International Business: Why didn't American companies choose India instead of China for manufacturing products?
- Haosen Cai, Engineer
I’ve come across similar questions from time to time on this very topic and I don’t recall anyone ever pointing out the true reason.
The reason as to why India can’t out perform China in manufacturing is NOT because of infrastructure, it’s NOT because of skilled labors, it’s NOT because of corruption, and it’s also NOT because of “superiority of the Chinese mentality”.
I’d like to answer this question with this noun
Now repeat after me.
This is the single most powerful noun that’s preventing India from being a manufacturing hub - because doing business in India is so god damn unpredictable, therefore it is impossible to calculate your return on investment when dealing with India.
Bad infrastructure? No problem, that can be factored into shipping cost & delivery time Lack of experienced labors? No problem, that’ll factor into capital/startup cost Corruption? No problem, tell me who I need to pay and how much, that’ll become part of operating cost Lots of paper work? No problem, longer startup time means lower return on investment, but that again, can be calculated, and can be made up with higher profit margin.
You know what the problem with India is?
NOTHING CAN BE CALCULATED
When a someone says “yes”, you have no idea whether he/she actually meant yes or no.
When a worker say that “I’ll be there in 5 minutes”, you have no idea whether he’s one of those workers who keeps his word, or he’s one of those workers who’ll just show up 4 hours later
When an official approaches you and ask for “expedition fee”, you have no idea how much he’s asking, and how much faster he can expedite, and how many more like him are coming
When you are presented with a pile of paper work, you have no idea whether this is the last pile, or whether there are 20 more piles that’s coming after, and whether you were even given the correct paper works to fill out.
Heck, even if you have someone coming in to help, you have no idea whether he’ll hit a cow on the way here and then forced to wait for another 8 hours for a shaman to show up and complete the ritual.
All that plus the occasional “I refuse to work with people from that caste” plus union strike and power outages makes doing business in India extremely unpredictable.
If you are a business owner, would you buy from someone who sells you the same item with $3, knowing that the goods will likely be delivered on time and to specification, or are you going to buy from someone who sells you for $2, but you have no idea when, or even if you’ll get that item?
Most people would buy it for $3, then just markup the profit.
Business is all about predictability, trying to make money without ability to predict is called gamble, and business owner don’t like to gamble when they could avoid it.
So to wrap this up.
Unpredictability is what’s killing manufacturing in India. Not infrastructure, not mentality, not corruption, not skilled labor.
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