Long a disappointment as a potential global sourcing destination, under its new Prime Minister Narendra Modi the country of India is making changes quickly and just might give China and other Asian nations tough competition for production work soon. Modi won election in May in the most decisive election victory India has seen in three decades, sweeping the long-dominant Congress party from power. He came into the office promising to make India more competitive economically and to turn it into a manufacturing powerhouse - and the results are already being felt. Manufacturing in India may not only make sense from a global supply basis, but also well position multi-nationals to make in-roads into India\'s consumer marketplace, second only to China in terms of population size. Despite its many troubles and vast areas of extreme poverty, India\'s middle class has still been growing sharply, a pace that might accelerate under Modi\'s leadership. Case in point: Abbot Labs. While it had concerns about many aspects of India\'s infrastructure (electricity, water, roads, etc.), last month the company began production at a $75 million factory in an industrial park in the western state of Gujarat - not a coincidentally the same state that Modi led as governor and oversaw strong economic progress before ascending to national leadership.
The factory is producing Similac baby formula and nutritional supplement PediaSure, which Abbott plans to sell to that the growing Indian middle class. The plant will need about 400 workers by the time it\'s fully up and running next year. As for India\'s infrastructure, an Abbot executive e told BusinessWeek that officials in charge of the industrial park where the factory was constructed \"were able to deliver very good, very reliable power, water, natural gas, and roads. Fundamentally, the infrastructure was in place.\" And Modi plans a lot more of that. Despite labor costs well below that of China, the reputation for lousy infrastructure has been a big barrier to companies looking to India for production. India has also had a bad reputation for burdensome regulations, such as difficulties hiring and firing employees. And there were high profile incidents, such as the Coca-Cola factory that was ordered closed in June by local government officials, after nearby farmers claimed Coke was \"stealing\" water from underground aquifers and releasing pollutants into the environment. Coca-Cola disputes both charges, and has almost 60 other bottling operations in India. On the infrastructure side, for example, the state government of Madhya Pradesh is creating 27 industrial areas for which it promising to improve infrastructure and make labor laws and land acquisition regulations more business-friendly. Modi expects other states to do much the same. Another advantage India has relates to the historical tensions between Japan and China, recently simmering again in the last few years over disputes about control of islands and ocean space between the two countries.
While Japanese companies opened many production facilities in China, they were also eager for other options, and of late, for example, were making sizable investments in Vietnam. However, Japan recently committed about $35.5 billion in Indian manufacturing development. BusinessWeek says that \"Much of the money will be used to build a giant industrial corridor between Delhi and Mumbai, featuring high-speed trains and superhighways.\" The goal, says Anil Gupta, a professor at the University of Maryland\'s Robert H. Smith School of Business, is to turn the area into the equivalent of southern China\'s Guangdong province, which built special economic zones to transform China into an exporting power.\" India\'s Cost Competitiveness India for now at least has not seen the rapidly rising wages that have dinged China\'s cost competitiveness a bit in recent years. Earlier this year, research by the Boston Consulting Group pegged India\'s manufacturing costs (including several factors beyond just labor) at a score of 87,versus an index level of 100 for current costs to produce in the US. China\'s score was 9 points higher - at 96 - and moving upward much more rapidly. (See graphic below.) BCG did score India poorly in other areas, such as ease of doing business and corruption levels - exactly the types of problems Modi seems committed to take on.