Europe, US companies back India for derisking from China: Survey

India figures at the top of the list of investment destinations for senior executives in Europe and the US looking to reduce their dependence on China and shift part of their manufacturing capacity to emerging markets.

A study by Capgemini Research Institute, which surveyed 759 senior executives of companies already planning to invest in India, shows that 65 per cent of them were planning to increase investment significantly (by over 50 per cent compared with the last three years).
 

The other key emerging markets, the survey said, are southeast Asia, where 60 per cent of the respondents were willing to put in 50 per cent more investment in the next three years. Africa is in the third spot as an investment destination with 53 per cent, and Mexico lags significantly behind with 13 per cent.

Capgemini’s report, “Reindustrialisation Strategies in Europe and the US” also projects that the reindustrialisation investment of Europe and the US organisations in emerging markets in the next three years is estimated to reach $3.4 trillion.

The report, released last month, says that overall, 58 per cent of the executives said they plan to de-risk their supply chain by investing in emerging markets like India.

To this end, the businesses are looking at redistributing their critical assets, such as production facilities, warehouses and logistics centres, to these emerging markets.

The study was based on surveys of more than 1,300 executives in companies which had a turnover of more than $1 billion in annual revenues across the US, UK, continental Europe, including Germany, France, Italy, Scandinavian countries, and Spain, amongst others.

Capgemini’s report says that over the past five years Apple Inc’s suppliers have invested over $16 billion to relocate production from China. Key players in this include Foxconn, which has shifted some capacity to India. Even BMW, it says, has embraced the “China Plus” strategy by making significant investments in India and establishing local manufacturing facilities. In doing so, the organisation has been tapping the local skilled workforce and a favourable business environment.

The survey also brings to the fore the growing move towards “friendshoring”, or companies that shift their manufacturing to friendly countries. The trend has gained prominence as a result of the tensions between US and China. Those surveyed expect that 23 per cent of manufacturing production will be “friendshored” in the next three years.

The other big change that India has epitomised through the ‘Make in India’ scheme is evident in other countries too. They too are emphasising domestic manufacturing, whose share, says the report, will rise from 45 per cent currently to 49 per cent in three years, while offshoring will fall dramatically during the same period.