Replacing China- India or Vietnam in auto industry

By OEM Update Editorial May 29, 2020 4:04 pm IST

Over the past two decades, China has served as the global production hub for companies in multiple industries, such as electronics, textile, medical devices, and automotive. The key factors have been high availability of raw material, technological innovations, business-friendly laws and accessibility to skilled labor.

However, the scenario changed in 2019, when increasing cost of labor as well as tensions created by the US-China trade war clouded China’s perception as a favorable production center. More than 50 multinationals decided to shift manufacturing (partially or fully) to other low-cost destinations, such as India, Vietnam, Thailand and other Southeast Asian countries, in their bid to avoid the hike in tariffs in 2019.

COVID-19 Impact: Companies to Diversify Supply Chain

The COVID-19 pandemic exacerbated the situation. With manufacturing companies worldwide increasingly focusing on reducing their supply chain dependence on China, the country’s significance as a manufacturing hub has dimmed. In April 2020, the Japanese government announced a US$2.2 billion economic stimulus to help manufacturers shift production out of China. South Korean and US firms are also looking for alternative manufacturing bases.

India and Vietnam: The Biggest Winners

Several manufacturing companies are considering relocating production to other low-cost Asian countries, primarily India and Vietnam. Considering the various initiatives undertaken in India to make the country attractive to investors, it is expected to take lead and emerge as the preferred destination in the next 2–3 years.