Monday, March 20, 2023

Is India the China 2.0?

From the day China decided to enter into World Trade Organization, it changed all the dynamics in global trade entering with its $500 million workforce with cheap labor and “stole” a lot of production business from all cheap labor countries. However over time with close to double digit growth nr’s, the workforce became more demanding and wages slowly started to increase, and even a massive $500 million workforce could not offset this increase. Another problem that hinders the growth is out of all emerging cheap labor markets, China has the oldest population now with a median age of 34 thanks to the one child policy.

Table: Median Age by Country (in years)
Pakistan 21
Cambodia 22
Philippines 23
Bangladesh 25
India 25
Malaysia 26
Indonesia 28
Vietnam 29
Sri Lanka 31
Thailand 33
China 34

After China, India is the most populous nation in the world, and expected to become number 1 in terms of population by 2030. India also has one of the youngest work forces with almost half of the nation being under 25 years old, making the labor abundant and cheap however India has different dynamics in terms of its trade structure. Unlike China, its production is more internal oriented (not export based) since its economy is thriving with domestic consumption. A lot of importers also have difficulty dealing with some Indian suppliers in terms of production and quality issues, thus this is a big concern for its exports. Unlike China where you can find a factory specialized in every commodity, India’s main export commodity is textiles, and slowly home furnishing is becoming a rising commodity for exports but still not enough to compete with China where it’s regarded as the only country where you can source anything. Another issue that India faces against China is infrastructure. Unlike China, India does not have the regulatory framework to permit large scale infrastructure projects. In terms of shipping for example, China now has 9 ports in the top 50 ports in the world where India has only one in that list. In terms of production, last July a lot of importers were reminded with power outages in India (which affected over 600 million people) that India’s infrastructure is not reliable, making the suppy chain vulnerable.

Just to sum up, India has a lot of potential with its emerging young workforce however concerns like infrastructure, focus on single commodity and domestic consumption makes it a big question mark in terms of replacing China as the world’s biggest factory.

Manufacturing as % of GDP in selected Asian countries
17% Pakistan
16% India
18% Sri Lanka
18% Bangladesh
27% Indonesia
20% Philippines
20% Vietnam
15% Cambodia
34% Thailand
34% China
Rojda Akdag
Rojda Akdag
Rojda is originally from Turkey and after getting his BA from Koc University in Istanbul, he moved to New York to get his MBA at Baruch College. He has been working at MTS Logistics since 2003 and has held many positions from Operations to Development Manager. He is currently residing in Los Angeles where he is the Managing Director of MTS. Fun Fact(s): Rojda is an avid golfer, a martial art practitioner, and a motorcyclist!

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