China and India: A Comparison in Sourcing Potential

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There are many similarities between China and India in today's global-economic climate. Both have over one billion citizens, both have experienced resilient growth in output, and both have greatly expanded their roles in international trade. The relatively inexpensive yet well educated workforces of these two countries have made them key prospects for the sourcing of manufactured goods. Yet differences remain in their supplier and logistical capabilities which must be taken into account by the sourcing professional.

Both India and China are capable of world class manufacturing processes. A study performed by the London School of Economics on the supply chains of the two countries’ automotive industries found that two-thirds of their domestic suppliers were able to provide inputs with defect rates of less than 100 parts per million – the typical threshold for suppliers in the US, Europe, and Japan. It was observed that both Chinese and Indian auto manufacturers domestically outsourced component production at similarly high rates, suggesting an adequate availability of competent local suppliers. Whereas the study found higher productivity levels in India, in terms of capital intensity, delivery frequency and stock-turn ratios, China had the edge. In a more recent, broader assessment across multiple industries, Deloitte found that the average number of days an item sits in inventory favored China at 24.2 compared to India’s 32.5.

Beyond the factory floor, connecting products to end users poses different challenges in China and in India. Within India there is a heavy reliance on roads. Their network is the second largest in the world, behind the US, at over three million kilometres. However, only around half of these roads are paved, and their width is generally too narrow to allow the passage of anything beyond smaller, two-axel trucks. Road transit is further slowed by a fragmented Indian trucking industry and by state border checkpoints. China, in contrast, has a far less extensive network of roads. Out of its million-plus kilometre road network, only around 300,000 kilometres are paved. But what China lacks in actual length, it makes up for by having newer, more passable roads. It has five times the number of multiple lane highways than India.

China also has more transport options available to its supply chains in the form of rail, air, and waterways. Over 78,000 kilometres of terrain are connected by rail in China compared with 63,000 in India. Goods can be flown in and out of China by way of 500 airports whereas there are only 334 locations to take to the sky in India. Thanks to geographical endowments, China also has more navigable waterways. Besides some of the world’s most active ports, commerce in China moves on 110,000 kilometres of inland aqueous passageways. This is more advantageous than India’s 16,000 kilometres of waterways, particularly in the movement of bulk commodities.

These transportation differences are partially reflected in the World Bank’s Logistics Performance Rankings. China is rated the highest of all BRIIC (Brazil, Russia, India, Indonesia and China) countries at 27th in the world. Its comparatively higher scores in customs clearance, infrastructure adequacy, logistics, timeliness and tracking ability place it above India, ranked 47th globally. Some of the largest discrepancies between the two countries are shown in survey data collected by the World Bank. Responders reported much higher frequencies of compulsory warehousing/transloading and involuntary payment solicitation in India, while in China greater expenses were incurred in the form of agent fees.

The infrastructure and logistical differences may explain why India is a more common site for the outsourcing of services, particularly IT services, which do not require a physical good to be brought to market. However, India should not be entirely discredited as a sourcing destination for manufactured goods. Both it and China have allocated over 10% of their GDPs toward infrastructure development which will enhance their future logistical abilities in bringing their products to the world’s consumers. The greatest similarity between China and India: neither can be ignored by the sourcing professional.

International LPI Ranking (5 Pt. Scale)– World Bank
Country Rank LPI Cstms Infra IntSh Lgstc Trckg Time
China 27 3.49 3.16 3.54 3.31 3.49 3.55 3.91
India 47 3.12 2.70 2.91 3.13 3.16 3.14 3.61
Brazil 41 3.20 2.37 3.10 2.91 3.30 3.42 4.14
Indonesia 75 2.76 2.43 2.54 2.82 2.47 2.77 3.46
Russia 94 2.61 2.15 2.38 2.72 2.51 2.60 3.23
Abbreviations: "Rank" is World Rank; "LPI" is cummulative Logistics Performance Index; "Cstms" for customs procedures; "Infra" for infrastructure; "IntSh" for international shipping; "Lgstc" for logistics; "Trckg" for tracking capabilities; "Time" for timeliness

Country Logistics Scorecard – World Bank
  China India Brazil Indon. Russia
Clearance time with physical inspection (days) 3.38 3.45 5.47 5.12 4.62
Clearance time, no physical inspection (days) 1.70 1.92 1.67 2.14 2.57
Percent of imports physically inspected 8.59 13.63 10.54 11.08 44.20
Percent of imports inspected multiple times 2.46 6.20 2.04 2.56 10.05
Export lead time from shipper to port (median) 2.77 2.34 2.80 2.12 3.98
Import lead time from port to cosignee (median) 2.56 5.31 3.88 5.35 2.88
Number of export agencies 4.06 3.43 3.47 2.50 5.83
Number of import agencies 4.20 3.71 4.21 3.67 5.17
40 ft container export charge (USD) 418.90 660.30 1,614.05 378.93 1,310.37
40 ft container import charge (USD) 376.37 1,266.94 1,570.42 1,023.84 1,144.71

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