Working in close partnership with Taiwan can bring benefits beyond the ICT sector for a state as diverse and skilled as Maharashtra.

With the securitisation of supply chains and increasing efforts to decouple from China, India has seen the opportunity to play a more important role in the supply chain shift. Firms and investors in different sectors, especially those in electronics manufacturing services (EMS), have relocated major parts of their supply chains to India. Encouraged by policies such as Make in India and Production Linked Initiatives (PLIs), major EMS firms in Apple’s iPhone supply chain such as Foxconn, Wistron and Pegatron have established their assembly lines and supply chains in Tamil Nadu and Karnataka. The relocation of supply chains reflects, in geopolitics as well, the fear of over-reliance on China as the sole provider of many products and components in the global supply chain. India, then, becomes an attractive alternative for international investors in pharmaceuticals, ICT/internet and computer technology as well as service and consulting.

Encouraged by policies such as Make in India and Production Linked Initiatives (PLIs), major EMS firms in Apple’s iPhone supply chain such as Foxconn, Wistron and Pegatron have established their assembly lines and supply chains in Tamil Nadu and Karnataka.

However, along with opportunities, challenges also follow. Other than the weak manufacturing base (in 2020-21, the output of India’s manufacturing sector accounted for 17.4 percent of its GDP, while for China it is 26.18 percent), India’s supply chains suffer from the following issues. The first is the lack of complete ecosystems of supply chains. According to Hsu (2021), in recent years, foreign direct investments (FDI) in the manufacturing sectors have seen growth, which, however, is concentrated on EMS and telecommunication (e.g., mobile devices manufacturing). The growth of specific sectors has limited “spill-over” effects, i.e., forming larger supply chain clusters that benefit supporting firms or producers. And the relocation of supply chains to telecom-related manufacturing is determined by India’s domestic market needs, rather than the consideration of production for international markets as a regional production hub.

The second issue is the hidden costs in India’s current supply chains. According to a recent report done by Arthur D. Little and CII (2020), the logistic costs in India’s supply chains are four times higher than the average cost in developed countries, in which transportation (accounting for 40 percent of the total cost), warehousing (26 percent), inventory (24 percent), and order processing and administration (10 percent) are ranked as top four costs. Other hidden costs are caused by red tape and rigid tax or other incentives-related policies. For example, different from China and ASEAN countries’ policies, India does not allow processing trade and non-resident inventory in bonded areas. On the other hand, the opposition to the Special Economic Zones (SEZs), as well as the Coastal Economic Units (CEUs) or Zones (CEZs) is high; since its’ launch in 2016, CEUs as a core part of the SagarMala Project still inch forward at a slow pace. These hidden costs will inevitably weaken the incentives for the relocation of supply chains from countries like China to India.

Issues such as the weak manufacturing base, hidden costs in local supply chains, and the lack of a manufacturing ecosystem as well as an experienced labour force could hinder India’s proposed integration into the global or regional supply chain schemes, such as the Resilient Supply Chain Initiative (RSCI) formed by India, Japan and Australia. The author proposes that to benefit from the supply chain shift, India should seek collaboration with Taiwan. First, Taiwan has complete supply chains in the EMS and ICT manufacturing sectors, from mobile devices to laptops and servers. Big Taiwanese firms can also attract their supporting firms to India driven by immediate policies such as the PLI. However, SEZs with one-window financial and legal services, good infrastructure for production and transportation, along with a set of incentivised and flexible policies are still necessary to attract more investments and technology from Taiwanese IT firms.

Taiwan has complete supply chains in the EMS and ICT manufacturing sectors, from mobile devices to laptops and servers. Big Taiwanese firms can also attract their supporting firms to India driven by immediate policies such as the PLI.

This is where the State of Maharashtra could have advantages brought about by its well-established SEZs, educated workforce, good infrastructure and transportation, and stronger industrial clusters across the state. On the other hand, Taiwan has complete supply chains and experience in ICT manufacturing, and its experience in China for the past few decades can be reasonably transferred to and transplanted in India. Taiwan can share its experience in establishing an ecosystem of ICT-related products by modifying its “China experience” to adapt better to India. Numerous public and private universities and colleges in Maharashtra, including the famous IIT Bombay as well as national labs and research institutions in Pune, provide great potential for bilateral collaboration in R&D between India and Taiwan. Top-notch national universities in Taiwan specialising in electrics and electronic engineering not only provide good platforms to nurture potential and interested Indian youth, but also play the role of incubators to produce commercialisable business ideas.

Another boost for the Maharashtra-Taiwan collaboration in the promotion of supply chains is the highly overlapping areas of interest in business and technology. In 2018, other than ICT, the ministries of technology and sciences of India and Taiwan have identified and been working together to collaborate in areas such as artificial intelligence (AI), agriculture and food sciences, big data, biotech, cybersecurity, healthcare, Internet of Things (IoT), micro and nano-electronics, and renewable energy. The State Government of Maharashtra has also identified some high-tech “thrust sectors” such as  electric vehicles (Manufacturing, Infrastructure and Servicing); industry 4.0 (AI, 3D Printing, Internet of things and robotics, nanotechnology, etc); integrated data center parks (IDCP); IT & IT-enabled services (ITeS); electronic systems design & manufacturing (ESDM) and semiconductor fabrication (FAB), to name a few.

Another boost for the Maharashtra-Taiwan collaboration in the promotion of supply chains is the highly overlapping areas of interest in business and technology.

The two sides, however, still need to manage possible investment risks when collaborating. Maharashtra faces competition from neighboring Karnataka (Bangalore) in the EMS/ICT sectors, and from Tamil Nadu for manufacturing in general. Well-developed SEZs such as Sri City in Andhra Pradesh have a better location for transportation to East Asia, clustering advantages and services. A recent example is Foxconn cancelling its MoU to build a plant for the iPhone in Navi Mumbai and relocating the plant to Tamil Nadu instead.

Taiwan and Maharashtra can begin to establish multi-level collaboration in different potential sectors beyond ICT only. In fact, in the second term of Taiwan’s President Tsai Ing-wen, the Taipei Economic and Cultural Centre (TECC, the de facto Taiwan embassy to India) has upgraded its connection with the Maharashtra government. In August 2021, Mr. Baoshuan Ger, the Representative of Taiwan to India, led a delegation of officials to Maharashtra and met several MPs to discuss promotion of economic, trade, tech and culture ties with the State. How Maharashtra will use these opportunities for collaborating with Taiwan in different potential areas to find its place in the global supply chain shift will not only benefit the state itself, but, as the third largest FDI absorber of the nation, will also help India in the next wave of industrial upgrade.

(Source: https://www.orfonline.org/expert-speak/how-can-cooperation-with-taiwan-benefit-india/)