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Why India or Vietnam Can Never Replace China As The World’s Manufacturing Hub?

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With the US and China trapped in a ruthless trade war, it could very well have been time for Vietnam or India to take a big chunk of the Chinese manufacturing pie. Instead, it is becoming increasingly apparent that it could take years before Vietnam or India could replace China as the world’s factory.

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The functional supply chains that made China a production powerhouse for smartphones and aluminium ladders and vacuum cleaners and dining tables are nowhere near as developed in Vietnam. Plants with US-focused safety certifications and capital-intensive machinery are extremely challenging to find.

Besides meeting Chinese competence and expertise, Vietnam (with less than one-tenth China’s population), is already running into labour shortages as global manufacturers rush to set up shop here to avoid US tariffs. India, on the contrary, has the manpower, but skill levels fall short and government rules are relatively restrictive.

“China has a 15-year head start—whatever you want, someone’s doing it,” said Wing Xu, the operations director for Omnidex Group, which helps make large pumps for Pennsylvania-based industrial equipment manufacturer McLanahan Corp.

Omnidex has shifted some production to Vietnam, but out of more than 80 parts of a pump used in mining operations, factories here have been able to begin work on only 20 so far because moulds must be created from scratch. “You can’t just shift your business to Vietnam and expect to find what you’re looking for,” she said.

Business leaders say they are preparing for a protracted fight between the world’s two largest economies. Few companies are planning to leave China altogether, but those that heavily clustered production in the country are urgently looking to diversify.

Some companies are relocating parts of their production lines to Southeast Asian countries or elsewhere while continuing to manufacture in China for the Chinese and non-US markets, a strategy they call “China+1.” Others with huge orders are hoping to nudge their Chinese suppliers to move operations out of China.

As a result, a new global manufacturing landscape is starting to take shape, executives say. Production leaving China is getting divvied up among developing countries, with a small portion going to the US on the back of automation. The reordering of supply chains is likely to leave China with a diminished but still significant share of the pie.

The creation of new industrial clusters won’t happen overnight. Vietnam offers cheap labour, but its 100-million population is small compared with China’s 1.3 billion, and its roads and ports are already clogged. India has the manpower, but skill levels fall short and government rules are relatively restrictive.

“The question everyone is asking is: ‘Where should we go?’ ” said Giang Le, a Singapore-based analyst for strategic consulting firm Control Risks. “The answer is not obvious.”

California-based camera-maker GoPro Inc. is moving most of its US-bound production to Guadalajara in Mexico while keeping its China operations for other markets. Universal Electronics Inc., which is based in Arizona and makes smart-home technology, has a new partner in the Philippines and is also expanding operations in Monterrey, Mexico.

Hong Kong-listed Techtronic Industries Co. Ltd., which makes Hoover vacuum cleaners, will set up a new plant in Vietnam and add capacity to its Mississippi operations. It will maintain some production in China for at least a decade, the company said.

The Chinese model of the past 20 years thrived on suppliers being close to each other, making production quicker, less expensive and more efficient. Now, as operations become more fragmented, they are threatening to raise costs, stretch delivery times and expose companies to multiple tax and labour regimes.

Companies are starting to focus on the intricate rules that govern how much of a product needs to be manufactured in a country, say Vietnam, to be considered “Made in Vietnam,” said Willy C. Shih, an economist specializing in manufacturing at Harvard Business School. “The era of the benign trading environment is over,” he said.

The shake-up is just the opportunity Vietnam has been waiting for. Labour-intensive manufacturing of sneakers and sweaters moved here years ago in response to rising Chinese wages. South Korean giant Samsung Electronics Co. has invested billions. Hanoi is eager to further expand the electronics and engineering industries that are high up the value chain.

Industrial parks have been flooded with inquiries. BW Industrial Development, backed by US private-equity firm Warburg Pincus, began building factories-for-rent last year. Its facilities are booked through December. Marketing head Michael Chan said some tenants are rushing from site visits to signing contracts in just a week.

Vietnamese firm Hanel PT, which makes electronics for fire alarms and motion sensors, says it is negotiating its biggest deal yet, equal in value to half its current contracts. The 20-year-old manufacturer counts big Japanese companies as clients, said director Tran Thu Trang, but US firms have made contact for the first time.

Ho Chi Minh City-based Seditex Co. Ltd., which connects foreign firms to local factories, began receiving 20 requests a week after tariffs were increased last September, up from 20 a month. Foreign companies wanted to know about making a range of products, including backpacks, pliers, Bluetooth speakers, boat covers, suitcase wheels and clothes racks.

