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Associate, Content Writer
Once a predominant choice, China is now being reconsidered in favor of India's promising potential. India's economic prowess is gaining global recognition as it positions itself to become the world's third-largest economy by the end of the decade. Amidst this economic transformation, marked by international deals and collaborations, a significant catalyst can be attributed to the China Plus One Strategy.
This article delves into the China Plus One Strategy and its impact, shedding light on how India is strategically leveraging this trend to its advantage.
Coined in 2013, the concept of “China Plus One” is a strategic approach adopted by multinational companies to diversify their production and supply chains by incorporating an alternative manufacturing or sourcing location alongside China. This strategy gained traction due to factors such as increasing costs in China, geopolitical uncertainties, and the need to mitigate risks linked to relying solely on one production hub, leading to a supply chain monopoly.
The “China Plus One” strategy involved diversifying production and supply chains away from China due to rising labor costs, with businesses seeking cost-effective alternatives in regions with lower labor costs. There were fears that heavy reliance on a single supply chain in China could lead to exposure to supply chain disruptions, trade disputes, and policy shifts, prompting the need for risk management. Establishing production facilities in other countries provided improved market access and potential reductions in trade barriers. Locating production centers closer to target markets was also a key factor into consideration because of the reduced transportation costs, and enhanced responsiveness to customer demand.
Cashing into this, India emerged as a compelling alternative destination for MNCs and businesses. With its massive domestic market of over 1.4 billion individuals, India became an enticing prospect for companies looking to establish a robust presence and tap into the flourishing middle class, which wields substantial purchasing power. This shift was not only prompted by the market potential but also by India’s competitive labor costs, making it an attractive hub for industries seeking to optimize production expenses.
Following is the official statement by David Kohler as the company projected India to become its 3rd largest market by 2024 as of August 17, 2023.
“India has the fastest-growing GDP in the world among major economies. But for us, it’s our fastest-growing market, and within this market growth, we are growing twice as fast,” Kohler said. “With the rise of the middle class and increased purchasing power for household products over the last decade, along with its anticipated continuation, I believe we are in a strong position as a premium player,” he added.
India’s strategic geopolitical location opens doors to markets across South Asia and the Middle East, presenting enterprises with opportunities for regional expansion and increased trade. With the Indian government persisting in implementing business-friendly economic reforms to facilitate ease of doing business and attract foreign investment, a nurturing entrepreneurial ecosystem is brimming within the country. Noteworthy instances can be highlighted, such as investments in PLI schemes that have yielded a production value of Rs. 3,30,612 crore and exports worth Rs. 1,56,051 crore as of June 2023. This ecosystem, comprising startups and established entities across diverse sectors, fosters innovation and collaboration, creating a dynamic environment for companies venturing into the Indian market.
While the idea might sound appealing and mutually beneficial, there are indeed some significant hurdles that need to be acknowledged. One of the notable challenges stems from the trade policy framework that seems to prioritize more stringent measures rather than actively seeking integration into global value chains. This adds a layer of complexity to the situation and requires careful acknowledgement and consideration.
Furthermore, there are additional factors beyond these that require reform to facilitate a smooth transition for MNCs. One of the key players in this is the Income Tax system of the country, which is quite complex, including various state and central taxes, and can be challenging for businesses to navigate.
One such backlash that serves as a great example of this is when the 28% GST rule came in for the gaming industry. In response, prominent players in the gaming sector began to look beyond India’s borders to find avenues that would yield higher profits for their businesses.
Many companies have successfully implemented the China Plus One strategy in India and have leveraged the country’s vast market potential and competitive advantages. It is rather clear now that companies need to have a very good understanding of the demographic and niche markets that they wish to target. A meticulous understanding of the risks involved is going to be their edge.
