Forget China, India should first try to replicate the Vietnam model before aiming to be a global powerhouse in manufacturing, say experts.
The race among some Asian countries to attract manufacturers began after policymakers in Beijing — the seat of the dispensation that governs the “factory of the world” — started facing stiff trade challenges since the Donald Trump presidency. Issues around Covid’s origin and its disruptions fanned anti-China sentiments, making global corporations earnestly look at other nations to set up manufacturing bases. It led to a hullabaloo that India could soon displace China’s manufacturing leadership.
But is this a far-fetched argument? In some ways, yes, say industry observers.
India has an “excellent window of opportunity” to become a global manufacturing hub in the long run, says Viswanathan Rajendran, Partner at global consulting firm Kearney. But the country missed the benefits of the manufacturers’ shift out of China in 2018-2019, while Vietnam made the most of it, he says.
Experts argue we should scrutinise the policies made in Hanoi and incorporate some of those to push up the growth momentum of India.
The Vietnam model
So, what is Vietnam's secret sauce? The Southeast Asian country followed the template of newly industrialised economies such as the Republic of Korea, Taiwan, Malaysia, and Thailand. These nations focused on the manufacturing sector and integrated their economies with the global value chains of MNCs in labour-intensive sectors such as garments, leather goods and electronics, among others.
Much of Vietnam’s growth comes from exports in high-value sectors such as electronics. According to the latest data of the Observatory of Economic Complexity (OEC), Vietnam is in the 39th position in the world in terms of GDP and 18th in exports. Its main exports are telephones, mobile phones and parts (21% of exports), textiles (12%), computers and electrical products (12%), shoes and footwear (7%), and machinery, instruments and accessories (6%). Its major export partners are the US (19% of exports), China (16%), Japan (8%), South Korea (7%) and Hong Kong (4%).
High technology exports as a percentage of manufactured exports is around 40% in Vietnam; for China it is 30%, and for India it is just 10%. By providing low labour costs, tax incentives and free trade agreements, the Southeast Asian country has attracted biggies such as Samsung, Siemens,
Panasonic, and Nintendo, among others.
In the last few years, Vietnam's exports have doubled as competitive minimum wage and low costs of utilities boosted foreign direct investment in manufacturing, says Trading Economics, a global research organisation. Exports averaged $9.67 billion from 1990 until 2023, reaching an all-time high of $34.92 billion in August 2022. Trading Economics projects its exports to reach $37 billion in 2024 and $39 billion in 2025.
Read More at https://economictimes.indiatimes.com/small-biz/trade/exports/insights/lessons-from-hanoi-what-india-can-learn-from-vietnams-blueprint-to-replace-china-as-a-manufacturing-hub/articleshow/99629631.cms
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