Introduction
India, China, Bangladesh, and Vietnam are four of the top five clothing exporters worldwide. While each of the four nations has a strong clothing industry, each has a unique business environment that could be more or less suited to production requirements (Techpacker App, 2018). However, those countries have their distinctions regarding the social, political, and economic aspects of the trade. Comparing and contrasting different states approach to operating and sustaining clothing industry can help determine emerging trends and future perspectives for the region as a whole. Thus, the report aims to analyze and compare India and Vietnam from the finder socioeconomic points of view and review their suitability for the business.
India – SWOT Analysis
While India’s financial system still struggles with competitiveness and efficiency, as well as issues with credit agency coverage, lack of investment, and monetary and fiscal freedom, it still has a major and diverse market (Doing business. India: Current business situation, (n.d.)). In 2019, the nation strengthened its stance on receiving loans by revising insolvency rules, giving creditors ultimate precedence over all other claims (Euromonitor International, 2021a). Currently, India experiences a significant growth of its overall economy, despite many shortcomings, and presents a strong and sustainable market in both export and import.
Moreover, India-US ties have significantly improved since the conclusion of the Cold War. Despite the US choosing to give India nuclear technology, although it did not join the Nuclear Non-Proliferation Treaty, India and the United States have similar objectives in supporting democracy, avoiding nuclear proliferation, and combating terrorism (Witt, 2020a). Almost all other countries in the nearby vicinity have lukewarm and pragmatic ties with India. The state also improved connections with countries in the Asia Pacific region during the 1990s. Currently, India is a member of the South Asian Association for Regional Cooperation, the World Trade Organization, and several other international organizations (Witt, 2020a). Having turned down an invitation for one, it aims for a permanent place on the UN Security Council.
Weaknesses
Overall, despite government efforts to improve the business climate, starting a firm in India is still quite difficult. It became simpler to create a business in Mumbai and Delhi when India scrapped completing fees for various documents, including company formation paperwork and articles of organization. Delhi and Mumbai additionally tightened standards for quality construction control specialists while reducing the time and expense associated with getting construction licenses. In addition, although seeing a minor drop during the five years from 2015 to 2020, India has one of the lowest tax burdens among the major South Asian countries, hurting its ability to compete internationally (Witt, 2020a). However, India’s startup costs and the time required to cope with legal processes were significantly greater. Therefore, the clothing industry in India is currently being limited by these specific financial barriers, and it could be advisable for the state to review and improve certain legislations in regards to costs and taxation.
The social structure of India is hierarchical and communal: age, education, gender, and income are the primary status factors. Women’s discrimination is a significant problem in India, and an extreme sex ratio that is more evident than China’s has resulted from a high percentage of female abortions that are now legally outlawed. The caste system also severely impacts the society, particularly in rural India, as upper castes still have a privileged position. On the other hand, the mistreatment of lower castes, Dalits, and tribal members persists (Witt, 2020a). Caste consciousness has ironically been strengthened due to efforts to abolish the class structure, such as implementing quota schemes for members of lower castes in public sector jobs and education.
India’s literacy rate is also among the lowest in South Asia which hinders the country’s development. Higher educational attainment is also among the lowest regionally due to a shortage of educational institutions, particularly in rural areas. In 2020, 43.2% of people aged 15 and over had no formal education, leaving a sizable pool of low-skilled workers (Euromonitor International, 2021a). In 2020, India’s youth unemployment rate was 26.5%, while the gender wage gap remained wide (Euromonitor International, 2021a). The state loses a sizable amount of tax money to the informal economy even while the government wants to reduce taxes to encourage investment and jobs. The International Labour Organization (ILO) estimates that as of 2019, up to 90% of Indian workers were employed in unorganized industries, resulting in less worker protection and significant tax revenue losses (Euromonitor International, 2021a). The minimum hourly pay in India remains lower as of 2020 than that of the top regional competitors, such as China, which records a gradual rise in the minimum wage, luring investment in labor-intensive industries (Euromonitor International, 2021a). Thus, fundamental changes in the state’s educational system are required to facilitate future growth and employment rates.
