US-China Trade war a remarkable opportunity for Port Led Industrialization- A marketing Perspective

It is not the peace, but the war gives a chance to economic growth to the developing countries. Before venturing into Marketing of Ported industrializing on what it is all about Industrialization? The consequence of lifetime economic opportunity open to India since Independence to capitalize on the trade war between US & China. How will India gain the ultimate objectives of economic growth out of this fight?

The answer is that different governments had different objectives in mind but the present Govt. of India. Initiate & include a faster growth of national income, alleviation of poverty, and reduction of income inequalities. However, how industrialization expected to contribute to these goals is paramount? The experience of industrial economies shows a close association between development and industrial expansion. The industry is also thought to provide certain spillovers which would benefit other activities: enhancement of skills, training of managers, dispersion of technology. Many Economic Survey highlights the importance of Industry and Infrastructure for India to maintain stable and sustainable economic growth.

Economists and policymakers in the developing countries have long agreed on the role of government in providing infrastructure and maintaining stable macroeconomic policies, policies toward trade and industry. A convenient and instructive way to approach the complex issues of appropriate trade policies for development is to set these specific policies in the context of looking at outward or inward objectives. Outward-looking development policies encourage not only free trade but also the free movement of capital, workers, enterprises, the multinational enterprise, and an open system of communications. By contrast, inward-looking development policies stress the need to evolve their styles of development and to control their destiny. Within these two broad philosophical approaches to development, many debates have been carried out between the free traders, who advocate outward-looking export promotion strategies of industrialization, and the protectionists, who are proponents of inward-looking import substitution strategies. The advocates of import substitution (IS) – the protectionists – believe should substitute domestic production of previously imported simple consumer goods and extend this later to a broader range of more sophisticated manufactured items – all behind the protection of high tariffs and quotas on imports. As economies of scale, low labor costs, and the positive externalities of learning by doing cause domestic prices to become more competitive with world prices. By contrast, advocates of export promotion (EP) of both primary and manufactured goods cite the efficiency and growth benefits of free trade and competition. The importance of substituting large world markets for narrow domestic markets, the distorting price and cost effects of protection, and the tremendous success of the Asian export-oriented economies of South Korea, Singapore, and Hong Kong and China now Philippines, Vietnam Indonesia, Malaysia, and India: 

 Various Economic Survey highlights among the same per capita emerging countries India’s performance is significantly better.

1. World Bank rightly pointed out ‘infrastructure development’ includes–Ports, Roadways, Railways, Telecommunication, critical to delivering growth, reducing poverty, building human capability and to address broader developmental goals.
2. India has a coastline spanning 7516.6 km forming one of the most prominent peninsular in the world.; around 95 percent of India’s trading by volume and 70 percent by value is done through maritime transport.
3. The 12 Major Ports & 187 Minor/Intermediate ports.
4. Government is taking various measures to enhance the capacity of existing ports and creating new major ports, Ease of doing business- Sagarmala, Bharatmala, Inland water transport (Jal Vikas Marg), East Coast Economic corridor, etc.

Sagarmala

1. Sagarmala project is a port-led development program of the Ministry of Shipping.
2. A Shipping ministry study has claimed that the project could lead to an annual saving of Rs 40,000 crore by optimizing logistics.

Need for such a project:

1. India needs a high quantity of international trade via coastal line infrastructure facilities and advanced coastal technologies.
2. The cost of shipping/evacuating goods through Indian maritime transport is high compared to that of China, South Korea, Japan, and other developed countries. This makes Indian products uncompetitive in the international market.
3. China, South Korea, and Japan have effectively used their coastline for ‘port-led development.’ India has to replicate its model to stay competitive.
4. So, a plan has to be devised to reduce logistics cost and strengthen India’s EXIM industry. Sagarmala Project is one such plan.
5.  India seriously to initiate the success story of The port’s catchment area for the Industrialization. And Sagarmala is the right initiatives to implement.
6. All these countries export grew strongly on the backyard of a marketing effort by every policy. I.e., Shenzhen Export zone in China

Objectives of Sagarmala:

In the Port Moderanisaion-Augmenting operational efficiency of ports (more terminals for loading and unloading cargo). 40+ capacity enhancement projects at major ports with Port Connectivity -Optimizing logistics (rails, roads and inland waterways) and Port and industrial connectivity. Port led Industrialisation – 14 Coastal Economic Zones, Industrial Clusters Identify capacity additions Modernize India’s Ports to achieve Ease of Doing business to accomplish the Coastal Community Development-Skill development-Uplifting fishermen and other local communities.

