India, with the world’s largest population and a huge market, is benefiting from the global trend of “derisking” from China.
The survey also showed that compared to service companies, many manufacturing companies chose India, Vietnam, or Thailand as alternative countries to China. This suggests that many multinational corporations (MNCs) actively explore options to mitigate supply chain risk.
“In the last five years, foreign MNCs have increased their on-ground presence in India, partly as a result of diversification away from China. In particular, the IT & ITES [Information Technology Enabled Services] companies are ramping up the share of their global workforce that is based in India,” said Suraj Saigal, research director at IMA India.
Business Confidence in China Declines
Important factors prompting these CEOs to consider alternative supply chain options include the Chinese Communist Party’s (CCP) growing geopolitical aggressiveness, dubious trade and commercial practices, and rising labor costs.Another survey released by the European Union Chamber of Commerce in China (EUCCC) on June 21 found a significant deterioration of business confidence in China among European companies.
Business confidence in China is “pretty much the lowest we have on record,” stated Jens Eskelund, president of the European Chamber, during a press briefing preceding the report’s publication.
The shift can be attributed to slowing Chinese economic growth and rising costs.
Heightened security controls, the CCP’s protection of domestic companies, and the expansion of China’s anti-spying law are also shared concerns of foreign companies.
In April, Chinese police raided two advisory companies, Bain & Co. and Capvision, and a due diligence firm, Mintz Group, without providing a valid reason. Chinese authorities said foreign companies are required to obey the law but have not named any possible violations.
India
In response to the waning confidence of multinational corporations in China, India has been proactively attracting foreign companies to invest in the country and foster the growth of its manufacturing sector.Taiwan, which has long been under the military threat of the CCP, and the United States, the global leader in countering the CCP threat, have seen more companies moving their production to India.
“As of April 2022, with more than 100 Taiwanese companies in India employing 65,000 Indians, Taiwan’s investment in India amounts to US$ 1.5 billion, and has risen to close to 1 percent of Taiwan’s outbound investment,” the report said. “The signing of the upgraded bilateral investment treaty in 2018 doubled Taiwan’s investment in India. In 2020-21, India’s Investment Promotion Department received 87 applications from Taiwanese companies in 17 sectors, including electronics, healthcare, information technology, manufacturing, power generation, e-commerce, and retail.”
U.S. companies are taking similar actions. Since last year, Apple has gradually shifted more production capacity of its iPhone series to India and started producing the latest iPhone 14 in the country. Moreover, Apple’s two foundries, Foxconn and Pegatron in Taiwan, have also expanded their presence in the Indian market.
This signifies a major shift in Apple’s strategy in India. Initially, Apple focused its production in India primarily for the domestic market. However, Apple’s current objective is to establish a strategic production hub in India for exporting to third markets, including Europe, the report said.
In addition, U.S.-based Lam Research plans to train 60,000 Indian engineers through its Semiverse Solution virtual fabrication platform to accelerate India’s semiconductor education and workforce development goals, and Applied Materials company announced a $400 million investment to establish a collaborative engineering center in India, according to the White House statement.
India is also striving to become a manufacturing hub for electric vehicles. During his recent visit to the United States, Modi met with Tesla founder Elon Musk, who said after the meeting that Tesla will try to be in India “as soon as humanly possible.”
On the military front, India and the United States jointly announced an agreement allowing General Electric to partner with Hindustan Aeronautics to produce fighter jet engines for the Indian Air Force.