,
15 tweets,
2 min read
Read on Twitter
Many amongst us are asking this question,'Can India become the new factory to the world with the US-China trade war forcing manufacturers to look elsewhere?'. Sadly the answer is a resounding 'NO' (1/N)
Comparative FDI data among EMs and the World Bank’s various business environment indicators offer us a rough index of India’s poor showing as a desirable invt destination. The narrative is well established: Red-tape, corruption, policy uncertainty, inadequate personal security.
India’s suitability is being sized up against far smaller Asian economies and it appears to come up short. “India or Vietnam: Who’s the New China?” is the heading of an advisory written by a Chinese supply chain consultant in January.
At the end of a corporate-style, bullet-pointed exposition, the author concludes that the country whose economy is a 10th of India’s size was preferable. Worse, he concludes India will never be the next China in the medium term.
Vietnam’s comparative superiority is not because it is, as conventionally believed, winning the traditional race to the bottom in terms of labour costs.
On the contrary, Vietnam had begun to overtake India in terms of average wage rate in manufacturing in 2015. The two key reasons Vietnam scored over India are basic education levels and ratio of female employees.
Any visitor to Vietnam’s lively and pristine cities — also cited as a major plus factor compared with the shambolic chaos and grime of India’s urban spaces — will be struck by the number of well-maintained govt schools.
the result of a compulsory education programme launched in 2001, eight years ahead of India’s variably implemented Right to Education Act.
At a time when India’s ruling regime appears determined to make Hindi the sole national language, Vietnam teaches English as its first foreign language and Chinese as one of its four second languages
In other words, the average young Vietnamese can communicate in both languages with investors from the US (their preferred investor community) and Chinese (whose economic model they emulate).
People in different states in India speaking different languages contributes to different cultures, which makes business management a headache.
That Vietnam is already ahead in the race is clear. In Q1 of 2019, foreign investment in Vietnam rose 86.2%, to $10.8 bn (Chinese invt accounts for about half that). Where Foxconn struggled for 4 years just to find an optimum-sized mfg base to assemble Apple iPhones in India.
Now, as investors and executives relocating to that tiny country are discovering, Vietnam’s ability to absorb this deluge of investment is limited. All the undesirable symptoms of economic growth are manifesting themselves.
Urban traffic jams, rising real estate prices, low skill sets of Vietnamese workers, bottlenecks at ports, and a shortage of workers — Vietnam has fewer workers than China’s Guangdong and cannot count on masses of migrants to make good the shortfall.
An opportunity for India? It should have been. Instead, investors are eyeing … the Indonesian island of Batam. A free-trade zone that links Indonesia, Malaysia, Thailand and Singapore and an hour’s ferry ride from Singapore, it is now the cynosure of all eyes.