The vision of Sagarmala:

 Analysis Impact of Sagarmala by 2025

Other advantages of Sagarmala: It is a counter to China’s String of Pearls, a security infrastructure envisaged by India in the Indian Ocean region lead to defense capability enhancement project of

and fructify the Indian Port led Industrialization in quicker succession to compete across all fronts in US-China fight

1.     The impact of the US-China trade war is spurring foreign and Chinese firms to consider moving parts of their supply chains out of both the US and China over the longer term and delaying or canceling investment in both countries, a new survey by an American business group has found.

2.     The firms surveyed, which included Chinese and foreign businesses, said they believed the trade war would last longer than a year, according to a white paper on the business environment in China released by the American Chamber of Commerce for South China.

3.     Countries in Southeast Asian are the primary alternative locations for firms planning a relocation of all or parts of their supply chains.

4.     Some 72 percent of the 219 firms polled said they were considering moving supply chain sourcing out of China, while 77 percent said they would move supply chains out of the US.

5.     Some 64 percent of all firms and 70 percent of American firms said they would move manufacturing production out of China, against 60 percent considering relocating out of the US.

6.     Some 67 percent said they would delay or cancel investment in the US, and 66 percent would do the same in China.

7.     However, US firms were much more likely to cut investment in China than other foreign firms, while being equally likely to do so in the US.

8.     A majority of all wholesale and retail firms plan to adjust their supply chains, followed by manufacturing companies, with agribusiness firms trailing far behind.

9.     Rise in non-tariff barriers in China and the US, with Chinese firms doing business in the US topping the list in several categories.

10. The US and Chinese tariffs have not only hurt American and Chinese firms but are also affecting companies from other countries and causing substantial losses of business volume and market share, the chamber said.

11. Among all the participants, manufacturing companies are suffering a more significant loss of market share than those in other sectors.

12. Chamber president Harley Seyedin said the impact of the trade war has not yet been entirely felt by many businesses because many export orders were placed long in advance of the first tariffs and many cases few if any, alternative sourcing options are available.

13. The primary concern at this point is that consumers in both nations may have to pay slightly more for many items now and likely much higher prices in the not too distant future.

14. The top concern resulting from the US tariffs was a rise in the cost of goods sold, which will result in reduced profits. plenty of on the ground accounts suggest that factories are being downsized or closed completely, with firms 

15. About two-fifths of the companies surveyed were still unsure of the extent of the negative impact on their business volumes, while nearly 10 percent of manufacturing firms had suffered business losses of US$250 million or more. One-third of the firms claimed that the negative impact on their business volume was between US$1 million and US$50 million.

16. The recent survey on the impact of US and Chinese tariffs was conducted after the US imposed 10 percent tariffs on an additional US$200 billion of Chinese imports.

17. They see a growing number of factory operators across the Pearl River Delta and Yangtze River Delta, the hubs of Chinese manufacturing, are visiting Vietnam, India, and Cambodia to check out the possibility of setting up factories.

18. The trade war could last many years, creating considerable uncertainty for the Chinese companies firms to develop alternative plans. It’s reasonable and practical for them to relocate factories to other countries which will have stable and healthy trading relations shortly.

19. It is not going to be easy to find a mature manufacturing base with enough skilled workers and infrastructure, that can replace mainland China, China has the complete industrial supply chain system.

20. For example, Foxconn, the Taiwanese manufacturing giant that is the primary supplier for Apple’s iPhone and numerous other significant electronics devices, employs more than one million skilled workers in several plants across China. It’s hard to move this production chain out of China in the short-term despite the fact they are scouting in India since 2014 had several visits to all over and JNPT. They had bid for the land in JNPT SEZ first ever in India.

21. Several major US-based technology companies planning to shift substantial production out of China, Personal computer makers HP and Dell- Technologies are planning to reallocate up to 30% of their notebook production out of China. Microsoft, Alphabet, Amazon, Sony, and Nintendo are also looking at moving some of their game console and smart speaker manufacturing out of the country.

22. In June, Apple asked its significant suppliers to assess the cost implications of moving 15%-30% of its production capacity from China to Southeast Asia as it prepares for a restructuring of its supply chain.

23. The most are not so much the immediate impact but the potential long-term loss of access by Chinese companies to the US market and, as a result, American companies’ access to a market that will eventually have five times as many consumers like the US.

24. The destinations are Taiwan, Cambodia, Thailand, and other parts of Southeast Asia India has few slices then more it should. This is not solely due to the trade war since the rising cost of labor and meeting environmental regulations in China have also led to companies seeking cheaper production hubs over recent years.

25. But the tariffs have accelerated the trend, and logistics companies with cross-border capability are milking the opportunities, moving the growing traffic of Chinese firms from China’s industrial heartlands and newly-built industrial parks in neighboring countries.

26. Since the second half of 2018, ten manufacturers – in sectors from jewelry, to electronics, to printing – have relocated their entire plant. These ten enterprises have entirely shifted and withdrawn from China. At least 500 companies transport their partial production lines, as well as raw materials and equipment, to their newly-built plants in Vietnam, Indonesia, and Thailand. In recent weeks, the pace of the exodus has sped up too. 

