India and Vietnam: Challenges and Opportunities in the Global Manufacturing Competition

As global supply chains face geopolitical challenges, India hopes to seize this opportunity to become the next global manufacturing powerhouse. However, for this South Asian giant to achieve its ambitious goal, it first needs to surpass another Asian country - Vietnam. Vietnam has already established its position on the global manufacturing stage, particularly in electronics manufacturing. For foreign investors and companies, while both India and Vietnam are attractive due to their low labor costs, Vietnam appears to have more advantages.

Last year, Vietnams exports reached $96.99 billion, while Indias stood at only $75.65 billion. Despite Indias total population of 1.428 billion far exceeding Vietnams 100 million mark, Vietnam has demonstrated a clear first-mover advantage in the manufacturing sector. Samir Kapadia, CEO of India Index and Executive President of Vogel Group, pointed out that Vietnam leads India in electronics manufacturing capabilities, giving Vietnam an edge in global manufacturing competition.

Vietnams Advantages and Challenges

Vietnams advantages lie not only in its manufacturing maturity but also in long-term trade and investment agreements with countries like the United States. Vietnam has had a trade and investment agreement with the U.S. since 2007, facilitating its products entry into international markets. Additionally, as a unitary state, Vietnam has clear advantages in policy coordination that federal India cannot easily match.

Indias Opportunities and Challenges

Despite various challenges, India is actively seeking opportunities to become a manufacturing powerhouse. The Modi government is considering reducing import tariffs to attract foreign companies to manufacture in India. In January this year, India reduced tariffs on certain mobile phone components from 15% to 10%, benefiting production activities of companies like Apple and Dixon Technologies in India.

Indias high import tariffs remain a major obstacle to becoming a manufacturing powerhouse. Taking the information and communication technology industry as an example, Indias import tariffs reach 10%, significantly higher than Vietnams average of about 5%. Additionally, Indias relatively backward infrastructure reduces transportation efficiency, thereby diminishing its appeal to foreign investment.

As two major destinations for global manufacturing relocation, both India and Vietnam have their own advantages and challenges. Vietnam, with its manufacturing maturity and policy coordination capabilities, has taken a lead in electronics manufacturing. India, on the other hand, needs to make efforts in reducing import tariffs, improving infrastructure, and increasing policy consistency to enhance its competitiveness in global manufacturing.