Hyper competition leaves little space for companies to mull options to China

China is established as the world’s manufacturing floor in no small measure. This position has been created by the marrying of global market forces and a sovereign’s intent. At least either of the two must shake for an upset to happen. If another force could at all make it happen, that would be a highly potent combination of a disruptive technology and a process, say advanced 3D printing combined with an ultra-automation.

Until then, global companies can still afford to take baby steps in building production capabilities in alternative sites—often in the countries of their origin, for various political and social reasons. These sites could act as test houses—and even as full-blown units for niche products—but to hope that they would rapidly scale into a mainstream phenomenon would be a thought more than just optimistic.

What specifically works against a possibility of manufacturing moving out of China is the pace at which not just technologies but also market shares are changing in today’s world. In a matter of just over five years, we have seen at least two erstwhile mobile phone leaders—Nokia and RIM—slip almost to the edge of oblivion. And just when it appeared that Apple was headed to become an undisputed leader in the smart phone segment, Samsung has offered some real threats.

In such rapidly shifting market equations, no one company would have the cushion, breathing space and courage to build a new or parallel supply-chain ecosystem. Any such move would be fraught with the risk of exposing one’s existing market share to the competition.

As of today, it would take no less than an industry, supported by the sovereign will of an economically capable country, to build a manufacturing base and ecosystem as cost-competitive as China’s. Could the US or Europe do that today? Even if there’s a political will, the cost advantage would be missing.

The alternatives would again shift to Asia. And if so, wouldn’t it be logical for US companies to stick with China?

For India as a country, that still becomes reasonable, given the huge domestic demand to match a supply. But for that to truly happen, the supply-chain too will need to be developed locally. As of now, most of the material parts are imported from China.

The new telecom policy does incentivize local manufacturing in letter, but much would need to be done in terms of spirit. The step would include building the skills base as also developing special manufacturing zones—what exists now is insufficient.