India an alternative destination for supply chain diversification: Fitch

Business Friday 08/December/2023 09:07 AM
India an alternative destination  for supply chain diversification: Fitch

New Delhi : India's expanding consumer market and vast labor force can make it an alternative destination to China as part of countries' supply chain diversification, according to Fitch Ratings.

According to the global rating agency, supply chain diversification away from China presents several emerging markets with an unprecedented opportunity to deepen global supply chain participation and expand and diversify manufacturing capacity.

“Southeast Asian economies and India are positioning themselves as alternative production locations. Many Southeast Asian countries have competitive labor forces where wages are significantly lower than in China, including India, Malaysia, Indonesia, Thailand and Vietnam,” Fitch said in a report.

Among other economies, Fitch said Indonesia's mineral could encourage foreign direct investment (FDI) in electric vehicles and batteries, while Malaysia is attracting FDI in the tech sector.

Besides, the rating agency asserts that Central America is also poised to benefit from nearshoring, although the small size of the region's economies restricts their capacity to absorb extensive investment projects, which may be limited to niche sectors.

Costa Rica appears well placed, given its high value-added manufacturing capacity and relatively better infrastructure, Fitch said.

“Emerging European countries benefit from closeness to the core eurozone economies due to their infrastructure and labor force advantages,” it said.

Central and eastern European countries are also well integrated in global value chains, providing significant value added to exports and attracting further investment in areas ranging from semiconductors to automobiles.

“A crucial test is whether economies can sustain high productivity growth and overcome adverse demographics,” the rating agency has asked.

Covid-19, then the ongoing wars pose definite supply chain risks. It had necessitated a global modification in supply chains, presenting several emerging-market economies with a large opportunity to deepen their supply participation and expand and diversify their manufacturing capacity.

Also, the deterioration of trade relations between the US and China has further increased the appetite to diversify production sources.

Even though there is supply chain diversification, Fitch said it believes the process of supply-chain diversification will be gradual, as China still retains a range of significant comparative advantages.