Vietnam vs. India: The Battle for the China+1 Opportunity in Global Supply Chains

By IndraStra Global Editorial Team

In response to trade tensions, geopolitical conflicts, and supply chain challenges, the China+1 strategy has become a key tactic for multinational corporations to diversify their manufacturing and investment operations. This strategy, aimed at diversifying production bases beyond China to mitigate risks tied to overreliance on a single country, has sparked a race among emerging markets to position themselves as viable alternatives. While India, with its vast population and ambitious economic goals, often garners attention as a potential frontrunner, a closer look reveals that Vietnam has quietly but decisively claimed the mantle of the primary beneficiary. Through a combination of strategic foresight, robust infrastructure development, and business-friendly policies, Vietnam has outpaced India in attracting foreign investment and cementing its role in the evolving global supply chain. Meanwhile, India’s persistent struggles with regulatory complexities, infrastructure bottlenecks, and labor challenges have dulled its competitive edge, raising critical questions about how it can adapt to avoid being left behind. Even the latest NITI Aayog report, the ‘Trade Watch’, released in December 2024, clearly highlighted India’s “limited success so far” in capturing this opportunity; there remains a glimmer of hope tied to emerging global trade dynamics, particularly under the influence of President Donald Trump’s policies, as long as he doesn’t come after India itself.
As far as Vietnam’s rise as the poster child of the China+1 strategy is concerned, it is no accident. Over the past decade, the Southeast Asian nation has transformed itself into a manufacturing powerhouse, capitalizing on its proximity to China, low labor costs, and a government laser-focused on economic integration. Foreign direct investment (FDI) has poured in at an astonishing rate—reaching $37 billion in 2023 alone, a 32% increase from the previous year. Tech giants like Apple, Intel, and Samsung have flocked to Vietnam, drawn by its ability to offer a seamless transition for companies looking to diversify away from China without sacrificing efficiency. Samsung, for instance, now produces nearly a quarter of Vietnam’s total exports from its sprawling facilities in the country, a testament to how deeply embedded foreign firms have become in its economy. This influx is not merely a byproduct of external pressures like the U.S.-China trade war; it reflects Vietnam’s proactive efforts to position itself as a reliable node in global supply chains. In contrast, the NITI Aayog report highlights that countries like Vietnam, Thailand, Cambodia, and Malaysia have emerged as bigger beneficiaries of the China+1 strategy, leaving India struggling to keep pace despite its potential.
One of Vietnam’s standout advantages is its infrastructure. The government has prioritized developing ports, highways, and industrial parks, ensuring that goods can move swiftly and cost-effectively. Close to 99% of its population has access to electricity, a feat that underpins its manufacturing appeal. Projects like the upgrade of the Kunming-Haiphong railway link, supported by Chinese investment, and the expansion of deep-water ports have bolstered Vietnam’s logistics capabilities, making it an attractive hub for export-oriented production. This contrasts sharply with India, where infrastructure remains a persistent Achilles’ heel. Despite ambitious initiatives like the Bharatmala highway project and the Sagarmala port development plan, progress has been slow. Congested roads, unreliable power supply in many regions, and underdeveloped logistics networks continue to inflate costs and delay timelines for businesses operating in India, discouraging the kind of large-scale manufacturing investments Vietnam has secured. The NITI Aayog report implicitly underscores this gap, noting India’s limited success in translating its economic ambitions into tangible gains under the China+1 framework.
Trade policies further tilt the scales in Vietnam’s favor. The country has aggressively pursued free trade agreements (FTAs), signing 16 active deals, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA). These agreements grant Vietnamese goods preferential access to key markets, reducing tariffs and trade barriers for multinational firms based there. The Regional Comprehensive Economic Partnership (RCEP), which includes China, further enhances Vietnam’s ability to integrate with existing Asian supply chains while offering a hedge against overreliance on any single partner. India, by contrast, has taken a more cautious approach. Its decision to opt out of RCEP in 2019, driven by concerns over Chinese imports flooding its market, signaled a protectionist streak that has left it on the sidelines of Asia’s economic integration. While India has FTAs with some countries, its trade regime is often seen as less predictable, with high tariffs on certain goods and sudden policy shifts that unsettle investors. NITI Aayog CEO BVR Subrahmanyam has hinted at a potential rethink, suggesting that joining multilateral agreements like RCEP or CPTPP could unlock new markets and products, where India’s share of 70% of world trade remains below 1%.
Labor dynamics also play a crucial role in Vietnam’s ascendancy. With a young, disciplined workforce and competitive wages—still lower than China’s despite rising costs—Vietnam offers a compelling value proposition. The government has supported this advantage by reforming its Labor Code to allow greater contract flexibility and formally recognizing independent workers’ rights organizations, fostering a more adaptable labor market. Companies like Foxconn, which shifted iPhone assembly lines to Vietnam, have benefited from this environment, scaling operations quickly to meet global demand. India, however, faces a paradox: it boasts a massive labor pool, yet struggles with skill shortages and rigid labor laws that deter investment. States like Gujarat and Karnataka have made strides in easing labor regulations, but national-level reforms remain stalled, leaving employers grappling with union resistance and bureaucratic hurdles. The mismatch between India’s workforce and the needs of high-tech industries—exacerbated by inadequate vocational training—further undermines its appeal to multinationals seeking skilled labor for advanced manufacturing. Subrahmanyam’s observation about the upside in improving trade in goods and services points to this untapped potential, but it hinges on addressing these structural weaknesses.
