i­lar to In­dia, they are be­hind In­dia in of­fer­ing a vast do­mes­tic mar­ket. These coun­tries are ex­port­based economies. To this end, given the trade war squeez­ing ex­port op­por­tu­ni­ties, the in­vestors should have sec­ond thoughts on re­lo­cat­ing to coun­tries other than In­dia.

(The views ex­pressed are strictly per­sonal)

As China loses low-cost ad­van­tages in value chain man­u­fac­tur­ing be­cause of trade con­flicts, In­dia has the op­por­tu­nity to join the stream for low-cost value chain man­u­fac­tur­ing va­cated by China and strength­ened by the re­lo­ca­tion of pro­duc­tion bases. Re­lo­ca­tion of pro­duc­tion bases will likely re­jig In­dia’s po­ten­tial for the transna­tional man­u­fac­tur­ing prac­tices

Known as the place for labour-in­ten­sive in­dus­tries, In­dia has a po­ten­tial to ben­e­fit from the con­se­quences of Us-china trade war (Rep­re­sen­ta­tional Im­age)

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.