Melissa & Doug had a problem: For decades, the American toy brand had relied heavily on factories in China to make products like wooden puzzles, stuffed animals, and play mats. Suddenly, that policy was looking risky.
In February 2021, the world was hit by a pandemic. Lockdowns had disrupted Chinese factories, and trade tensions between Washington and Beijing were eroding the benefits of reliance on Chinese factories. President Donald J. Trump had imposed tariffs on a wide range of imports from China, raising prices, a policy that President Biden has extended.
Melissa & Doug was keen to move some of its production to other countries, which is why the company's chief supply chain officer was based at a factory in Greater Noida, a fast-growing city about 30 miles southeast of the Indian capital, New Delhi.
The factory was owned by a family-run business called Sunroad. Melissa & Doug executives were amazed that the factory could produce high-quality wooden toys at prices comparable to those in China. Late last year, Sunroad completed its first batch of products for Melissa & Doug, a modest order of about 10,000 pieces, but is now producing 25,000 pieces a month.
“What they want is for 20 to 30 percent of their production to come from India,” said Amitabh Kharbanda, director at Sunroad. “There is a very positive vibe in India right now.”
India is showing signs of emerging as a potentially important manufacturing location in a global market reshaped by volatile forces, notably hostility between the United States and China. Multinational brands that have relied on Chinese factories for decades are expanding into India, seeking to reduce the vulnerability of concentrating production in one country.
A shift to India could make global supply chains more resilient and less vulnerable to shocks, and it could also help turn around the fortunes of India, which missed out on the manufacturing boom that lifted hundreds of millions of people out of poverty in East Asia — first Japan, South Korea and Taiwan, then China, and more recently Thailand, Indonesia and Vietnam.
India has about 1 billion working-age people but only 430 million jobs, according to the Centre for Monitoring the Indian Economy, an independent research institute in Mumbai. And most of those who count as employed make precarious living as daily wage labourers or farm labourers. Expanding exports could provide a new source of employment, especially for women, who have been largely shut out of the formal workforce.
India's manufacturing growth is still nascent and fragile: Nearly 80 years after becoming an independent nation, it has typically been governed by tedious bureaucracy, a thirst for self-sufficiency and a disdain for international trade.
Prime Minister Narendra Modi has won praise from business leaders for streamlining regulations and championing industry, changing that perception. But it's more speeches than paychecks. Manufacturing accounts for just 13% of India's economy, a lower share than a decade ago when Mr. Modi took office. His authoritarian tendencies and demonization of India's Muslim minority risk stoking doubts about his leadership and sparking social strife that could undermine the country's appeal.
And Mr. Modi's disappointing performance in the recent general election has created further uncertainty for his future rule, as his Hindu nationalist party was forced to form a coalition to stay in power after losing its majority in parliament.
While India has aggressively built ports and highways over the past decade, basic infrastructure remains underdeveloped, hindering the movement of raw materials and finished goods, and even Indian manufacturers question the country's ability to keep up with rapid growth.
“American brands are aware of the strengths that India brings to the table,” said Kailesh Shah, managing director of All Time Plastics, which runs a kitchenware factory in north Mumbai. But American companies are so reliant on Chinese industry that even small changes could have a big impact.
“Even a 5% cut in these programs would disrupt Indian factories,” Shah said.
China is still China, a powerful country boasting the know-how and infrastructure to mass-produce virtually anything cheaply.
India is big
This is not the first time that the world is ringing out declarations that India is finally seizing its destiny as a major manufacturing power. Until now, such rhetoric has not translated into reality. But this time, geopolitical realities are driving India's mission.
A survey of U.S. companies doing business in China by the American Chamber of Commerce in Shanghai last year found that 40 percent said they had shifted or intended to shift planned investments to other countries because of tensions between Washington and Beijing.
Most companies were looking to Southeast Asia. Mexico is particularly well-positioned to pick up additional orders because of its proximity to the United States and its trade agreement with the country. But those countries are smaller than China and can only absorb so much additional orders. They also remain heavily reliant on Chinese industry for key components and raw materials.
As a nation even larger than China, with a population of 1.4 billion, India offers a unique proposition: It has an abundance of raw materials, from cotton to iron ore to chemicals, and the potential to develop its own supply chains. If any country could one day replicate China's role in manufacturing, India may be the most likely.
These attributes have led Walmart, the world's largest retailer, to aggressively expand its supplier acquisitions in India, aiming to increase its purchases from about $3 billion in 2020 to $10 billion a year by 2027. Apple is outsourcing an increasing portion of its iPhone manufacturing operations to Indian factories.
“We don't foresee American companies investing in China in the future,” said Amitabh Kant, a senior government official close to Prime Minister Narendra Modi. “All the companies are moving their manufacturing to India. It's a huge opportunity to create jobs.”
