How India will integrate with global supply chains: What holds for 2018?

India has great success stories on how local chains became regional and then global, like the diamond polishing and cutting industry, auto components and ancillary, pearls, mineral fuels, pharmaceuticals, footwear, apparels, IT services, etc. But there is a hardware side to the story and a softer side as well.

Global supply chains are either vertical (where they are fully integrated end to end) or horizontal where goods or services travel across countries of similar wage costs. The choice of countries as crucial links in the supply chain is predicated not just on labor cost advantages, skills, networks, market accessibility, but on a host of other factors, including logistics costs, which is one of the significant factors that separates a country from the other.

India has taken entry in both these types of chains, vertical as well as horizontal. The trends suggest that on the horizontal side India is spreading on both sides in the East and in the West.

India now needs to consolidate and there are important pointers not to be lost sight of as well. The year 2018 holds enormous promise.

Logistics costs globally had a bonanza of sorts with the lowering of oil prices and India is taking the full advantage. To make deep inroads into India where unique advantages persist both for raw materials or market penetration,logistics could be one of the reasons why global supply chains found it difficult to integrate with India. Apples from New Zealand to Chennai remained cheaper than moving them from Himachal to Chennai. The coasts and nearby country therefore remained to be far better equipped while the interiors of the country remained unexplored.

But this is changing dramatically with GST stepping in, the earlier regime was a dampener of sorts that increased costs. With road network buiding also now in full swing and with focus on railway infrastructure building and freight corridors, India is now poised to reduce up to 2-3% of logistics cost. This will have an enormous impact to attract global supply chains for integration.

The next area where India scores is on trust building and being consistent in offerings and the service sector has shown this in many ways. We have some examples to showcase important case studies for the world how trust created unique competitive advantage and made the integration into global supply chains possible.

Supply chains are built on trust, alignment to common goals and in the shared understanding of continuous improvement. The presence of all three attributes makes a success story, as in the global diamond supply chain where India sparkles, thanks to Surat. 60% of worlds' diamonds touches Surat where half a million people are engaged in polishing and cutting. One of the fundamental reasons why Surat shines is because from the 1960s Surat built the strong bonds of trust, which is the primary reasons why from diamonds ranging from one carat to 5 carats move through a maze of polishing and cutting centers where tribal women and men are engaged in quality work. The skills that have attracted these centers are based on long term partnerships, the hallmark of sustainability, not for making quick gains.

What is so special in the Palanpuri Jains who initiated the diamond cutting and polishing industry? It was the building of trust based not on contracts but simply paperless promises that were kept for decades for receipt, movement and conversion of all rough diamonds into sparkling ones.

Today when the world is trying to adopt blockchain technology to replace the ambiguous contracts that limit multiple ledgers to be so integrated that any mismatch could be self- corrected, the age-old Palanpuri traditions remind us that such a technology was rendered redundant with the ubiquitous presence of trust-extremism in every step of the activities pertaining to diamond processing.

Such examples now abound in many other supply chains that India has painstakingly built, like auto ancillary, auto components, pharmaceuticals, machinery, etc. 

Value in supply chains is not based on how costs are distributed but on how the power gets proliferated in segments of the chain. This power stems from the service it renders vis-a-vis costs to the next in the link.

India as a service provider and as a service partner has improved manifold. The service mentality actually runs deep in the offering as in IT services, where India has retained its position globally and more continues to happen here from Bangalore, Hyderabad, Gurgaon, Pune, to the smaller centers as well.

With ease of doing business improving and with rating upgrades it is only expected that 2018 holds enormous promise for the manufacturing supply chains to expand as more funds get allocated here from the global community.

I see that 2018 will be an extremely good year for India's expansion in global trade links. The fledgling agricultural exports should see better possibilities with the new Commerce & Trade Minister giving enormous focus on this aspect how agricultural supply chains could be made part of the global supply chains. The same holds true for conversion sectors as well and India will be having the advantage of a unified GST regime to provide the all important tail-wind.

2018 will also be an year where benefits of reforms will start to bear fruit. Holding the gains will do a world of good for the new year. The global supply chains are also expecting the same.