Reports say that Indian small car exports grew by 44% in the last seven months, and China saw a drop in small car exports by almost 60%. Not just China, even Thailand and South Korea have seen drastic fall in their exports of entry level cars. Though India is nowhere close to Japan or South Korea in terms of absolute numbers of cars exported, but it sure has carved a niche for small car manufacturing in the past one year. India has already outnumbered China even in terms of total cars exported. This has been a reality check for China, which was until now the leader in manufacturing and exports among the developing economies.
Both India and China have been hotspots for outsourcing by global giants to cut their operational costs. China had been a clear leader until now. But India has been fast catching up. Let us try to understand what India did and where China went wrong.
- Difficult Laws: Chinese laws make it mandatory for any foreign firm to have a joint venture with at least 50% capital held by a local partner. India does not have any such law. Companies prefer India because they get full control of their operations in India, and not in China. Operating in India also saves them a lot of profit which they would have to share with the partners in China.
- Labour Cost: India has been faring better than China in the global labour cost advantage index for almost 7 years now. Chinese media came out with reports last year which mentioned sudden steep rise in labour costs in China. Though India has also seen a rise in the average labour cost, but it has been much lower as compared to China.
- Corporate Tax: Indian corporate tax laws for foreign companies fare better than the Chinese equivalents. India taxes a non-Indian domiciled country only for the income on its local territory. China does not have any such provision.
Now some reasons which favour India over China, but China could not have helped it.
- Booming Market: Indian small car sector is yet to see a boom, as the annual sales still do not cross 0.12mn. China saw a jump in small car sales, shooting the sales volume to almost 1.2mn. But by the time any foreign player sets up a manufacturing unit in China, that unit would have lost its profitability due to a saturated market. Indian market is still waiting to see a boom in this segment. So, all the car manufacterers do not want to miss the party. All of these manufacturers have witnessed a saturated local market in their home countries and have also seen many global giants go out of business. To avoid the same fate they have started camping in greener pastures like India.
- Competition: With the TATA Nano all set to roll into the market, everyone wants to share the pie. To do this the foreign companies must come down to the local market so that they can have very competitive prices against the Nano and other small cars. This has resulted in companies doing a lot of R&D and cutting down on a lot on operational costs. Due to this all the foreign manufacturers based in India have come up with quality products with prices which are the lowest on this globe. Definitely these low cost cars will be in demand everywhere, thanks to recession. This is one of the biggest reasons that India exports more cars than its own consumption.
- Location: This is the best of all. India is so well geographically located at the center of the developing economies of south Asia, eastern Africa and eastern Europe. India lies at the center of the trade routes for the World minus America. Transportation costs to other countries from China is very difficult from its eastern ports, and it is landlocked on the other sides.
- Language: One more indirect reason is ease of technology transfer to India. With such a good command over the English language, technology transfer to India is a very easy task for most of the companies. Compare the same with China and you will find how much of extra work comes in when you have to transfer all your technology to the Chinese in Chinese language.
We are expecting that soon India will be able to beat China in all sectors of manufacturing. Cheers!!!
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