Can India win China+1 race or will Vietnam and Mexico stay ahead? EXPLAINED

India and Japan are strengthening their strategic partnership by expanding cooperation in key sectors such as AI, semiconductors, critical minerals, supply chain resilience and economic security. As multinational companies increasingly adopt the "China+1" strategy to reduce reliance on China, both countries are exploring ways to develop reliable manufacturing and technology ecosystems. The ongoing discussions are expected to boost investment, facilitating technology transfer and enhancing long-term industrial cooperation.

The "China+1" strategy reflects a growing effort by India and multinational companies to diversify manufacturing bases and supply chains beyond China. According to a report by YES Securities, this transition offers India a rare opportunity to strengthen its role in global value chains and drive export-led economic growth.

The report highlights that geopolitical tensions, repeated supply chain disruptions and concerns over excessive dependence on a single manufacturing hub have encouraged companies to seek alternative production destinations. Rising labour costs in China, coupled with increasing geopolitical uncertainty, have further accelerated this shift, opening the door for countries like India to attract large-scale manufacturing investments.

With a large labour force, a growing domestic market and an improving manufacturing ecosystem, India is positioning itself among the few economies with the capability of benefiting from global realignment. The YES Securities' report highlights that the country is at a significant economic inflexion point, with current gains in engineering goods, electronics, pharmaceuticals and auto components underscoring its growing manufacturing capabilities.

According to the report, India's recent FTAs with the UAE, Australia, the UK and the European Free Trade Association (EFTA), along with the European Union and the United States, are making the country a more attractive manufacturing hub. These trade deals provide exporters with greater tariff certainty and improved access to key global markets.

Among all sectors, electronics has emerged as the biggest beneficiary, with Apple's smartphone manufacturing ecosystem helping transform India into a major export base. In addition, the report also expects pharmaceuticals, engineering goods and auto ancillary industries to benefit as multinational companies diversify supply chains and shift sourcing to cost-effective manufacturing destinations like India.

Can India go ahead of Vietnam and Mexico?

The report also indicates that global trade is continuously being driven by regional and bilateral trade agreements rather than broad-based liberalisation under the WTO. Countries such as Vietnam and Mexico have gained a competitive advantage through preferential trade pacts, and without comparable agreements, Indian exporters risk losing ground in important international markets due to higher tariffs.

However, YES Securities warned that improved market access alone will not be enough to drive export growth. It points out that India's merchandise exports have expanded at a relatively slow pace over the past decade, suggesting that competitiveness remains a greater hurdle than tariffs. Factors such as high logistics costs, infrastructure shortcomings, complex regulatory compliance, expensive power and lower labour productivity continue to affect the efficiency of India's manufacturing sector.

Additionally, Vietnam and Mexico maintain a unique head start due to geographical and regulatory alignments. Mexico, backed by the USMCA, has become the ultimate nearshoring hub for the North American market, offering rapid transit times and seamless tariff integration. Meanwhile, Vietnam operates as the preferred direct substitute for tech and electronics due to its physical proximity to existing Chinese supply chains, lower initial compliance barriers, and a highly efficient network of FTAs.