Founder Frank Vossen said companies accustomed to operating in China are struggling to adapt. “There is no ready-made solution in Vietnam, that’s the reality check,” he said.

Workers are already getting tough to find. A local exporter of pipes and hoses is swamped with orders for tariff-hit products, but it has only been able to hire 30 of the 100 workers it needs. A Japanese furniture maker for brand Muji said it has had production delays since January because of labour shortages.

Yotaro Kanamori, the planning manager for the Tokyo-based firm Generation Pass Co. Ltd., said the firm is now renting a factory for itself instead of relying on contract work. He struggles to explain to his Vietnamese suppliers why a table’s underside needs to be as well-made as the top.

The manufacturing shift toward Vietnam has been a long time in the making. Early movers such as Nike Inc. began buying shoes from Vietnamese factories in the mid-1990s. As minimum wages in China grew, more orders for clothes, toys and shoes shifted to less expensive destinations in Bangladesh, Myanmar and Vietnam.

Japanese multinational Canon Inc. began making printers in northern Vietnam in 2012. But supply chains for products like printers and cameras are vast and difficult to re-create. Of Canon’s network of 175 suppliers in Vietnam, only 20 are local companies, said senior manager Dao Thi Thu Huyen. They mostly make plastic parts and packaging.

Nearly all the electronics components come from Japan, China and Taiwan, she said.

The pace of companies moving production lines to Vietnam began speeding up last year as executives who had been weighing the country’s potential decided to take the plunge.

Christopher Devereux had started a company called ChinaSavvy in the early 2000s that took orders from Western firms for complex metal products and worked with factories in China to get them made at what he used to tout as “China prices.” By late 2018, after the US imposed tariffs, his clients began asking: How quickly can you move out of China?

Mr. Devereux inspected dozens of factories in Vietnam, sometimes six a day, and rebranded his company “Omnidex” to project a global profile.

Relocating the manufacturing of pumps for Pennsylvania’s McLanahan Corp. is taking some doing. The pumps are made up of seven dozen pieces that must be cast precisely to avoid leaks. Mr. Devereux first tested the waters by making the small parts in factories near Ho Chi Minh City. Even that wasn’t easy, said Truong Khac Long, the Vietnam manager.

The bright red DuPont powder coating was tough to get. There weren’t as many qualified foundries to choose from, and those producing for the domestic market didn’t always have quality-control specialists. Engineers from China had to travel back and forth to Vietnam, where suppliers made samples, again and again, to get it exactly right.

Executives decided the manufacturing of bigger parts couldn’t be moved. The pump would be produced in two countries, unable to fully escape tariffs.

By spring 2019, Peter Zhao, who was in charge of getting products made for Wisconsin-based electrical tools company ECM Industries, had given up hope the trade war would end. He turned to Google to search for agents in Southeast Asia and contacted Vietnam-based intermediary Seditex.

Mr. Zhao directed them to find a factory with experience making multimeters, which measure voltage and are currently made in China. Seditex agents scoured their networks but couldn’t come up with one. The closest fit was a firm called Viettronics that made TVs and other devices.

In their office, a Viettronics R&D expert dismantled the sample multimeter Mr. Zhao had sent. His conclusion: The company could find local suppliers for the instrument’s plastic casing and cables and assemble the multimeter in its factory, but some of the major parts, like the integrated circuit, would need to be imported.

That was a problem for Mr. Zhao. He was used to buying nearly everything in China since the production of the multimeter moved there a decade ago from Taiwan. Over time, Chinese factories created their own tweaked model that drew on the strengths of their well-developed supply networks.

Mr. Zhao didn’t get involved with solving design questions or finding components, concerning himself only with the finished product and final price. He interacted largely with the main supplier, not the tiers of vendors underneath, and maintained a lean operation.

To move production to Vietnam, he said he would have to develop a cross-border supply chain from scratch, identify factories in China for parts the Vietnamese can’t make and negotiate quality standards, compatibility and prices. He didn’t have the manpower or budget for that, he said.

Still, he is thinking about brokering a partnership so that major Chinese parts can be encased in Vietnam-made plastic covers and assembled in a Vietnamese factory. He worries though that if something goes wrong, his Chinese and Vietnamese vendors will each blame the other.

“It’s risky,” he said. “It may not work, and the costs may be too high.”

Originally Published By The Wall Street Journal

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Asia Pacific

India can ‘no longer’ choke China at the Strait Of Malacca as Beijing finds solution

The Strait of Malacca is a strategic waterway between Indonesia and Malaysia through which the majority of Chinese imports pass. The narrow waterway also makes the perfect chokepoint from the perspective of India, and should tension between Beijing and New Delhi rise, the Malacca Strait can be blocked easily by India. 

