China is ‘risky’ for supply chains and India a favored destination for U.S. firms, survey shows

U.S. firms are increasingly viewing China as a risky bet for their supply chains — neighbor India is set to benefit as companies look elsewhere to set shop.

As many as 61% of the 500 executive-level U.S. managers surveyed by UK market research OnePoll said they would pick India over China if both countries could manufacture the same materials, while 56% preferred India to serve their supply chain needs within the next five years over China.

The survey showed that 59% of the respondents found it “somewhat risky” or “very risky” to source materials from China, compared with 39% for India. 

At least a quarter of the executives who participated in the independent, third party survey, commissioned by marketplace India Index in December, do not currently import from either China or India. 

“Companies are seeing India as a long-term investment strategy as opposed to a short-term pivot to avoid tariffs,” said Samir Kapadia, CEO of India Index and managing principal at Vongel Group, in an exclusive interview with CNBC. 

Warming ties between the U.S. and India, spearheaded by President Joe Biden and Prime Minister Narendra Modi, with the former’s “friendshoring” policy aimed at encouraging U.S. companies to diversify away from China have also made India an attractive alternative. 

The relationship between the two countries entered a new chapter with Modi’s state visit to the White House in June where a slew of deals on large collaborations in defense, technology and supply chain diversification were signed.

“The U.S. and China continue to sit in rather chilling air. Whereas there is a constant stream of iterations, conversations, dialogues and agreements between U.S. and India,” Kapadia said. 

India has seen a flurry of announcements about investments into the country in the recent past.

Earlier this month, Maruti Suzuki, announced that it would invest $4.2 billion to build a second factory in the country. Vietnamese electric auto maker VinFast also said in January that it aims to spend around $2 billion to set up a factory in India.

In September, Apple supplier Pegatron had to temporarily cease operations at its factory in the Chengalpattu area near Chennai after a fire broke out.

Delivery risk (48%) and IP theft (48%) were also a worry for U.S. firms looking at India. 

Other firms looking to fully or partially move their supply chains to India may not be able to duplicate Apple‘s fast presence in the country, warned Amitendu Palit, senior research fellow and research lead of trade and economics at the Institute of South Asian Studies. 

“What Apple has done will not be able to be done immediately and as quickly by many other companies. Apple has the capacity to create an ecosystem much faster than other companies, so time must be factored in,” Palit told CNBC in a Zoom interview. 

Both Palit and Kapadia agreed that completely shifting supply chains away from China will not be possible. 

“I don’t think China will ever be taken out of the equation,” Kapadia said. “The reality is that China will always be a cornerstone of U.S. supply chain strategy.” 

Investments into China still remain robust and it is still the “second choice” for investments after the U.S., said Raymund Chao, Asia-Pacific and China chairman at PwC.