27.  A new list of goods to be subject to a 25 percent tariff, containing almost all the remaining Chinese exports to the United States, worth an estimated US$300 billion. Many manufacturers were caught by surprise and left scrambling to get out of China.

On the whole, the shift away from China will happen more gradually and haltingly than the headlines may suggest – absent a catastrophic deterioration in China’s domestic political situation or escalation in tensions with the U.S. Given the costs of moving and risks of leaving, perhaps the most significant shift will be that new investments increasingly go elsewhere. And among foreign firms that are motivated by U.S. tariffs to leave, the relocation will generally be partial, confined to operations (like final assembly) that minimize supply chain disruption while satisfying U.S. rules of origin requirements. In other words, they’ll be looking to manufacture just enough of a product elsewhere to stamp it with: “Made anywhere but China.”

The creation of new industrial clusters won’t happen overnight. Vietnam offers cheap labor, but its 100-million population is small compared with China’s 1.3 billion, and its roads and ports are already clogged. India has the human resources, but skill levels fall short, and government rules are relatively restrictive.

Significantly approximately 200 American corporations have expressed interest in relocating their manufacturing base from China to India, which they believe boasts excellent business potential. The companies are inquiring about investment methods to establish a presence in India as an alternative to China. The reform as a priority to attract foreign investors. Recommended measures include increasing transparency in the business solicitation process, providing administrative assistance on land and customs issues, and others. Mark Linscott, the former Assistant US Trade Representative for South and Central Asian Affairs, urged collaborating with USISPF member companies to devise a list regarding what India is required to do to boost trade ties with the U.S., said the report. Underscoring the importance of pressing for a Free Trade Agreement (FTA) between the two countries, 

To cushion the impact of the ongoing trade war between the US and China on its business, The business, iPhone-maker Apple wants to hedge its bets by shifting around 10-15 percent of its manufacturing to India. However, the company also wants the Indian government to ensure a stable policy regime with sector-specific incentives to help it establish an export hub in the next 5-10 years.

Apple setting up full-fledged operations in the country means more investments, jobs, and technology coming into the country, which has the scale to drive India’s stunted electronic manufacturing sector, The company will bring in advanced technologies used in the manufacturing of ultra-premium handsets and electronic components, which will enhance India’s tech capabilities. Besides, this will also positively impact skill development, though this will be seen in the medium to long term.

 India is targeting companies including Apple, Foxconn and Wistron Corp with a charm offensive aimed at encouraging them to shift business out of trade war-hit China, Amid suggestions that India is late to capitalize on the trade war, government ministries have been asked to submit their policies and incentive structures to Invest India, the country's foreign investment promotion agency. Nine sectors, including electronics, autos pharmaceuticals, and telecoms, will be targeted.

The Questions: Is India Can capitalize the War

 While China’s cost advantage is formidable, there are select sectors where India can be an alternative supply source for US firms and China as well. US-China trade war has reached unprecedented levels. After having high levied tariffs on imports worth $250 billion, US President Donald Trump has not toned down his rhetoric, has threatened to impose equal amount which should pretty much cover all of China’s exports to the US. The global economy is, consequently feeling the chill. Amidst this development, is there a real opportunity for India to warm up to. To answer this question, one needs to understand the evolving US-China relationship. Over the last few decades, the nature of their relationship was one of ‘nether friends nor foes’ and all they wanted was a ‘win-win economic engagement.’ In other words, they were ‘co-operating rivals.’ In 2007, the US economy was four times that of China, but by 2012, thanks to the great recession, it reduced to two-times. There is growing anxiety in the US about China’s growth. The Chinese, on their part, believe that the US is actively working to prevent their country from taking the rightful place in the world order. It is not just economic growth that has sowed seeds of discontent. China has been flexing its muscle militarily by spending heavily. China’s military, vexed at the US control over trade routes, has been trying to test its strength in the South China Sea. The two nations have had their share of skirmishes there. Also, President Xi Jinping’s Belt and Road initiative has unnerved the US, which sees it as an attempt by China to play a more significant role in the world. It is clear that China does not like the idea of a unipolar world, but the US wants to keep it that way. That apart, the two nations do not see eye to eye when it comes to political values, nor do they have common security interests.

So this trade war is not just about trade much more than trade to economic and political. This puts US companies in a piquant position. Over the years, taking advantage of low costs, they have increased their dependence on China for their supply chain needs and manufacturing. Such is the depth of the arrangement that over 50 percent of the products HP, IBM, Dell, Cisco, Microsoft, and Intel or their suppliers use come from China. It is the second-largest exporter of auto parts to the US auto giants (after Mexico). The list of sectors heavily dependent on China is long, and US companies realize the need to de-risk their operations — supply chain as well as manufacturing. The US is already pushing ICT players to reduce their dependence on China. Investors are also beginning to question US companies on their fallback plan if US-China relationship goes into a spiral.

