U.S. firms are increasingly viewing China as a risky bet for their supply chains, with neighboring India emerging as a preferred alternative. According to a survey by UK market research firm OnePoll, 61% of 500 executive-level U.S. managers would choose India over China if both countries could manufacture the same materials. Additionally, 56% preferred India for their supply chain needs within the next five years over China.

The survey revealed that 59% of respondents found sourcing materials from China to be “somewhat risky” or “very risky,” compared to 39% for India. Notably, at least a quarter of the executives surveyed do not currently import from either China or India.

“Companies are seeing India as a long-term investment strategy as opposed to a short-term pivot to avoid tariffs,” said Samir Kapadia, CEO of India Index and managing principal at Vogel Group, in an exclusive interview with CNBC.

Warming U.S.-India Ties

The improving relationship between the U.S. and India, led by President Joe Biden and Prime Minister Narendra Modi, has also contributed to India's attractiveness. Biden’s “friendshoring” policy, which encourages U.S. companies to diversify away from China, further supports this trend. Modi’s state visit to the White House in June marked a new chapter, resulting in numerous collaborations in defense, technology, and supply chain diversification.

“The U.S. and China continue to sit in rather chilling air. Whereas there is a constant stream of iterations, conversations, dialogues, and agreements between the U.S. and India,” Kapadia noted.

Investment Surge in India

India has seen a significant increase in investment announcements recently. Earlier this month, Maruti Suzuki announced a $4.2 billion investment to build a second factory in the country. Similarly, Vietnamese electric auto maker VinFast plans to invest around $2 billion to set up a factory in India.

Risks and Cautions

Despite the optimism, U.S. firms remain cautious about India’s supply chain capabilities. The survey indicated that 55% of respondents saw quality assurance as a “medium risk” if they had factories in India. Additionally, concerns about delivery risk (48%) and IP theft (48%) were prevalent.

In September, Apple supplier Pegatron had to temporarily cease operations at its factory near Chennai due to a fire, highlighting potential operational risks.

Amitendu Palit, senior research fellow at the Institute of South Asian Studies, cautioned that not all firms can replicate Apple’s swift establishment of operations in India. “Apple has the capacity to create an ecosystem much faster than other companies, so time must be factored in,” he told CNBC.

Both Palit and Kapadia agreed that completely shifting supply chains away from China is not feasible. “China will always be a cornerstone of U.S. supply chain strategy,” Kapadia emphasized.

Vietnam as an Alternative

Similar to India, Vietnam is also a favored destination under the “China plus one” strategy. The country saw a more than 14% surge in foreign direct investments last year compared to 2022. From January to November last year, Vietnam attracted $29 billion in foreign direct investments, according to LSEG data.

However, Kapadia pointed out that Vietnam cannot match India’s potential due to its smaller customer base. “Companies are making these decisions for cost savings and access to markets. You’re not going to see that same sort of benefit in just shifting to Vietnam,” he added.

Conclusion

As U.S. firms seek to diversify their supply chains, India is becoming an increasingly attractive destination. While risks remain, the long-term benefits and growing U.S.-India relations provide a strong foundation for future investments. Vietnam also presents opportunities, but it cannot offer the same market access as India.

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