China v. India for your product manufacturing

Why some electronics manufacturers are reluctant to set up in India.

By Mark Zetter

Can I assume that a decent supply chain will develop in India?
How did China develop a supply chain and is India likely to follow the same path?

The above questions are on the minds of many executives these days. The lack of a robust supply chain in India seems to be a chicken and egg issue. Meanwhile, it appears a supply chain won’t develop until there’s enough demand for components from manufacturers.

It’s inevitable India will one day have an adequate technology supply chain infrastructure that will meet the needs of the day and be able to adapt and evolve as market forces dictate. As in most free markets, market demands will push innovation and improve efficiency while isolating and driving out inefficiencies.

Meanwhile, a connection exists between India’s domestic demand for technology products and the development and integrity of India’s domestic technology supply chain distribution systems.

India manufacturing

As India’s domestic consumption of technology products increases, demand will increase for creating and sustaining adequate and reliable supply vendors; routes, and distribution-related systems. It is then believed that true momentum will surface in India that drives supply chain evolution and the bar in India will be raised.

However, it is not until India’s domestic demand for electronics products increases significantly will drivers for creating such an infrastructure come from ‘within’ India. Whereas, currently, demand placed on the system comes from MNCs doing business with India as a source for their manufacturing followed by export to other regions of the globe for end-market consumption.

Lack of good, physical infrastructure in India such as roadways; sea and airports, effective layout of city and regional functions, and reliable energy sources all contribute to the missing underlying foundation required to support the general framework from which a good Indian supply chain can begin to develop and thrive.

It does no executive any good to have printed circuit boards or finished goods inventory in an Indian factory and be unable to reliably move inventory to, and beyond, air or seaport in a timely and efficient manner. (OEM Exclusive: Request list of EMS/ODM providers anywhere in India)

China and productivity

Economically, China, although a communist country, its people are some of the best capitalists on the planet with an old history of ships carrying one thousand men engaged in trading with far away ports. Add to this, there is a true sense of loyalty among overseas Chinese to their homeland – helping support and build businesses on the mainland with money earned from overseas investments and ventures. (See: Managing China manufacturing supply chains)

The Chinese are well-known business men. Even though they are a small minority in their adopted countries, the Chinese seem to control a disproportionate share of these countries’ national trade. In Ming-Jer Chen’s book, Inside Chinese Business – A Guide for Managers Worldwide, Chen notes in Indonesia, for example, where the Chinese population is 4 percent of the country’s total, it controls 70 percent of the trade. In the Philippines, where the Chinese population is 3 percent, it also manages to control 70 percent of all business. Thailand’s population is 3 percent Chinese, and yet the Chinese control 60 percent of the trade.

It’s this can-do, global-reaching Chinese mindset that has a lot to do with China’s ability to constantly take a big-picture view on things and identify how all of the dots connect. Similarly, this is nothing short of understanding how a sophisticated supply chain distribution model might be carefully set up to ensure chances of success.

India, China supply chain distribution challenges

For both Indian and Chinese distribution systems, locally made components can only meet a small percentage of domestic demand. The majority of components must still be imported. The problem with this is that many electronics manufacturing companies in these countries don’t understand the advanced technology of foreign components. (See also: Steps to promote Indian EMS)

This is where it is key that good distributors are available to provide technical support and service. Unfortunately, the intellectual property (IP) that makes up and provides the foundation for this technical support and technology understanding that some larger, foreign distributors incorporate into their software systems is quite valuable and differentiates them from one another. One can understand why, in countries where IP and software theft is common, there is good reason to hesitate.

Although China is considerably further along the development phase of implementing a robust electronics hardware manufacturing market and distribution supply chain, ultimately, both countries will likely face the eventual small-to-mid-size players being forced to merge or shut down. What will then likely follow will be some of the regional, larger distributors becoming attractive buy-out candidates by larger MNC distributors. (Get a list of EMS/ODM providers anywhere in China or the greater Asia region)

As for India, one of the more remarkable aspects of the large sub-continent many may not realize has nothing to do with the country’s printed circuit board assembly or electronics hardware capabilities but rather its religious base: peaceful coexistence of Hinduism and Islam. A strict and conservative form of monotheism next to a rich and varied polytheism.

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