China+1 often refers to the rearranging of global supply chains where western companies are looking to reduce their reliance on China (which hurt them when China locked itself up during Covid) and look for alternative sources for procurement since China has emerged as the factory to the world over the past four decades. India amongst other countries such as Vietnam, Bangladesh, Indonesia, etc is staking its claim for that alternative. Whilst the central government and state governments are rolling out policies including subsidies to attract investments in manufacturing, here’s a case study showing where India can claim natural sources of competitive advantage and look to dominate an industry – non-leather footwear.

“India, long dismissed as lagging behind Vietnam and Indonesia in manufacturing and exports, now has its first component manufacturing cluster in the Perambalur park, which was built and operational in exactly one year. The Crocs factory, a joint venture between Taiwan’s Shoetown — Nike’s biggest contract manufacturer — and India’s Phoenix-Kothari Group…

…For context, India accounts for 13 per cent of the world’s total leather goods, exporting $4.25 billion worth of leather in 2022, of which Tamil Nadi holds a 48 per cent share. Leather from the state is being used by global luxury brands like Ferragamo, Prada, and Louis Vuitton. By comparison, India’s non-leather footwear exports were only $214 million in 2021-2022, but Tamil Nadu is poised to change that.

…The Big Four of the non-leather footwear industry — which includes everything from bathroom slippers to sandals to heels to sports shoes — are Shoetown, Feng Tay, Pou Chen, and Hong Fu. Between them, these players churn out all the footwear of brands like Nike, Adidas, Reebok, Puma, Converse, and Crocs. Now, all four are setting up shop in Tamil Nadu, with a fifth big contract manufacturer potentially joining the mix.”

What has helped Tamil Nadu gain leadership in this segment? Besides clear policy making including incentives, three factors are at play here:

“The first is that the state boasts one of the oldest leather clusters in India, with a history spanning over a century. “This rich heritage has fostered a dynamic footwear ecosystem and established international business connections, enabling a seamless transition to meet the non-leather sector’s demands,” Rajaa said. The second factor is the participation of women in Tamil Nadu’s workforce, giving it another competitive advantage. And the third is the state’s commitment to addressing environmental concerns by promoting renewable energy. According to reports, the state is aiming for 50 per cent green energy in its grid by 2030.”

This story plays into the three themes that we at Marcellus have been talking about – China+1, the rise of Indian women and the ascent of southern India. “Of the 1.6 million women factory workers in India, 43 per cent work in Tamil Nadu alone. Many workers are also expected to be transplanted from the state’s already thriving garment industry, as the materials they work with will be similar. And going by the enthusiasm of all involved — from the government to corporations to workers — this nascent industry could be the start of a manufacturing revolution in Tamil Nadu.”

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