India set to challenge China as Global Offshoring Sector

By SiliconIndia   |   Friday, 28 September 2007, 07:00 Hrs
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Mumbai: India could challenge the position of China as the manufacturing center of the world in the next three to five years, suggests survey by Capgemini, a provider of consulting, technology and outsourcing services, and ProLogis, a global leader in industrial real estate.

While China is currently the preferred off shoring destination for manufacturing activities, India is the destination of choice for IT, finance and customer service activities. However, according to the responses of more than 340 of the world's a largest international manufacturing company - from Europe, Americas and Asia Pacific -India will become a substantial manufacturing destination over the next three to five years.

According to the report, current developments suggest that some of the main manufacturing locations in China are becoming too expensive relative to other countries in the region, which includes India. While 43 percent of the companies that off shored manufacturing activities to India have not achieved their initial objectives, the main barrier to success has been a lack of manufacturing and supply chain infrastructure. If the Indian Government makes significant investments in this infrastructure then it should be able to attract foreign manufacturing activities and realize its potential.

The report found that the clustering of manufacturing centers around major Eastern coastal regions has also led to a surge in labor and real estate costs. Wages, being the most significant cost, are now around double the average wages in neighboring countries. Furthermore, moving to other parts of China may not be a solution as a lack of infrastructure would mean a significant rise in transport costs.

Although executives surveyed indicated strong interest in off shoring manufacturing activities to India in the coming years, they said currently their companies are more successful in off shoring to China than to India today. 83 percent of the companies that off shored activities to China, which have achieved or outperformed their expected benefits, compared with 69 percent for India.

The survey also found that outsourcing and offshoring to China and India has had a relatively limited impact on the corresponding western operations. According to the study, outsourcing and offshoring of activities has led to a closure of corresponding Western activities in, on average, no more than 10 percent of the cases.

The report is based on a survey conducted in the first half of 2007.

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