Manufacturing costs have risen in China fuelling speculation that ‘Make in India’ may be the future of global manufacturing. But does India truly have the power to overtake China, a country which has dominated the global manufacturing industry for the last three decades?
Infrastructure
Thirty years ago China and India’s economies were at very similar levels, so why is China’s manufacturing sector worth ten times more than India’s? China focused its growth around investment, manufacturing and its incredible infrastructure, which is arguably now the best outside of the Western World. This infrastructural focus has been one of the key drivers of its manufacturing growth as it boasts highly efficient factories perfect for mass production, strategic and low cost transport systems of excellent quality and a reliable electricity supply. India lacks in these areas and cannot currently compete on the same level as China in terms of this infrastructure which has taken patience and expertise for China to perfect. Further to this, China has more Special Economic Zones (SEZs) than India. This has also been one of the main factors of China’s astounding economic growth of recent decades due to increased overseas investment. China’s manufacturing sectors have been built around these SEZs to ensure the lowest costs possible with their business friendly policies. As an investor looking to outsource manufacturing, look no further than China’s SEZs.
Labour supply
China’s manufacturing productivity rate is 1.6 times higher than India’s. On average, this results in each Chinese worker producing 60% more than their Indian rivals. So do not be fooled by the raw data that claims India has a ‘cheaper’ workforce. Although this is true in terms of direct wage costs, the drop in productivity may actually be more costly in the long run because time is money. In addition, China has traditionally encouraged gender equality. Labour force participation by women in China is 74% in contrast to India’s mere 34%. A study by the Journal of Economics and Management Strategy shows that productivity is higher in economies where both genders are given more equal employment opportunities. This leads to an abundance of skill and healthy competition among the workforce. However, one area where India does exceed China is communication. India has a British based education system resulting in a better grasp of the English language for their workers. Therefore, you may need a translator when doing business in China.
Future sustainability
Historically China are more efficient and tend to win economic races. As mentioned, around thirty years ago China and India had similar economies but since then China’s economy has grown to be five times the size of India’s according to the Economic Times. This time round China already has a huge head start. Despite India launching its ‘Make in India’ plans, it is clear to see that China’s rival is still decades behind with a manufacturing sector that is significantly smaller. India’s growth has also been accompanied by large inflation up to six times higher than China’s. This is unsustainable and will lead to India’s manufacturing economy hitting a brick wall in due time. Even though their costs are currently low, this seems to be a honeymoon period which will eventually come to an end.