As relations between the U.S. and China remain in turmoil, and China shifts the focus of its economy away from low-value manufacturing, supply chain managers are increasingly scouting for new countries in which to do business, and many are particularly curious about India. India, after all, boasts the world’s ninth-largest economy, a booming IT sector, and a government that has made attracting Western businesses a top priority. However, the country is still plagued by technological, cultural, and bureaucratic hurdles that are keeping it from reaching its full potential, and anyone considering doing business there should be aware of them before they set up shop.
Let’s start with the good news. In 2014, Indian Prime Minister Narendra Modi launched the Make In India initiative, with the goal of increasing the country’s manufacturing output and employing the vast numbers of young Indians entering the labor force. Manufacturing has traditionally comprised a surprisingly small fraction (roughly 17 percent) of India’s GDP. Make In India’s efforts have drastically reduced governmental red tape, and helped India jump 23 positions in the World Bank’s Ease of Doing Business ranking in a single year, from 100th to 77th place. JOC reports that streamlined customs procedures have dramatically sped up port operations, though they also note that highway infrastructure is struggling to accommodate the increased traffic and rail conversions can be “arduous.”
Global high-tech manufacturers have taken notice of the new, business-friendly environment, with firms including GE, Siemens, HTC, Toshiba, and Boeing all setting up plants in India. In October, UPS announced it was taking full control over its Indian operations, citing India’s growing economy and status as a “key player in the shipping and logistics sector.” UPS isn’t alone; in November, Amazon revealed it is investing over $16 million into its logistics arm in India, with a focus on scaling up its Prime delivery capabilities. Maersk is also betting heavily on India being a key piece of its digital transformation, and recently launched the “OceanPro” technology accelerator program, working with Indian startups to spur innovation in logistics and supply chains using advanced technology such as blockchain, the internet of things, and artificial intelligence. All these investments are inarguably laying the groundwork for an India in which goods move swiftly and efficiently. However, this process is still in its early stages, and any business without Amazon or Maersk’s vast resources may still find a challenging business climate.
While Prime Minister Modi’s reforms have helped jump-start the Indian economy, the effects have failed to trickle down to most of India’s people. Gallup surveys have found that Indians nationwide rate their lives as being the worst in recent memory, and a quarter of rural Indians report they they could not pay for food at some point last year. That’s an issue for a country that aspires to be a consumer economy. India also suffers from serious pollution: in 2016, the World Health Organization listed all 10 of the planet’s most polluted cities as being in India. Last year, Delhi’s chief minister said the smog was so bad that the city had become a “gas chamber.” The health and environmental impacts of increasing manufacturing in India should be a serious consideration, lest reckless growth cause conditions to deteriorate further.
India’s labor and business cultures also lag far behind its competition for reasons that will take time to overcome. Manufacturing boosters point to the potential for cost control due to India’s low wages (Indian workers make, on average, less than half the salaries of workers in China). But, according to an A.T. Kearney analysis, Indian manufacturers suffer from quality complaints and fulfillment delays, are slow to innovate, and are far less able to scale up or down than most of the world’s manufacturing economies. Workforce productivity is low, owing to outdated equipment and processes, poorly trained workers, and a lack of on-the-job training. The analysis suggests that multinational businesses hoping to move operations to India should be prepared to invest in training, automation, and work to find local suppliers that are committed to high quality and low waste.
Despite the challenges, India’s manufacturing is not without its success stories. India’s automotive manufacturing sector now produces nearly as many vehicles per year as South Korea, and according to The Atlantic, has created 25 million jobs between 2006 and 2016. Pharmaceuticals, textiles, and petrochemicals are also bright spots. And in the early 2000s,
India’s IT sector had great success in rapidly educating hundreds of thousands of workers to create a now-booming tech environment. This speaks both to the possibility that similar educational initiatives could create more skilled workers, and to the fact that there is a massive IT talent pool that businesses can tap into for technological solutions.
India’s shipping and logistics landscape is improving by leaps and bounds, and India’s economy is on a determined upward trajectory. For companies in the right industry, or with the right amount of patience, this could be an excellent time to explore or expand operations in India. But it may also be worth waiting until more improvements have been made, and the country is closer to its stated goal of becoming “a global design and manufacturing hub.”