Global manufacturers have initiated talks with Indian firms to explore the possibility of shifting a part of their supply chains from China as they seek to diversify their operations following the covid-19 outbreak
NEW DELHI :
Global manufacturers have initiated talks with Indian firms to explore the possibility of shifting a part of their supply chains from China as they seek to diversify their operations following the covid-19 outbreak.
Most of these multinationals have suffered widespread disruptions to their businesses as authorities enforced strict lockdown measures to contain the pandemic, which originated in Wuhan city in China’s Hubei province. Wuhan is one of China’s so-called “motor cities", housing several automotive factories.
First of the lot are companies interested in sourcing automobile components and electronic products from India, according to industry executives.
Pankaj Munjal, chairman and managing director of Hero Motors Co., said the auto parts maker has received several enquiries from companies who have operations in China, but now want to de-risk their supply chain.
“A lot of supply chain was coming from China and today when we meet these customers and large OEMs (original equipment makers), some of them will migrate to countries like India, Vietnam and others. So, I believe, that will be a growth opportunity and we will see a migratory growth in supply chain," Munjal said.
Part of the demand is also coming from Indian companies who were heavily reliant on China for sourcing components, but suffered because of the novel coronavirus-induced disruption in China, which, over the years, has emerged as a manufacturing powerhouse.
To be sure, the government has still to announce new measures to woo firms planning to move operations from China. Earlier this month, Japan earmarked $2.2 billion to help its companies shift production out of China following the coronavirus pandemic.
In March, India’s cabinet announced a production-linked incentive (PLI) scheme for the electronics sector with an outlay of over ₹40,000 crore. “There is a clear negative sentiment against China. We have received requests for supply from India," said Amrit Manwani, president of Electronic Industries Association of India. “If we play our cards right, we could double our exports (of electronic products) in three years’ time."
India exports electronic products worth $9 billion each year, while its domestic market is estimated at $120 billion. “We don’t see so much interest from Europe, but definitely from US, there is a shift since the beginning of the year," Manwani said, adding that Japanese and South Korean firms are also interested in developing supply chains from the country.
Among global firms that have shown interest in India are US-based makers of medical electronics products Teledyne and Amphenol, and medical equipment makers such as Johnson and Johnson, Manwani said.
Vinod Sharma, managing director of Deki Electronics and chairman of electronics national panel at Confederation of Indian Industry, said his company is in talks with a South Korean firm for a tie-up to make electronic parts. Sharma, however, said government guidelines on threshold investment levels in electronic component manufacturing are proving to be an irritant.
At home, most local firms are actively looking for alternative sources to China and are bound to reduce imports from there though the process is expected to be gradual.
Most auto firms import parts like fuel-injection systems for the latest engines and other electronic parts from China. “In the next few months, we will see most of these Indian vehicles makers localize manufacturing of such parts or sourcing them from a different location with a foreign partner," said the executive requesting anonymity.