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Could the advantage that India enjoys over China due to the Strait of Malacca be coming to an end? Does China have a way to tackle the Indian plans of chocking Beijing at the Malacca Straits – the strategic waterway, in case of a war?

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India’s position at the mouth of the Malacca Strait has created panic amongst Chinese officials as they try to find an alternative route, writes the Forbes.

The Strait of Malacca is a strategic waterway between Indonesia and Malaysia through which the majority of Chinese imports pass. The narrow waterway also makes the perfect chokepoint from the perspective of India, and should tension between Beijing and New Delhi rise, the Malacca Strait can be blocked easily by India.

India’s natural position in the Indian Ocean, with basing capabilities in the Andaman and Nicobar Islands at the mouth of the strait, would allow its navy to cut it off in the event of a crisis or war with China.

Keeping in mind the recent flare-up between India and China, Larry Bond, renowned naval author and creator of the Harpoon war game series, says that if India wanted to block trade with China, all it has to do is its park ships at the mouth of the Malacca Strait.

The vast majority of China’s oil imports, from the Persian Gulf, Venezuela and Angola, pass by this route. Due to the strategic importance of the waterway, there is fear amongst Chinese officials that India could block the Malacca Strait in case of war.

Experts at EurAsian Times believe that the strategic importance of the Malacca Strait and the advantage it gives to India will likely reduce over time as Beijing find alternative routes.

Bypassing the Malacca Strait

The fact India enjoys a strategic advantage over China because of the Malacca Strait has forced Beijing to explore other options and find ways around the waterway.

One such option is Gwadar Port in Pakistan. As part of the China Pakistan Economic Corridor (CPEC), Beijing has developed the port in Gwadar so that goods unloaded there will be shipped overland to China.

On June 8 the Pakistani government approved a $7.2bn upgrade to a railway which will connect Gwadar to Kashgar, China. The port is not yet operating at capacity, but the direction seems clear.

While Gwadar is still susceptible to an attack by the Indian Air Force (IAF), it adds political and military risks as it is in a third country’s territory. The Indian Navy could try and block this port but it would require ships to move away from the Malacca Strait.

The other option Beijing is exploring is Northern Sea Route in the Arctic which could create a ‘Polar Silk Road.’ The importance of this is underlined by China’s 2018 Arctic policy. It asserts, “Geographically, China is a “Near-Arctic State”, one of the continental States that are closest to the Arctic Circle.”

The policy statement goes on to say, “China hopes to work with all parties to build a “Polar Silk Road” through developing the Arctic shipping routes.”

Due to accelerated global warming, ice sheets are receding, thus making it possible for ships to travel via this route. Having sent its first ship through the region in 2013, Beijing is now investing in port infrastructure in the Arctic which connects to Europe.

China is also investing in designing ice breakers, vessels that would ease navigation through the Arctic. With help from Finnish Aker Arctic, China launched its first locally built ice breaker the Xue Long 2 in 2018.

Apart from exploring new waterways and developing strategic ports, Beijing is developing a land route directly to Europe, as part of the Belt and Road Initiative (BRI), mainly as a way to export goods.

Thousands of trains are transversing across Asia in recent times, the modern-day version of the ancient Silk Road. Land routes are one way China can reduce the criticality of Chinese sea routes.

The strategic importance of the Strait of Malacca to China will lessen over a period of time. India will still be in a position to throttle Chinese supply lines there, but it will not have the same impact that it once had.

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Americas

India Bets Big On Nikki Haley To Emerge As Vice Presidential Candidate Under Trump

Nikki Haley has echoed some of the same arguments Donald Trump has made on national topics such as cancel culture, defunding police forces and statue removal, although the tone and frequency between Trump and Haley differ dramatically.  

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India has pinned hopes on Nikki Haley to become the US Vice President (VP) should Donald Trump get re-elected this November. Haley, a first-generation Indian American, is expected to strengthen Indo-American relation and also attract a lot of voters including women and minorities.

According to the reports, there is speculation that Trump might switch out Vice-President Mike Pence for Nikki Haley as his running mate in the hopes of boosting his lagging approval numbers among the broader electorate.

Despite resigning as US Ambassador to the United Nations, Haley has been active in politics. She has been fundraising for Republican congressional candidates as well as in the Senate and gubernatorial arena.

She has set up a non-profit organization to boost her policy priorities and has continued to pen editorials on foreign policy. And Hailey has retained a small, tightly knit orbit of advisers.

