India to challenge China s forte as Hub

Date: 14-10-2007
Source: The Press Trust of India Limited

India, popularly known as the world's back office for IT and BPO services, is all set to threaten China's position as the world's backyard for manufacturing in the next 3-5 years, says a new report.

"India could challenge the position of China as the manufacturing centre of the world in next three to five years. Companies are planning to offshore manufacturing activities primarily to India that will surpass its IT and BPO activities," global consulting, technology and outsourcing services major Capgemini said in its latest report.

At present, manufacturing is the least offshored activity to India, but the survey respondents expected the country to become the number one outsourced manufacturing destination due to its competitive cost advantages over China, Capgemini added.

"Current developments suggest that some of the main manufacturing locations in China are becoming too expensive relative to other countries in the region, which includes India," the report added.

Emerging economies like India and China have the largest market share of offshoring activities. India is diversifying from its stronghold in the IT and BPO segment to the manufacturing segment, which is currently dominated by its neighbour.

The report, however, highlights that India has to make significant investments for improving its infrastructure to cater to the increased demand of manufacturing and supply chain operations.

The Indian government is eager to attract foreign manufacturing activities, but it will need to make significant investments to harvest this potential, Capgemini added.

India's economic and political environment could potentially hinder the expected growth in the coming years. Besides lack of proper infrastructure could also delay foreign investments in manufacturing, the Capgemini report said. The survey indicates that around 43 per cent companies currently offshoring manufacturing activities to India have not achieved their initial objectives.

Companies outsourcing activities to China and India, it said, encounter similar obstacles such as -- local rules and regulations, culture and language barriers.

However, a company offshoring manufacturing to India is expected to get one incentive -- the government's eagerness to attract foreign manufacturing ventures, Capgemini added.

Inspite of China's higher success rate than India, another factor that would promote the manufacturing location as attractive is the higher dependency on expatriates for managing Chinese operations compared to India.

According to respondents of the survey, this would increase the percentage of activities outsourced to India than China in the next three to five years.

Particularly, research and development as well as customer service offshoring would almost double, besides significant growth in the manufacturing and IT offshoring. However, companies seem less interested in increasing the offshoring of finance activities to China.

The Capgemini survey comprised 331 companies, primarily from the US, Europe and Asia Pacific. Out of these, more than 200 have offshored operations to China while the figure stands at 155 for India.