China+1=TN

Tamil Nadu is actively wooing multinational manufacturers looking at alternatives to China for global supply chain investments in sectors such as electronics, automobiles, auto components/ancillaries, electric vehicles and consumer goods.

“Tamil Nadu has been a significant beneficiary of the China +1 strategy. Recent major investments, including those by Tata Electronics, Jabil, Cisco, Vinfast, Tata-JLR, Hong Fu, and Pou Chen, underscore how the state is becoming an important player in the global supply chain diversification strategy,” says industries minister T R B Rajaa.

It helps that some of the sectors are also those in which Tamil Nadu has core competence. “Sectors such as electronics, automobiles and non-leather footwear have seen a steady inflow of investments due to this (China +1) trend, with global players choosing Tamil Nadu as a key manufacturing hub,” says Rajaa.

The biggest success story has been in electronics, with exports rising from $1.26 billion in 2021 to more than $10 billion currently. “That growth has happened in just three years in a sector that China dominates,” says Guidance Tamil Nadu CEO Vishnu Venugopalan. Even Chinese media have noticed that Tamil Nadu has moved in on high-end mobile manufacturing and now even components. Outside China, Foxconn has the largest base in Tamil Nadu with 40,000 employees. The company is building dormitories in Chennai to replicate its manufacturing infrastructure in China.

TN has also attracted significant investments in automotives. Tata Motors’s 9,000 crore and Hyundai’s 20,000 crore announcements are cases in point. And in auto components, investments are coming from Visteon, Eaton, ZF, Autodesk and others. What’s more, with Chinese EVs facing anti-dumping duty in the US and many European markets, TN’s position as an EV hub should come in handy. “Tamil Nadu’s established expertise in the automotive and electronics sectors makes the state a natural choice for companies looking to diversify from China. But, we are also seeing significant influx of investments in sectors such as non-leather footwear and green energy manufacturing,” says Rajaa.

This is where its investment strategy comes into play. “TN is targeting Taiwanese and east Asian firms in non-leather footwear and technical textiles,” says Venugopalan. In non-leather footwear, 3 Taiwanese companies have signed up for nearly 5,000 cr in manufacturing investments — Hon Fu will pump in 1,500 crore, Pou Chen 2,300 crore and Dean Shoes

1,000 crore. In technical textiles, TN has signed up with Ramatex (supplier for Japanese brand Uniqlo) for 1,100 cr investment and is “in talks with more global players,” adds Venugopalan.

The China + 1 strategy has dovetailed neatly with the aim of targeting investors with zero presence in TN. “In GIM we made a database of possible investors in different sectors,” says industries secretary V Arun Roy. “Many of them have a base in China and we are reaching out to them to say that in case they want a new manufacturing facility we are here.”

This pitch worked particularly well when Team TN went on its US roadshow last month. “Investors in the US are highly attuned to the need for diversifying their supply chains. Our discussions with Google, Applied Materials, and Jabil focused on how Tamil Nadu can serve as a reliable and scalable alternative to China and Vietnam,” says Rajaa.

That effort got companies such as Corning and Cisco to look India-wards and Tamil Nadu-wards. Given that Cisco’s electronics products such as servers, memory RAM and routers are more complex than mobile phone assembly, this is a step up for Tamil Nadu in the electronics supply chain.

Looking ahead, what is the state govt doing to get incremental China + 1 investments? Rajaa says it is creating a conducive environment, developing sector-specific policies, improving skilling and ease-of-doing business, including expanding single-window clearance system. “The Tamil Nadu govt is also focused on building specialised industrial clusters, like in Hosur, Ranipet and Tuticorin, which are designed to meet the needs of global investors. We are continuously engaging with multinational corporations looking to diversify their supply chains,” he adds.

Domestic industry too feels TN can cash in on the China + 1 opportunity. However, there are challenges. “Material costs in India are high compared to China and the manufacturing sector would benefit if there could be some parity in prices,” says Srivats Ram, MD, Wheels India, and chairman, CII TN state council. Cargo ships going directly from Tuticorin port to the US without touching Colombo will also reduce both time and cost, he adds.


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