The former governor of South Carolina, Haley is one of the people who left the Trump Administration on good terms. She has even promised to campaign for the President for his re-election bid.

Haley has echoed some of the same arguments Donald Trump has made on national topics such as cancel culture, defunding police forces and statue removal, although the tone and frequency between Trump and Haley differ dramatically.

According to experts at EurAsian Times, Haley’s recent moves can be seen as a carefully executed plan to stay involved in key Republican policy circles and the national discourse. Haley has fundraised for almost a dozen Republican Senate candidates, many of them in tough re-election races, and has been a special guest at Republican Governors Association (RGA) events.

While Haley has dismissed reports about her running for VP, her being an influential person of colour could help Trump win constituencies he is currently losing.

India pinning hopes on Nikki Haley

The US Presidential elections are a spectacle observed globally and India would be hoping Trump wins and Haley gets elected as the VP. Haley enjoys nationwide popularity amongst Indian-Americans and her election as VP could lead to stronger ties between Washington and New Delhi.

She has natural links to India with her parents having emigrated to the US in the 1960s from Punjab. Haley has often pointed out that India is an example of a free government and recently even applauded New Delhi’s decision to ban 59 Chinese applications and for standing up to China.

With an Indian-American at the helm of affairs, New Delhi would see it as an opportunity to get closer to Washington. It could lead to India benefitting in the areas of trade, defence and investment and would be a huge blow to neighbours China and Pakistan.

US Presidential elections are scheduled to take place in November and will be contested between Donald Trump and Joe Biden. While Biden’s re-election does not mean that India and the United States will have weak relations, having Trump in the White House and Haley as VP would definitely lead to stronger Indo-American ties.

Armaan Srivastava. Views Personal

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Americas

Russian T-14 Armata Tanks Now On Sale; Hopes To Challenge US’ M1 Abrams

The T-14 is part of the Armata’s heavily tracked standardized platform, which serves as the basis to develop the main battle tank, an infantry fighting vehicle, an armoured personnel carrier and other armoured vehicles.

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Russia’s T-14 Armata tank will be up for sale from 2021. This was announced by Denis Manturov – Industry and Trade Minister of Russia. He said that they are already receiving requests for the deadly T-14 Armata tanks from several foreign customers.

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The T-14 is part of the Armata’s heavily tracked standardized platform, which serves as the basis to develop the main battle tank, an infantry fighting vehicle, an armoured personnel carrier and other armoured vehicles. It has fully digitized equipment, an unmanned turret and an isolated armoured capsule for the crew.

“Russian producers are ready to offer potential buyers both air defence systems, such as the S-300 and the S-400 and advanced aircraft and helicopters,” explained Dmitry Shugayev, Head of Russia’s Federal Service for Military and Technical Cooperation.

“We are preparing the MiG-35 light fighter for sale and are promoting the latest T-14 ‘Armata’ tank,” he added.

The Armata T-14 was first demonstrated during the Victory Day Parade in May 2015 in Moscow. The actual production of the tanks was delayed. The first nine T-14 Armatas were originally planned to be handed over to the Russian Ground Forces (RGF) in 2018. This date then got pushed to 2019 and then to 2020.

Russia hopes that the T-14 Armata tank will give a tough competition to America’s M1 Abrams that destroyed thirty-seven of the Soviet-designed T-72s during the 1991 Gulf War.

T-72s remain Russia’s primary battle tank, supplemented by turbine-engine T-80s and four hundred more advanced T-90s. According to Sébastien Roblin, an expert on security and militarywhile Russia may finally have a 125-millimetre sabot round that can threaten Western main battle tanks at the range, only its handful of new T-14s tank are capable of actually using it.

Experts claim that the 2A82 gun could be retrofitted to numerous older T-90s and T-72s so far appear not to have materialized.

Despite Russia’s defence spending, the Russian military has continued with the production of the new tank. The production is overseen by Rostec Corporation, the Moscow conglomerate that specializes in consolidating strategically important companies in Russia’s defence sector.

It has undergone field testing in Syria. Although the extent of testing and the results are still unclear, a Russian media outlet suggested that “one Armata was completely destroyed.” There’s no confirmation on that but it might not look good to its buyers.

“It [the T-14 Armata tank] is expensive because it is still undergoing extra trials and modernization after the defence ministry requested additional technical solutions in order to begin serial supplies starting from the next year under the existing contract,” said Manturov in April this year.

He further said that next year, when serial supplies of these tanks to the defence ministry are launched and an export certificate is obtained, they will begin to work with foreign clients. “Preliminarily, bearing in mind that we cannot provide all the documentation to our foreign clients. We do have preliminary orders,” he added.

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