Wal-Mart's Chinese suppliers shift base to India

By agencies   |   Monday, 23 May 2005, 07:00 Hrs
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NEW DELHI: When the going gets tough, the Chinese simply cross the Wall. Faced with a higher tax on exports following pressure from the U.S. and the European Union, large Chinese textile suppliers to Wal-Mart are relocating their manufacturing base to India.

And the world’s largest company seems to love it. The company says it “welcomes” the shift and plans to double sourcing from India, business daily the Economic Times reported.

Incidentally, Wal-Mart buys goods from India worth $1bn — close to Coke’s total investments here in the past 13 years.

The Chinese are not the only ones packing their bags. Wal-Mart suppliers in Singapore and the Middle East have also shown interest to shift production to India. The removal of quotas seems to be helping India’s case.

China is already under pressure from the U.S. to revalue its currency, which has been artificially kept low against the dollar. It also faces demands from the EU and the U.S. to curb its surging textile exports. Beijing has reacted to it by hiking the tax on exports. If the Yuan is revalued, the combined effect of the changes will make Chinese goods costlier, the paper said.

Vice-president and managing director of Global Procurement, Wal-Mart Stores, Andrew Tsuei said that the removal of textile quotas has made India more competitive in apparel and textile production.

Commenting on the expected shift by suppliers in favor of India, he said cheaper raw material and availability of trims allow Indian companies to reduce production lead-time, which is important to the retail industry.

Suppliers and buyers also evaluate infrastructure development, port security, political stability, labor and technology — areas where India is strong compared to other exporting nations. Retailers also like to source from a number of different countries to reduce risk.

“As India is becoming more competitive, our suppliers are relocating to India and other countries in the Indian sub-continent. Wal-Mart welcomes this shift as we hope to see our Indian suppliers improve their efficiency as they increase the scale of their operations. We hope to see gains in improved delivery times and cost, which in turn, improves the in-stock levels in our stores and the prices we can offer our customers,” said Andrew.

On the debate over revaluation of Yuan, he said, “This is a hard question to answer as the impact, if there is any at all, will depend on the level of appreciation of the Yuan, how fast it takes place, and how the Chinese government manages any change. We don’t have a clear answer because of all the various factors involved with exchange rates,” he said.

“What we do know is that higher prices will tend to make Chinese goods less competitive in the global marketplace, and this could encourage manufacturers to move production to other markets. In the past 30 years, we have seen this happen as manufacturing costs increased in countries like Japan, Korea, Taiwan and Hong Kong. Global trade is a highly-competitive and mobile business, and India is in a good position to compete,” said the Wal-Mart official. Wal-Mart buys goods worth $12 billion (Rs 54,000 crore) from China and any impact on the Chinese currency will have significant implications for the retail giant, the paper added.

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