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India closes on China as manufacturing hub

"India could challenge the position of China as the manufacturing center of the world in the next three to five years."

Roy Lenders, Capgemini Consulting Services vice president

"Made in India" could be the next big economic story, with the country challenging China's position as the leading global manufacturing hub within five years, a new report said.

Right now China is the favorite choice for outsourcing manufacturing while India is preferred for information technology, finance and customer services, said Capgemini, Europe's largest computer consultancy.

But "there's a very keen interest in moving more manufacturing to India," said Roy Lenders, vice president at Capgemini Consulting Services and the report's author.

"India could challenge the position of China as the manufacturing center of the world in the next three to five years," Lenders said, citing a survey of 340 mainly Fortune 500 global manufacturing companies.

"What surprised us was when we asked about their plans for the next three or four years, they said outsourcing manufacturing [to India] was a higher priority than outsourcing back office work," he said in a telephone interview.

"If we look at the respondents' plans for the coming years, manufacturing will become the number one activity to be off-shored to India," Lenders said, with lower costs the key factor driving the trend.

Manufacturing outsourcing looks set over coming years to surpass India's flagship IT and business process outsourcing activities in importance, he said.

Right now, China's share of the world's manufacturing exports is more than 8 percent while India stands at just under 1 percent.

But "the interest of global manufacturers in manufacturing in India is very high compared to China. In terms of trend there will definitely be a move. China has a reason to be worried," Lenders said.

However, India must improve its infrastructure with nearly half of the firms surveyed that had already outsourced manufacturing to India complaining about a lack of manufacturing and supply chain infrastructure.

India's ramshackle infrastructure of potholed roads, dilapidated ports, shabby airports and erratic power is regularly cited as an obstacle to economic growth along with the maze of red tape.

It has already taken some steps to promote an export-led manufacturing boom by setting up special economic zones -- havens of economic freedom that drove China's industrialization.

The lead factor driving India's new manufacturing popularity is price, he said. Some of the main manufacturing sites in China are becoming too pricey.

Chinese manufacturing wages are US$250 to US$350 a month whereas they average US$100 to US$200 per month or lower in Thailand and other parts of Asia. In India factory jobs start at US$60 a month.

All the international players "are looking at India as the new sourcing hub," said association vice-president J.C. Chopra. Others setting up manufacturing facilities in India include Finnish telecom leader Nokia, South Korean steel heavyweight Posco and US computer giant Dell.

And the companies do not only have their eyes on foreign markets. India's huge domestic market of 1.1 billion people is also a draw along with its push to boost infrastructure.

"India is building like hell, improving its infrastructure, so a lot of suppliers would like to be there," Lenders said.
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