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Supply Chain Disruption Post COVID–19 – Coronavirus (COVID-19)


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How to leverage India for turning this crisis into an
opportunity

The current trend we have seen is that the logistics and
transportation industry has been disrupted by internet tech giants
and, more recently, the COVID-19 pandemic. As the world emerges
from the shell shocks of COVID–19, China’s dominant role
as the ‘world’s factory’ has surfaced as the weakest
link in the global supply chains. Indeed, this pandemic has become
the black swan event for bringing this vulnerability to the
forefront. Globally, businesses need to strengthen their supply
chains or else they will carry the risk of being caught unaware
again.

When a U.S. business is looking at shifting its supply chain,
the key factors to consider are:

  • How can the business diversify its supply chain?

  • Can the business trust the infrastructure for the movement of
    goods?

  • Does the local country have a friendly and reliable business
    and political environment?

The U.S. urging India to address some of these concerns and to
create a robust supply chain friendly environment has led to
widespread reforms causing India to rapidly jump 67 places, in 3
years, to rank 63rd among the 190 countries as per the World
Bank’s ease-of-doing-business ranking released in 2019.

Industry Trends

Industries have to change how they do business and their service
offering on each spectrum of the supply chain. Listed below are the
top seven trends for businesses to consider while addressing the
current challenges to the supply chain:

  • 3PL, 4PL and 5PL – Provides logistic to address the
    supply chain needs of companies.

  • Distributor vs B2C – Eliminating the middle-man and going
    straight to the end customer.

  • E-commerce Tax – New VAT rules for e-commerce could be
    introduced in the European Union for online sale of goods. These
    new rules aim to raise VAT revenues and combat VAT fraud. These
    changes will have a significant impact on e-commerce
    businesses.

  • Robotics – 24/7 operating warehouses with robots that
    don’t take cigarette and bathroom breaks.

  • Less compliance more action – Countries, borders and
    international business norms mean very little to sprouting
    e-commerce businesses.

  • Data Analytics – Logistics and transport (L&T)
    companies currently have very little to do with managing boxes in a
    box or moving things.

  • Logistics blueprint – Looking at outsourcing, using
    multiple L&T vendors and understanding where and who the end
    customers are.

Advantages:

During this global crisis and disruption of the supply chain,
the Indian government has taken a proactive approach to convert
this crisis into an opportunity, by attracting U.S. businesses to
consider India as a destination for shifting their supply chain.
Here is a quick peek at some of the high-level points that U.S.
businesses need to take note of:

  • As the 5th largest global economy, India is poised to fill a
    sizeable chunk of the gap ensuing from an exodus of manufacturing
    industries from China.

  • Geopolitically, India has remained neutral to minimize any
    geopolitical risks.

  • In the last five years, India has overhauled its legal,
    regulatory, and policy framework (such as indirect tax, insolvency
    & land laws) to rapidly jump the global index of ease of doing
    business. India is also transforming its labor laws, which shall
    come into full force by the end of 2020.

  • Towards this end, the Indian government’s ‘Make in
    India’ campaign has fetched global giants like IKEA, Apple,
    Foxconn to its shores.

India – Advantages and Concerns

  • Even during COVID-19, India has received a copious amount of
    foreign capital in various sectors. This trend is here to
    stay.

  • Recently, Japan has offered incentives to Japanese companies to
    shift their manufacturing base from China to India, among
    others.

Concerns:

If India needs to attract U.S. businesses to shift their supply
chain, it should take a long term approach of addressing some of
the following concerns:

  • Reduce the high cost of doing business in India;

  • Adopting regulations which are less bureaucratic and more
    business friendly;

  • Reduce high tariff cost;

  • Data localization;

  • Protecting intellectual property rights; and

  • Provide tax incentives and tax holidays.

  • India – Opportunities for you company (section
    header)

China Plus One Strategy

It is not easy to find a quick replacement for China. However,
to de-risk China, India could be a more accessible substitute for
many strategic reasons. Globally, the businesses will have to play
China Plus One strategy to optimize their global supply chains.

Key Sectors

Among many sectors, India has emerged as a partner of choice for
the following sectors:

  • Auto Component

  • Pharma

  • API and Speciality Chemicals

  • Electronics

India – Opportunities for Your Company

India Entry Strategies

Foreign Direct Investment Policy of India permits almost 100%
foreign investment in all sectors without any government approval.
Based on the investment strategy, a foreign company can enter into
India in one of the following ways:

  • Contract Manufacturing

  • Liaison or Project Office

  • Minority Investment

  • Joint Venture

  • Majority Investment

  • Wholly Owned Subsidiary

Co-authored by Rajesh Tripathi, Principal, L.L.M., Market
Leader, International Tax, U.S. India Corridor, Withum

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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