Finally, access to the internet and mobile phones is rather limited in India which is a major limiting factor for clothing industry marketing opportunities. From 2015 to 2020, the nation’s investment in telecommunications surged by 245% in real terms, contributing to a significant corporate shift toward digitalization and e-commerce (Euromonitor International, 2021a). In reality, internet orders were used by 53.0% of Indian enterprises as of 2020, an increase of 7.9% from 2015. Development and research spending in India was 0.6% of GDP as of 2020, far less than the average score and trailing other Asian nations, indicating latent innovation potential (Euromonitor International, 2021a). Although the nation provides tax incentives on development and research expenditures, this does not encourage investment.
Opportunities
India’s rapidly developing economy is a source of its immense pride and has helped many people escape extreme poverty. Over the past ten years, the average growth rate has been 7.1%, which is still much below the 10% average for East Asian countries at the same developmental stage (Witt, 2020a). Currently, India’s potential for economic progress is limited, with a national illiteracy rate of over 25% and no working basic education system (Witt, 2020a). However, India has established a strong competitive position in some sectors, particularly IT and business processing outsourcing. Nevertheless, the state needs to restart the structural reform process. Due to specific laws, businesses are less likely to hire, resulting in India’s manufacturing sector producing capital- and technology-intensive goods.
Threats
Indian foreign policy has been dominated by hostilities with its two close neighbors, Pakistan and China. Initially, India was a founder of the Non-Aligned Movement, but during the Cold War, it maintained a strong alliance with the Soviet Union (Witt, 2020a). An important driving force was the perception that it was necessary to counteract the impact of the United States, which actively supported Pakistan and began normalizing relations with China in the 1970s (Witt, 2020a). The political climate of the region has been severely affected by territorial and other conflicts.
In financial aspect, India’s credit bureau coverage stayed at slightly over 60.0%, which prevented even quicker and simpler access to financing. The benchmark interest rate was reduced by the Bank of India from 9.0% to 8.8% in October 2020 in order to ease borrowing amid the economic downturn (Euromonitor International, 2021a). India had the highest recorded lending rates compared to other guiding Asian economies. High-interest rates make it difficult for households and businesses to fulfill their financial commitments. The key issues hindering India’s competitiveness were a lack of security in the financial system, a high proportion of gross non-performing total debt loans, and low regulation capital to total threat assets for banks.
Vietnam – SWOT Analysis
The formal framework of the governmental system is similar to that of most communist nations which provides strong foundation for a sustainable market. The Communist Party of Vietnam (CPV) has the actual authority, particularly its 19-member Politburo and 180-member Central Committee (Witt, 2020b). The CPV holds all top government offices. The nation is developing steadily and continuously, and there is no genuine opposition towards the leading party in Vietnam, unlike in India, where the cast system is still controversial.
From its initial ideology to a concentration on both diplomatic and economic pragmatism, Vietnam’s international policy has experienced a significant transition. In 1991, political ties between China and Vietnam were repaired, and in 2000, they decided on clear geographical borders (Witt, 2020b). Vietnam joined the World Trade Organization (WTO) in 2007 and the Association of South-East Asian Nations (ASEAN) in 1995 (Witt, 2020b). The Overseas Vietnamese (Viet Kieu), who fled from Vietnam as economic migrants in the 1970s and 1980s, are a significant link to the rest of the world (Witt, 2020b). Viet Kieu is no longer seen as traitors in Vietnam’s official circles, who now welcome their resources and knowledge. Moreover, the government attempts to strengthen the nation’s labor market regulation. A new labor code was established in Vietnam in 2019 and went into effect in 2021(Euromonitor International, 2021b). It allows more freedom in contract termination, overtime, and retirement age increases. The regulation also helps workers by enabling the formation of autonomous unions at work and putting a ceiling on overtime.
Weaknesses
Vietnamese economic strategy, including the forced organizing of farmers into communes, centrally planned, and manufacturing in state-owned companies, made the same errors as those in other communist nations in the North and subsequently in the reunified Vietnam. After the Asian Financial Crisis in 1997, the Doi Moi reform initiative launched in 1986 came to a halt, but it was resurrected in 2001 (Witt, 2020b). Similar economic reforms in India include opening up to foreign direct investment, emphasizing exports, and creating special economic zones. Additionally, such changes facilitate privatization of small and medium-sized SOEs to turn them into title winners, and acknowledgement of the importance of the private sector in generating growth.
