India's emergence as next global manufacturing hub

India has emerged as a key player in global manufacturing, attracting attention from major international brands. The shift towards making India a global manufacturing hub is driven by a confluence of factors, ranging from the need for supply chain diversification to the availability of a skilled talent pool and favorable regulatory support.

Here are a few undercurrents we believe are driving this shift:

1. Supply chain diversification against China: With geopolitical tensions and the need for risk mitigation, businesses actively seek alternatives to China for their supply chains. India's strategic location and diverse economic landscape make it an attractive option for companies looking to diversify their manufacturing bases. During 2018-2022, inflation-adjusted data suggests that Indian exports to the USA surged by 44% while China experienced a 10% drop
2. Rising manufacturing costs elsewhere: Companies are exploring cost-effective alternatives as manufacturing costs escalate in traditional manufacturing hubs. India offers a competitive advantage with lower labor costs, enabling the average landed cost of Indian-made goods imported into the US to be 15% lower than goods manufactured in the USA
3. Abundance of skilled talent: India has a diverse and skilled workforce, particularly in the information technology and engineering sectors. The availability of a large talent pool is a significant driver for companies looking to establish manufacturing facilities in the country. During FY23, Apple manufactured products worth more than $7B in India and is expected to grow 5x in the next 5 years
4. Favorable regulatory and policy support: The Indian government has implemented pro-business policies and ‘Make in India’ initiatives to attract foreign investments. Incentives such as tax breaks and subsidies (PLI schemes) make India an attractive destination for manufacturing.
5. Growing domestic consumption: The increasing purchasing power and a burgeoning middle class in India create a large domestic market for consumer goods. Manufacturers can benefit from economies of scale by serving domestic and international markets from their Indian facilities.

Here are a few areas we believe there might be opportunities.

1. Vertical integration for cost and quality control: Establishing end-to-end manufacturing capabilities allows businesses to control costs and maintain high-quality standards. Improved inventory management and strategic raw material sourcing create a more efficient and resilient supply chain.
2. Leveraging manufacturing capabilities for consumer brands: Existing manufacturing facility owners can use their prowess to launch and promote their own consumer brands.
3. Protecting intellectual property: By internalizing key processes, businesses can safeguard their intellectual property and reduce reliance on external partners.
4. Agile new product development timelines & MOQ: India's manufacturing ecosystem allows for faster product development cycles and accommodates lower minimum order quantities (MOQ), providing brands with trial and error flexibility.
5. Addressing Carbon Emission and ESG Considerations: Globally, businesses want to associate themselves with sustainable production models to comply with ESG metrics and reduce their carbon footprint.

India's ascent as a global manufacturing hub presents a strategic opportunity for brands seeking to optimize their supply chains, control costs, and tap into diverse consumer markets. By aligning with the unique advantages offered by India's manufacturing ecosystem, brands can position themselves for sustained growth and competitiveness in the evolving global landscape.

Please comment with your?thoughts on opportunities to capitalize on these trends and do reach out if you are building in this space.