A sharp spurt in transportation cost and an appreciating yuan is forcing global retail chains such as Wal-Mart, JC Penny, Target and Carrefour to look at India and other southeast Asian countries to source products with price points of $25 and below. At least 35 per cent, or $400 billion worth of goods, that are sourced from China could shift to countries such as India, Thailand, Vietnam among others over the next 10 years, according to a study by US-based retail and supply chain solutions firm DCB and Company.
India is expected to take the lion's share of volume shift compared to its counterparts in the region, the study says, due to its IT prowess, infrastructure and agents network.
"Many retailers we work with are asking their agents and brokers to diversify to other countries like India. Wal-Mart Vice-Chairman Mike Duke has also expressed his desire to diversify their sourcing to India and Vietnam," said Roger Cunningham, senior vice-president at DCB and Company.
DCB and Company is owned by Indian IT firm Idhasoft, which works with retailers such as HomeDepot, Hugo Boss and Timberland among others. International sourcing agents such as Hong Kong-based Li Fung and Eralda, European logistics and distribution operator Logista, and Chinese company CMST are closely looking at India, according to media reports. Kishore Biyani's Future group is believed to be in talks with Li Fung, Logista and CMST to divest a 15 per cent stake in its logistics arm, Future Logistics.
Though China has traditionally been a global sourcing destination due to its low-cost labour and efficiencies, consumer products in China have become expensive in the past one year.
From January to October, the cumulative Consumer Price Index (inflation) in China rose 6.7 per cent year-on-year, according to the National Bureau of Statistics of China. Besides, China shifted 6,000 factories, which produce consumer goods to its western provinces to reduce pollution, diversify sourcing for local companies, which has led to an increase in transportation costs.
Indian suppliers to international retailers believe that despite deep recession in their home countries, American and European retailers will look at low-cost sourcing destinations such as India for their merchandise needs. "Our orderbook, which is generally full for two and a half months, is full for the next four months. We are expecting revenues of Rs 3,000 crore (Rs 30 billion) this financial year," said Dilip Jiwarajka, MD of textile major Alok Industries, which mainly supplies to retailers such as Target and GAP.