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COVID-19 Pandemic Vies For New Supply Chain Sources: Challenges For India And Vietnam – Analysis


The Covid-19 pandemic led to a colossal shift in the manufacturing and supply chain globally. Hitherto, the global supply chain owed to low cost manufacturing. China was in hegemony, sharing more than one-third of the global supply chain. In the post pandemic, the supply chain has been reworked for risk aversion, leaving the low cost benefit on the back bench. MNCs are looking to relocate supply chain from low cost benefit to low risk destinations.   Eventually, MNCs are considering to shift their plants and businesses from China and the most targeted destinations are Vietnam and India, according to a QIMA (Quality Control & Supply Chain Audit) report.


In other words, the pandemic was a wake up call for MNCs to relocate their factories, largely dependent on China due to low cost benefit and shift to low risk nations like Vietnam and India. Even though data revealed foreign investment increased in China in the post pandemic, the rate of increase is under a downswing spiral. The slow rebound in sourcing from China signals a long term diversification of supply chain sourcing. 

According to a recent Q2 Barometer report by QIMA, Vietnam and India emerged as alternative sourcing locations. The report revealed that roughly a third of global buyers and 38 percent of US buyers named Vietnam among top three buying destinations as of early of 2021 and an influx of US based buyers increased inspection and audit from  India. However, challenges are persisting in India.

An A. T. Kearney survey report on supply chain, jointly made with Council of Supply Chain Management Professional , determined  six major trends that will shape India’s supply potential by 2025. One of the them, potential for the supply chain, is growing urbanization and rapid growth in infrastructure, which will lead several cities to be the mega centres for demand. The second major trend is Government’s drive to encourage manufacturing, such as extending PLI (Production Linked Incentive ) scheme and massive fiscal support to MSMEs.

India decided to transform its manufacturing, following the new trajectory of growth inthe world. The Economic Survey 2019-20 underscored the necessity for transformation in manufacturing. It advocated the country to be global hub for assembly operation and value chain manufacturing. To this end, PLI and MSMEs have become the key role players. 

India has advantages of becoming a potential platform for value chain manufacturing. It has cheap and abundant labour. This was advocated by Professor Arvind Panagariah, saying “India is abundant in labour and assembly of products. It must specialize in these activities across a large number of products.”


PLI scheme is a major attempt to rejuvenate  Make in India. It is an attempt to make India an integral part of supply chain, according to Economic Survey 2020-21. Hitherto, the scheme  covered three sectors. Now, it has been extended to ten more sectors, embracing almost all manufacturing sectors required for supply chain.

The success of PLI scheme is evidently visible. Electronic industry made a rapid growth during  3-4 years. Production of electronic goods reached Rs 4,97,484 crore in 2020-21 from 4,58,006 crore in 2018-19. India’s share in global electronic manufacturing increased to 3.6 percent in 2019 from 1.3 percent in 2012. These place the nation as a potential harbor for electronic manufacturing and digital economy.

The noteworthy growth was in mobile phone production. Production of mobile phones increased more than double (137 percent) in between 2016-17 and 2019-20. India is the second largest producer of mobile phone in the world. Incidentally, and rather paradoxically, the growth in mobile manufacturing was triggered by Chinese manufacturers. Chinese manufacturers made debut, with Modi’s laying red carpet to  encourage FDI irrespective of political face off.  The main attraction of Chinese firms investment was the demographic advantage of India and the rising protectionism through high tariffs. Against these backdrops, green shoots were visible for the success of  PLI, claimed by government .

Vietnam has emerged a new challenge in the global supply chain. It edges India, according to trade analysts. With  major policy reform “Doi Moi”, Vietnam removed self imposed barriers and encouraged investment from FDI. It lowered the corporate tax to 22 percent in 2015 and further eased at 20 percent in 2016. It introduced a unique scheme for tax breaks. If a manufacturing operation fulfills minimum revenue or employs 3,000 workers or more in 4 years, the company becomes eligible for tax breaks.  

FTA leverages Vietnam’s potential for supply chain exports. In 2020, major electronic items, such as telephone sets, Integrated circuits, transmission apparatus, accounted for over 27 percent of total exports of Vietnam. FTAs, which played key role in exports of Vietnam’s supply chain of electronic items. were AFTA (ASEAN Free Trade Area) and ASEAN–China FTA. Eventually, Vietnam became the second biggest source for import of electronic items for India, after China

Given these dynamic changes in global supply chain, FTA’s should be given thrust in India’s new 5 year FTP (Foreign Trade Policy), which is likely to begin from April 2022. FTA is potential to expand scope for export of supply chain manufacturing across the borders under competitiveness. So far, FTA has been a bitter–sweet in India. It has been alleged that most of the FTAs were beneficial for partner countries. FTA will leverage benefit for technology transfer through import of components and materials at low cost.

Even though, Vietnam is reckoned as having an edge over India in global supply chain, according to QIMA. India’s demographic advantages override Vietnam in terms of domestic demand. It insulates the investors from the unprecedented global shock. India’s bounce back in GDP and fast growth in digitization will have plural impacts on  domestic supply chain,     

Subrata Majumder

Subrata Majumder is a former adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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