Boycott China' grows: Traders switch sourcing to Malaysia, Singapore, Vietnam - at higher cost
Business Today
Dated: July 10, 2020
By Nirbhay Kumar
Some traders and manufacturers have started charting out plans to import raw materials from South East Asian countries even though it will be 5-10% more expensive than buying from China.
Gyan Chand, who runs a small-scale chemicals and plastic company Manya International, has started negotiating with suppliers in Malaysia, Singapore and Vietnam to import synthetic polymers. So has Noida-based computer hardware manufacturer Deki Electronics.
These firms are talking to local buyers for medium term order pipelines to ensure that they are ready to pay for the additional cost. But at the same time, they want clear policy from the government over import of various items so that they are not at risk should relations with China return to normal after a few months and their new plan goes haywire.
"We have decided to shift. It will cost us a little more. But as a country we should be ready to pay if we want Atmanirbharta (self-reliance). Wherever possible we are trying to develop Indian vendors and where it is not possible we are looking at South Korea and Taiwan instead of China," said Vinod Sharma, Chairman of CII National Committee on Information Communication Technology & Electronics (ICTE) and Managing Director, Deki Electronics Ltd.
Deki's total imports are about 50% of its turnover, and out of this one-third comes from China. In wake of bloody skirmishes on the Line of Actual Control (LAC) with China, there has been growing demand to shun imports from the neighbouring country. The delay in customs clearance to goods coming from China seems to be a reflection of popular sentiment.
While frontline troops on the LAC start disengagement, manufacturers in India will have to rejig their supply chain in coming months. Additionally, there is emphasis by the government to increase localisation and local manufacturers have started responding positively. But the shift is expected to take longer than expected given that China offers far more competitive rates due to its sheer scale.
For instance, the auto component industry in China is estimated to be around $550 billion which is almost 10 times the size of India's auto component market of $57 billion.
Besides, China is also known to not play by rules. The government is believed to offer subsidies and incentives to corner a bigger share of the global export pie.
"We have started trying to explore new source markets. For some products we are planning to shift to Taiwan while for some others we may import from South Korea. But some products we would continue to import from China," said Adarsh Mahipal Gupta, Director (Finance and Marketing) at auto-component manufacturing firm Autopal.
Autopal which has companies like Tata, Volvo and Mahindra & Mahindra (M&M) as clients imports auto parts worth about Rs 8-10 crore from China.
Vinnie Mehta, Director General, Automotive Component Manufacturers Association of India (ACMA) noted that one of the key lessons from the lockdown in the aftermath of Covid has been to de-risk the supply chain and look at China plus One policy.
"Everybody in India is thinking about deep localisation and see how they can be self-reliant. But this does not happen overnight," Mehta said adding that product development is a long-drawn process, and takes time to develop, validate and test.
India has had a huge trade deficit with China for years with imports far exceeding exports. It narrowed down in FY20 but continues to remain heavily tilted in favour of China.
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