Given that Vietnam’s economy is one of the most developed in the region, a shortage of qualified labor force continued to be one of the primary impediments to the country’s commercial dynamics. Similarly to India, employers find it challenging to recruit skilled workers due to the nation’s graduates having some of the weakest skill sets in the world (Euromonitor International, 2021b). Despite a rapidly growing middle class, which drives up demand for high-quality education, just 7.2% of Vietnamese citizens graduated from college in 2020, the lowest percentage among comparable nations (Euromonitor International, 2021b). Many young Vietnamese individuals lack foreign languages and technology skills, reducing their employment prospects with multinational corporations.
Vietnam’s workforce performance has slipped below its regional counterparts. High redundancy costs, strict worker rights, and a sizable informal sector were the primary causes of the unfavorable results. Large-scale informal employment is also causing issues since layoffs due to COVID-19 made it harder for young people to leave informal and insecure work in 2020 (Euromonitor International, 2021b). In addition, Vietnamese law restricts hiring foreign nationals, only allowing them to work in high-skilled positions. Finally, corruption is still a significant problem in Vietnam despite some progress. It scored 37 out of 100 on the 2018 Corruption Perception Index (100 = no corruption) (Witt, 2020b). In terms of how policies are put into action, there are also significant regional variances.
Opportunities
Nowadays, Vietnam has grown in popularity as a place for foreign companies to invest if they wish to divert attention from manufacturing in China. The necessity to protect against geopolitical and other dangers associated with using China as the single or primary supplier and salaries that have historically been less than in coast China are additional important reasons. Future economic prospects of the country look to be promising. Vietnam possesses all the necessary elements to achieve a decent level of productivity: an educated and motivated workforce, generally supportive policies, and integration into the global economy. The existence of a foreign enemy, whether real or perceived in the shape of China, provides a powerful opportunity to create a formidable economy that can endorse sovereignty and independence. India lacks such incentive thus the directions of development are rather different in both countries. The fairly insignificant role of environmental assets in the economic system limits corruption and the risk of financial instability. Still, infrastructure, such as energy generation, roads, and ports, as well as economic regulation of inflation, currency rate fluctuations, and brief capital inflows and outflows, all require significant changes.
Threats
Vietnam continues to be a small production manufacturing market, which harms the country’s innovation, digitalization, and market preparedness performance. The nation lacks a skilled workforce and innovative skills, so Vietnam, similarly to India, depends on imports to offer key technologies. However, the Asian nation wants to increase its embrace of ITC and digitalization. To advance the nation’s digital economy, e-government, and smart urban areas, the state has created a draft global plan for digital technology firms that will be released in the summer of 2020 (Euromonitor International, 2021b). Vietnam needs to construct more benevolent legislative frameworks, boost its research and development capabilities, and progressively increase the ITC market and the human resources required for the transformation. Moreover, the diverse ethnic minorities in the nation have occasionally engaged in disturbance, including a sizable rebellion in 2001 (Witt, 2020b). Numerous minority groups experience economic disadvantage, and in certain communities, the inflow of Vietnamese immigrants has exacerbated feelings of exclusion.
Conclusion
Overall, while there are certain similarities between the countries financial and social climate, India and Vietnam have rather different development directions and market opportunities. The existing circumstances must be considered when deciding between Vietnam and India as a primary clothing market, and their financial and foreign policies must be assessed. The Indian market is large and considered one of the leading in the global sector but the state’s legislations might prove to make it difficult to open new businesses. Additionally, it provides the greatest options for the company, including affordable labor, strong government assistance, excellent infrastructure, and, for those who require it, inexpensive business loan interest rates. Meanwhile, Vietnam’s rapidly developing market offers unique opportunities and niches that are yet to be taken by foreign investors.
References
Doing business. India: Current business situation. (n.d.). Australian Government.
Euromonitor International. (2021a). Business Dynamics: India. Passport.
Euromonitor International. (2021b). Business Dynamics: Vietnam. Passport.
Top four Asian countries for garment manufacturing. (2018). Techpacker App.
Witt, M., A. (2020a). India: A concise profile, 2020. INSEAD.
Witt, M., A. (2020b). Vietnam: A concise profile, 2020. INSEAD.