This situation presents a clear opportunity for Indian companies. After all, the US and India see each other as natural allies. Former US President Barack Obama even described the relationship as ‘one of the most defining partnerships of the 21st century’. Trump too wants a close relationship with India, a democracy with shared values. Not surprising that US companies have already started making inquiries about sourcing from Indian players, especially in the auto-component space. But taking a share of China’s supply chain or manufacturing is easier said than done. Over decades China has invested a lot in upgrading its infrastructure. Also, the scale of manufacturing is such that it will be difficult for India to match in terms of cost. But the silver lining is that the recent imposition of tariff by the US has leveled the playing field, at least in select sectors.

Competitive enough

These sectors have certain common traits that help them to be as competitive as those in China. They have the right scale thanks to a robust domestic market in India. They have also built a stable supply-chain network (this is critical as India cannot grab a share of the ICT exports from China as it lacks a proper supply chain, especially in semiconductors). They also export a fair share of their production and, consequently, their quality is tested and is as good as anywhere in the world. Auto components, leather, and textiles are some sectors that top the list.

The government must direct it ‘Make in India’ initiative on these sectors with suitable incentives. However, low manufacturing cost alone is not enough. Logistics cost, to move the manufactured goods from the factory to the destination, is critical. China excels here.

Even though India’s steep climb in the recent ‘ease of doing business’ ranking is noteworthy, it still has a long way to go in reforming labor laws and the land-acquisition process which are essential for lowering costs further.

Indian entrepreneurs, for their part, must take advantage of the situation and invest aggressively. De-risking from China will remain a long-term strategy for the US and European companies. Higher exports will also help in neutralizing domestic cycles that plague some sectors such as auto components.

It will be a difficult call for Indian entrepreneurs to make as many of them have been investing abroad to de-risk their investments in India. It is a leap of faith. If they take it, India will not miss the manufacturing bus, as it did in the 1980s and 1990s that saw the emergence of East Asian Tigers and China as manufacturing hubs for the world, yet again. India has been building roads, improving port infrastructure/connectivity to the hinterland through Sagarmala and Bharatmala programs.

Is Portled industrializing can capitalize? Is marketing is strong enough?

Current challenges to Shipping Industry of India is global, maritime freight rates in most shipping segments endured volatility and overall downward movements. There has been a sharp decline in the share of Indian ships in the carriage of India’s overseas trade from about 40 percent in the late 1980s to 7 percent in 2015-16, and existing fleets are aging and last but not least the lack of marketing team. Increased bureaucratic oversight and regulatory scrutiny and slower customs clearance were the most commonly cited problems in the ports.

Recommendations to further enhancement of this project: Setting up storage capacities at origin-destination ports to shorten turnaround time. Developing adequate ship-repair facilities in the maritime states. Indian ports will have to upgrade their technology levels to be comparable to international standards. Creating dedicated coastal berth ports for coastal shipping. Establishing a new transshipment port (transfer cargo from one ship to another). During the last few years, the non-major ports are gaining more share of cargo handling compared to important ports so the focus should be connecting non-major ports to the hinterland. (Economic survey volume2 ). The flexible policy of the Private sector ports more competitive Fuel tax-free for Indian tax vessels. The government already proposed Jal Marg Vikas Project’ (on NW-I: River Ganga), a large integrated IWT project to end connectivity. Quicker clearances at the ports and less interference by the system. On taking the advantages, overcoming the challenges and more rapid implantation of the recommendation create enormous scope

To rival China on logistics costs, it has to redouble its efforts. In developed markets, companies outsource 70 percent of their logistics operations that can be outsourced to lower costs. In India, it is just 35 percent. The final report for Sagarmal( Vol 1110) released in Nov 2018 clearly defined about the logistic hub, manufacturing center to be served by the Ports in Exim and domestic trade. And enabling the environment to attract investors fro ported development projects. Incentives to attract, especially in the SEZ modal. Strengthening effort on the marketing of industrial area, setting up an industrial marketing Cell dedicated to proposing following the structured marketing approach under the Ministry of Shipping in perspective to industrial Park, especially economic zone, Free trade warehousing zone among others. The hand on experience say that the companies have already acceded to many of the ports for the opportunity and set the modal; it is only not come into limelight need to enlighten among the stakeholders. With the concerted effort by Govt. transform these challenges into a blessing. It is the best moment to make it industrialization to port as the world done it next to ports. India has been positioned well; it is the time to Brand repositioning the port-led industrialization? 

 Our jobs as marketers are to understand how the customer wants to buy and help them to do so.” - Bryan Eisenberg