Vietnam’s success is not without its challenges. Its reliance on Chinese imports for raw materials and components leaves it vulnerable to supply chain disruptions, and rising labor costs could erode its edge over time. Yet, its government has shown agility in addressing these risks, investing in domestic industries and diversifying trade relationships to reduce dependency. The Communist Party of Vietnam has set an ambitious goal of achieving high-income status by 2045, driving policies that balance foreign investment with long-term resilience. This forward-thinking approach stands in stark contrast to India’s often reactive policymaking. Take, for instance, the sudden imposition of retrospective tax demands on foreign companies in India, a practice that has spooked investors and fueled perceptions of regulatory uncertainty. Vietnam, while not immune to corruption or bureaucratic delays, has cultivated a reputation for stability and predictability—qualities that matter immensely to corporations making multi-billion-dollar bets.
The evolving U.S.-China trade conflict adds a new layer of complexity—and opportunity—to this narrative. On December 3, 2024, just a day before the ‘Trade Watch’ report’s release, the U.S. and China escalated their tit-for-tat trade war, with the U.S. imposing export restrictions on chip-making equipment and China retaliating by banning exports of critical materials like gallium and germanium. This fresh spat, coming on the heels of Trump’s tariff threats, has heightened the stakes for “connecting economies” like India. Subrahmanyam sees a silver lining: “Whatever Trump has announced so far… there are opportunities. We are the man at first slip. The ball is coming in our direction. Whether we hold the catch or drop it is for us to decide.” He envisions a “massive boom” driven by trade diversion, as firms reroute investments away from China. Vietnam has already proven adept at catching such opportunities, but India’s ability to do so remains uncertain, given its current trajectory.
India’s struggles to capitalize on the China+1 wave are multifaceted, but they boil down to a failure to align ambition with execution. Regulatory complexities are a perennial complaint among businesses. The country’s labyrinthine bureaucracy—spanning multiple ministries with overlapping jurisdictions—creates a maze of approvals that can stall projects for years. While laudable, a recent crackdown on corruption has paradoxically slowed decision-making as officials grow wary of scrutiny, further delaying procurement and approvals. Infrastructure bottlenecks compound these woes. For example, the northern industrial hub of Gurugram suffers from chronic traffic jams and power outages, a far cry from the plug-and-play industrial parks of Vietnam’s Bac Ninh province. Even where India has made gains—such as in mobile phone manufacturing, where companies like Apple have expanded operations—the scale pales in comparison to Vietnam’s electronics export boom, which doubled between 2015 and 2019. The NITI Aayog report’s candid assessment serves as a wake-up call, urging a reassessment of India’s approach.
The stakes are high for India. Missing out on the China+1 opportunity risks ceding ground not just to Vietnam but to other Southeast Asian nations like Thailand and Malaysia, which have also seen gains. Yet, all is not lost. India can still carve out a competitive niche if it acts decisively. Streamlining bureaucracy is a critical first step. A one-stop digital portal for investment approvals, modeled on Vietnam’s national business registration site, could cut through red tape and signal a commitment to ease of doing business. Emulating Vietnam’s special economic zones, with tax incentives and pre-built infrastructure, would also attract multinationals looking for quick setups. The government’s Production-Linked Incentive (PLI) scheme is a promising start, but its rollout must accelerate, and eligibility should expand to cover more sectors like semiconductors and renewable energy, where global demand is surging. Subrahmanyam’s emphasis on exploring new markets aligns with this need for bolder, more proactive policies.
Infrastructure demands urgent attention. Doubling down on public-private partnerships, as Vietnam has done with its Public-Private Partnership Law, could unlock funding for highways, ports, and power grids, reducing the fiscal burden on the state. India’s renewable energy push—aiming for 500 gigawatts by 2030—offers a chance to address power reliability, but execution must match rhetoric. Learning from Vietnam’s JETP agreement, which mobilizes $15.5 billion for energy transition, India could court international coalitions to finance green infrastructure, enhancing its appeal to sustainability-minded investors. On the labor front, India must bridge the skills gap. Expanding vocational training programs, in collaboration with industry leaders like Tata or Reliance, could produce a workforce tailored to modern manufacturing needs. Reforming labor laws nationally—not just in progressive states—would provide the flexibility firms crave, while ensuring worker protections to avoid exploitation.
Fostering a business-friendly environment requires a cultural shift as much as a policy one. India must shed its protectionist instincts and embrace trade openness, renegotiating its stance on agreements like RCEP with safeguards to protect domestic industries without scaring off FDI. Transparency in tax policies, ending retroactive changes, and consistent enforcement of contracts would rebuild investor trust. Suman Bery’s caution against raising steel import duties by 25%—noting the downstream consequences for competitiveness—reflects a pragmatic approach that India must adopt more broadly. Vietnam’s success stems from its ability to think globally while acting locally—India must adopt a similar mindset, balancing its “Make in India” vision with the realities of an interconnected world.
If we closely examine global supply chains as a grand chessboard, Vietnam has mastered its pieces, turning the China+1 strategy into a springboard for economic ascent. On the other hand India, with its undeniable potential, risks being a spectator unless it confronts its shortcomings head-on. The window of opportunity is narrowing, but it’s not closed. By learning from Vietnam’s playbook—prioritizing infrastructure, simplifying regulations, and investing in its people—India can still claim a meaningful stake in this transformative shift. The fresh U.S.-China trade war and Trump’s tariff policies could indeed be the catalyst Subrahmanyam envisions, but only if India seizes the moment. The question is whether it will rise to the challenge or watch from the sidelines as others reap the rewards.

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