European companies are following a similar trend.
“We're too dependent on consumer goods from China,” said Uri Schelaus, managing director of Techpoint, a German retailer of steak knives, cutting boards and grilling equipment. “What everyone's learned the hard way is that it's not good to rely on one supplier for everything.”
“This is a big order.”
The hope for India is that the influx of multinational brands will spread its manufacturing prosperity beyond the south, where car factories and technology companies are mushrooming.
At the center of the initiative is Uttar Pradesh, India's most populous state and long synonymous with rural poverty. Suddenly, representatives from North American and European retailers are arriving to scout potential factory sites.
“This is a fascinating possibility and a potential game-changer,” said Arvind Subramanian, a former economic adviser to the Modi government and now a senior fellow at the Peterson Institute for International Economics in Washington. “It's a population of 225 million, so if something could work there, it has a lot of unskilled workers, a young and growing population, and in some ways it could become like China was 40 years ago.”
Moradabad, a city of 1.3 million people in western Uttar Pradesh state, has long been a thriving metal forging industry. The city lies on the Ramganga River, and its sandy banks make it particularly well suited to the technique.
That skill set has recently caught the attention of companies like Walmart.
“Walmart's sourcing efforts are focused on ensuring a broad and diverse pool of existing and new suppliers, including small businesses and entrepreneurs from around the world,” company spokesman Blair Cromwell said in a statement. “This strategy creates redundancy in our supply chain and reduces reliance on any single market or supplier.”
On a recent afternoon, hundreds of men operated machines at a factory run by a family-run company called Shree Krishna, transforming coils of steel and piles of wood into cutting boards, cocktail shakers, ladles and other products for kitchens from Barcelona to Boston.
Six workers performed industrial magic, dipping stainless steel wreath holders into a bubbling green chemical that turned them copper. Others pressed chunks of metal against a spinning stone ball, smoothing out imperfections in the stone as sparks flew sideways. Downstairs, men slid planks through shrill saws and the air was thick with sawdust.
The temperature was 106 degrees, the windows were open, the ceiling fans were spinning, and a gentle breeze was blowing in. No air conditioning was on.
“We're used to it,” says Samish Jain, who oversees marketing for Shree Krishna.
Jain, 35, paused in front of a table where men were wrapping cloths around wooden cake stands to wipe the dust off them at a Walmart Superstore in the US, which he said had previously bought small quantities of these items from his factory.
“This is a big order,” he added. “More than $2 million.”
Jain's father and two brothers started making stainless steel jugs and mugs for the domestic market and began exporting in the mid-1990s, sending mixing bowls and colanders to the United States.
Today, the company is run by four of its founder's sons, including Jain. Jain studied business in Florence, Italy, and has a penchant for fashionable eyewear and designer shirts. While his father prefers Hindi, Jain is fluent in English and is used to traveling the world.
Shree Krishna has been making products for Walmart for more than 20 years, but in recent months, interest from the retailer has surged — buyers from its Bangalore and Hong Kong offices recently visited the factory — and the Jains envision expanding the business 10 or even 20 times over the next five years.
“Walmart doesn't want to put all its money into China,” Jain said. “It believes India is the only place it can do business on a par with what it does in China.”
One attraction for Walmart, he added, is that all the wood it needs for the factory comes from India, including mango and acacia. The company buys 95% of its steel locally, but imports machinery from Chinese manufacturers.
The company recently bought a textile factory 30 miles west of Moradabad and plans to expand the number of sewing machines from 350 to 1,200 within two years to make T-shirts and sportswear, with plans to export about two-thirds of its production.
The site has enough space to park several jumbo jets and has room to expand to manufacture metal products.
“Anything they want to do, they can do it here,” Jain said. “This will allow Walmart to shift production from China to India.”
The biggest obstacle to that vision may be unreliable infrastructure.
“There will be no interruption in power supply,” Mr Jain's father, Sandeep, boasted as we sat in the air-conditioned conference room of the factory. “Not since Modi.”
A few seconds later, the air conditioner whirred to a halt and the lights went out.
A global quest
In recent months, Samish Jain has been travelling more than usual.
In April, he arrived at Walmart's headquarters in Bentonville, Arkansas, with a duffel bag full of samples to show to the company's buyers.
For three days, he wandered among 10,000 attendees at the Inspired Home Show at Chicago's downtown convention center, mingling with representatives of kitchen appliance brands from the U.S., Europe and Australia.
Many worry that U.S.-China relations could create more hostility that hampers business, especially if Trump is returned to the White House in November's election.
“If Trump is re-elected, he'll finish what he started,” said Dov Shifrin, president of Yukon Glory, which makes barbecue equipment in China.
“India is the wave of the future,” he said. “They're going to be the next China.”
Hari Kumar Contributed report.
