INDIA could emerge as a challenger to China in manufacturing in the next 3-5 years. According to a global survey done among 340 companies, over 50% of the respondents intended to move part of their manufacturing to India. China currently leads as the offshore destination for manufacturing, while India leads in services.

The research survey was commissioned by Capgemini and carried out in the first half of 2007 by a third-party firm, Prologis. Ironically, the reasons behind China’s declining competitiveness are the ones responsible for India’s recent travails in the services arena—higher costs. “Some of the main manufacturing locations in China are becoming too expensive relative to other countries in the region, which includes India,” the study said. China’s problems start with the quality of its infrastructure. Most of the manufacturing is centred around the major cities of Shanghai and Beijing. The clustering of manufacturing centres around major Eastern coastal regions in China led to a surge in labour and real-estate costs. Moving to other parts of China was not a solution because lack of infrastructure could mean higher transport costs, the report said.

Over the years, China has emerged a hub of manufacturing outsourcing and 83% of companies that outsourced manufacturing to the country said they had achieved or outperformed the existing benefits. The cost of doing business in China is $300-$350 per man month, compared to $200 per man month in some locations in Philippines, Thailand and Indonesia. The survey also found that clients tended to offshore work largely to reduce costs, rather than to improve quality. Clients also relied on acquisitions as the preferred mode of entry into India, while for China it was through a wholly foreign-owned entity.