Comparison between Manufacturing in India and China
Can we compare the Elephant with the Dragon?
When it comes to sourcing, there are many factors to consider between India and China sourcing. And whether you adopt a single or dual sourcing approach also depends on your company’s global sourcing strategy.
According to a keynote speech by former Singapore Minister Mentor Lee Kuan Yew, repurposed in a book entitled “Managing Globalization: Lessons from China and India,”these two nationswill shake the world.
Why is this? Did you know that China and India comprise almost 40% of the world’s population? They are the two fastest growing economies in the world. India prides itself on being one of the leaders in providing technology-related and IT-enabled outsourcing and consulting services, while China, the world’s manufacturing hub, shows its strength in manufacturing and product sourcing.
Global product sourcing: India and China moving forward
However, India is now catching up with China in product sourcing. There’s now cutthroat competition in low-cost, high-volume manufacturing. Both can produce high-quality manufactured goods, making them low-cost-country sourcing (LCCS) destinations.
Let’s take a look at the following factors to evaluate the competitive advantages and limitations of the two countries and see how you can develop a win-win strategy for your supply chain.
Made in India vs Made in China
According to The China Sourcing blog, the two countries are “capable of world class manufacturing processes.” This premise was supported by a study conducted by the London School of Economics of the automotive components supply chain which showed that two-thirds of China’s domestic suppliers were able to produce inputs “with defect rates of less than 100 parts per million.”
Other industries in which both countries are capable of producing high-quality goods include garments, electronic components, and so on. For years, China has offered a lot of different products and goods to companies, ranging from OEM to ODM goods. In recent years, as it sees that other Asian countries, such as Vietnam, India and Bangladesh, can also offer low-cost production, China is focusing more on providing high-quality low-cost goods in order to thrive in the competitive environment.
Logistics and turnover
When it comes to logistics and turnover rate, China has the competitive edge because the country has made big investments in machinery, equipment, roads, railways, and other infrastructure. In India, according to Joel Waldman’s comments and experience, which he shared recently in China Law Blog, it still takes three days to discharge and reload a container ship in Mumbai. The study earlier also showed that China has an advantage in terms of delivery frequency and stock-turn ratio. China has many options for logistics because of its strategic position on the map, including air freight, sea freight or land transportation (China also has more passable roads than India).
Labor and product costs
However, labor cost in China has increased significantly over recent years. Cost is a significant factor when sourcing products and goods. You can enjoy lower costs in other countries, such as China’s competitor – India. However, the Dragon is proud of its ability to provide high-quality outputs because of its sophisticated infrastructure, the skillsets of the workers, and advanced technologies, which it has mastered over the years.
Taxes and systems
In India, excessive bureaucratic red tape makes things somewhat complicated for overseas companies compared to China. To secure a permit takes 88 days in India, whereas it takes only 46 days in China. Meanwhile, business insolvency in India takes 11 years, compared to China, which takes only 2.6 years.
Taxes and systems are also significant factors to consider when sourcing products overseas. As Lee Kuan Yew noted, China’s tax system ten years ago was very complicated, and it was not until the country changed its system and imposed a single VAT on manufactured goods that the process became more effective and efficient for overseas companies.
You may want to read more about “How Taxation Affects Global Sourcing Strategy”
Overall, China’s remarkable economic success since 1979 is unlikely to wane too significantly in the near future. It remains a formidable player, given its labor force, geography, its growing skills base and its increasingly complex infrastructure. Indeed, China’s competitors still have some way to go to catch up, including supply-chain and logistics-related challenges, as well as other regulatory and transportation difficulties. Therefore, manufacturers are likely to remain interested in capitalizing on China’s competitive advantages in 2015. As a buyer, you have to balance the various factors discussed above rather than just cost, since customer satisfaction depends heavily on the consistency and quality of the products delivered. If you would like to find out more about buyer concerns, please stay tuned to our “What concerns buyers most when sourcing a new supplier” survey results.