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The global sourcing landscape has faced a turbulent ride over the past five years. Trade wars, the widespread effects of the COVID-19 pandemic, natural disasters, supply chain disruptions, Brexit, and geopolitical conflicts such as the Ukraine-Russia war and the Israel-Hamas conflict have collectively challenged businesses around the world. These disruptions have forced companies to reassess their sourcing strategies, particularly in light of the upheavals caused by the pandemic.
One of the most significant shifts has been the increased emphasis on diversifying supply chains. Companies are moving away from heavy reliance on a single source, which has led to a surge in nearshoring and reshoring efforts. These strategies are designed to mitigate risks and enhance operational flexibility. Additionally, there is a growing demand for sustainable and ethical sourcing practices as businesses become more aware of the social and environmental impacts of their supply chains. The pandemic has underscored the necessity for a fundamental transformation in global sourcing approaches.
In response to these challenges, businesses are prioritizing agility and flexibility in their sourcing strategies. According to a January 2023 white paper by Reuters Events and Maersk, more than 60% of businesses now place a premium on transparency and efficiency. This shift is driving increased interest in India as a 'China plus one' sourcing option. The gradual reduction in reliance on China by American and European countries reflects this broader trend.
A growing number of companies are turning to India for their manufacturing and sourcing needs. Notable examples include Ikea, which currently sources 30% of its products from India with plans to increase this to 50%, and Walmart, which aims to import $10 billion worth of goods annually by 2027. Indian-made apparel, homeware, and jewellery are already reaching 14 markets, including the US, Canada, Mexico, Central America, and the UK.
Why India Stands Out
Despite global challenges, India’s manufacturing sector has shown impressive and consistent growth. It has emerged as the world’s second most desirable manufacturing hub due to its favourable operational environment, cost advantages, affordable labour, skilled workforce, and successful outsourcing capabilities. This progress underscores India’s growing prominence on the global stage, positioning it as a significant competitor to China in the manufacturing sector.
Cost Efficiency: India offers substantial cost benefits, with the landed cost of its products being 11.5% lower than those produced in China. This cost advantage encompasses factors such as factory wages, productivity adjustments, logistics, tariffs, and energy expenses.
Abundant Raw Materials: As the leading global producer of cotton, India plays a crucial role in the textile industry. The country also makes significant contributions to the jute, wood, gemstone jewellery, and marble sectors, enhancing its export potential. India’s diverse climate supports the cultivation of various natural materials, including spices, hemp, cork, grasses, banana, and coconut, further boosting the production of popular organic products.
Craftsmanship and Innovation: India stands out by blending traditional craftsmanship with modern technology. The country excels in artisanal techniques like handweaving, wood carving, metalwork, and pottery, leveraging its rich heritage to capture a growing share of the global handicrafts market, projected to reach $550 billion by 2025. This integration of traditional and contemporary methods gives India a unique competitive edge in the global manufacturing landscape.
As businesses continue to navigate a complex global environment, India’s evolving role as a key sourcing destination reflects its resilience and adaptability, making it a valuable player in the future of global sourcing.
Sources
1. Maersk. 2023. Sustainability Report
2. Walmart. 2020. Walmart Commits to Sourcing $10 Billion of India-Made Goods Each Year by 2027. Retrieved from URL: https://corporate.walmart.com/news/2020/12/10/walmart-commits-to-sourcing-10-billion-of-india-made-goods-each-year-by-2027
3. Dethe, A. 2020, December 29. Ikea aims to source 50% products from India. Retrieved from URL:https://retail.economictimes.indiatimes.com/news/industry/ikea-aims-to-source-50-products-from-india/80005146
4. Times of India. 2023, September 23. Big boost! India winning global manufacturing battle as supply chain move from China. Retrieved from URL: https://timesofindia.indiatimes.com/business/india-business/big-boost-india-winning-global-manufacturing-battle-as-supply-chains-shift-away-from-china-reveals-study/articleshow/103834692.cms
5. Business Insider. 2021, August 6. $514.92 bn growth in Handicrafts Market by 2025. Retrieved URL from: https://markets.businessinsider.com/news/stocks/514-92-bn-growth-in-handicrafts-market-by-2025-key-drivers-and-market-forecasts-17000-technavio-research-reports-1030701863
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