India Wants To Be Vietnam; Vietnam Wants To Be China | The Reason Why

Last week, the Indian government launched a new scheme for boosting mobile phone production. It is called the Mobile Phone Manufacturing Scheme. The timing couldn't be better.

One day earlier, Google's Pixel 11 series started selling worldwide. According to Nikkei Asia, Google built this series from scratch in Vietnam for the first time.

This is important.

Vietnam is no longer just assembling phones like India. It has moved into stages like designing and new product introduction, much like China. But India isn't a small player. In a decade, it became the world's second-largest smartphone maker by volume.

So, India and Vietnam are both becoming alternatives to China. But they are taking different paths.

India's Policy: Scale First

India's first goal was simple: assemble as many phones as possible in a short time. And that worked.

The government implemented various schemes from 2011 onwards. But the Production Linked Incentive scheme was a game changer.

Under that, the government offered a 4% to 6% incentive on additional production over five years.

India's smartphone production and exports rose. At the same time, imports also rose as most raw materials came from abroad. That wasn't helpful.

MPMS tries to overcome this issue. It encourages companies to reduce imports and start building supply chains within the country.

Large firms get support between 2.25% and 5% on sales. If they buy from Indian suppliers, they get up to 1.5% more. Indian-owned brands are encouraged too. They get a 5% base incentive. They can avail an additional 3% if design and R&D is done in India.

The goal is clear. India built scale first. Now it wants to build a supply chain.

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Vietnam's Policy: Move Up The Value Chain

Vietnam took a different path.

It already had a strong electronics production base. For years, it drew foreign firms with low taxes and tax breaks. But a new global minimum tax agreement made that strategy less useful.

So it changed its policy. Its Investment Support Fund encourages R&D, training and high-tech projects.

The government reimburses up to half of the training costs of Vietnamese employees. R&D support can be up to 30%. Then, higher investments, chips and AI-specific R&D, and high-tech value additions attract more benefits.

The goal is clear. Vietnam wants firms to do more complex work in the country.

Where India and Vietnam Fit In

India first focused on building scale. Now, it wants more suppliers, components, design and R&D in the country. Vietnam has much of that base. It is trying to move up the value chain.

Apple and Google's choices show how this works.

Apple has expanded iPhone production in India. But for AirPods, Apple Watches, iPads and components, it chose Vietnam. These products need a more specialised supply chain.

Google chose both to make Pixel phones. But Pixel 11's NPI in Vietnam points to something more. Vietnam is taking on a bigger role.

Final Take

For now, both countries are tapping their strengths and moving upwards.

India may become a global hub for smartphones. It could also make more camera modules, batteries and semiconductor packaging over the years. If MPMS succeeds, India could have a component ecosystem like Vietnam.

However, MPMS may not be enough. The support seems inadequate to attract more R&D and workforce training.

Vietnam is likely to keep its edge in specialised components and advanced technologies. It might be nearer to China's capabilities in the next few years. In some ways, India may become the next Vietnam, while Vietnam becomes the next China.

For Apple and Google, using both countries is not a compromise. It may be the best way to reduce their dependence on China.

But India cannot stop where it is today. It needs to close the gap with Vietnam. And that too quickly, before another country emerges as the next manufacturing destination.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.

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