China+1 Manufacturing: What Companies Are Actually Doing

Why China+1 Is No Longer a Strategy—It's an Imperative

The China+1 manufacturing strategy has shifted from a theoretical risk-mitigation exercise to a board-level priority for multinational corporations. By 2025, over 60% of Fortune 500 companies with significant China manufacturing exposure had begun actively diversifying their supply chains, with India emerging as the primary alternative for labor-intensive and electronics manufacturing.

The drivers are no longer speculative. US-China tariff escalation, COVID-era supply chain disruptions, and geopolitical tensions around Taiwan have made single-country manufacturing dependence an unacceptable risk. India's response—through policy incentives, infrastructure investment, and regulatory streamlining—has positioned it as the most viable destination for companies executing their China+1 pivot.

This article examines what companies are actually doing on the ground: real investments, actual cost structures, regulatory requirements, and the practical challenges that press releases don't mention.

Which Companies Have Actually Moved Manufacturing to India

Electronics and Smartphones: The Flagship Sector

Apple's India manufacturing story is the most cited—and for good reason. Production reached approximately 55 million iPhones in 2025, representing over 25% of global iPhone output. But the real story is the ecosystem that has developed around it:

• Foxconn: Invested $2.6 billion in a new facility near Bengaluru, with test production of iPhone 16 models at 500 units per hour. The facility targets 50,000 workers by 2027. Foxconn also entered a joint venture with HCL for semiconductor manufacturing near Jewar Airport, Uttar Pradesh, with a Rs. 3,706 crore investment.
• Tata Electronics: Controls 35% of India's iPhone production after acquiring Wistron and securing a 60% stake in Pegatron's Indian operations—making it a major contract manufacturer.
• Samsung: Exports from India to the US surged 268% year-over-year, with 945,000 smartphones shipped to America between January and May 2025.

Mobile phone exports from India have risen eight-fold since 2020-21, from INR 228.70 billion to INR 2 trillion in FY 2024-25. This is not a pilot—it's a structural shift in global electronics manufacturing.

Automotive and Auto Components

The automotive sector has seen equally significant movement. India's PLI allocation for automobiles and auto components jumped from Rs. 346.87 crore to Rs. 2,818.85 crore in the 2025-26 budget. Major developments include:

• EV battery manufacturers establishing gigafactories in Tamil Nadu and Gujarat
• European Tier-1 suppliers relocating precision component manufacturing from Shenzhen to Pune and Chennai
• Japanese OEMs expanding existing India operations to serve export markets beyond ASEAN

Pharmaceuticals and Chemicals

India's pharmaceutical sector under PLI has transitioned from a net importer of bulk drugs (Rs. 1,930 crore deficit in FY 2021-22) to a net exporter (Rs. 2,280 crore surplus in FY 2024-25). Pharma sales under PLI crossed Rs. 2.66 lakh crore in three years, including exports worth Rs. 1.70 lakh crore.

Textiles and Solar

Man-made fiber exports reached US$6 billion in FY 2024-25. In the solar PV module sector, investments of Rs. 48,120 crore have been committed, generating nearly 38,500 direct jobs by mid-2025.

The Real Cost Comparison: India vs. China vs. Vietnam vs. Mexico

Press releases tout India's "cost advantage," but the actual comparison requires examining total landed cost, not just labor rates. Here's what the numbers actually look like in 2025:

*India's 17.16% effective rate applies to new manufacturing companies under Section 115BAB (window for new manufacturing companies closed on 31 March 2024), which offers a base rate of 15% plus surcharge and cess. This is among the lowest manufacturing tax rates globally.

The critical insight: India's labor cost advantage over China is real and significant (50-60% lower), but logistics costs and transit times partially offset this for serving North American markets. For European and Asian markets, India's positioning is more competitive.

Government Incentives: PLI, SEZ, and State-Level Benefits

Production Linked Incentive (PLI) Scheme

The PLI scheme covers 14 sectors with a total outlay of Rs. 1.97 lakh crore. As of September 2025, the scheme has attracted over Rs. 2.0 lakh crore in actual investment and generated over 12.6 lakh jobs. Key facts for foreign manufacturers:

• Eligibility: Both domestic and foreign companies can apply. MSMEs need minimum Rs. 100 million investment; larger companies need Rs. 1 billion.
• Incentive structure: 4-6% of incremental sales over a 5-year period, depending on the sector.
• Sectors covered: Electronics, pharmaceuticals, textiles, automobiles, telecom equipment, food processing, solar PV, advanced chemistry cells, specialty steel, white goods, drones, and medical devices.

Special Economic Zones (SEZs)

SEZ units offer distinct advantages for export-oriented manufacturers:

• 100% income tax exemption on export income for the first five years, 50% for next five years
• Duty-free import of raw materials, capital goods, and consumables
• Single-window clearance for regulatory approvals
• Exemption from GST on inter-unit transfers within the SEZ

State-Level Incentives

Indian states compete aggressively for manufacturing FDI. Tamil Nadu, Gujarat, Maharashtra, and Karnataka offer additional incentives including:

• Capital subsidy: 15-25% of fixed capital investment
• Stamp duty exemption on land registration
• Power tariff subsidies for 5-7 years
• Ready-built factory shells in industrial parks

How to Set Up Manufacturing in India: Entity Structure and Compliance

Foreign companies establishing manufacturing operations in India typically use one of three structures:

Option 1: Wholly Owned Subsidiary (Most Common)

Over 90% of sectors permit 100% FDI through the automatic route, meaning no government approval is required. The typical setup involves:

1. Incorporate a Private Limited Company using the SPICe+ portal
2. File FC-GPR with RBI within 30 days of receiving FDI
3. Obtain IEC (Import Export Code) for importing machinery and raw materials
4. Register for GST before commencing operations
5. Obtain factory license, pollution control board consent, and fire safety clearance

Timeline: 8-12 weeks from incorporation to production readiness (excluding factory construction).

Option 2: Joint Venture

A joint venture with an Indian partner provides local market knowledge and existing supplier relationships. This is common in sectors with FDI caps or where distribution networks matter. See our branch office vs subsidiary comparison for alternative structures.

Option 3: Contract Manufacturing

Contract manufacturing allows testing the Indian market without capital commitment. Companies like Apple started with contract manufacturers before establishing deeper operations. This approach reduces initial capital outlay but offers less control over quality and IP.

Practical Challenges Companies Face on the Ground

No China+1 analysis is complete without addressing the real obstacles:

Infrastructure Gaps

Port congestion at JNPT (Mumbai), unreliable inland trucking in secondary cities, and multi-layer GST compliance across state borders create friction. The government's PM Gati Shakti initiative is addressing this, but improvements take years to materialize.

Supplier Ecosystem Depth

China's integrated supply chain for electronics—where you can source every component within a 50-km radius—has no equivalent in India yet. Companies often need to import critical components while building local supplier capabilities, which adds 6-18 months to ramp-up timelines.

Regulatory Complexity

Despite reforms, India's compliance burden remains significant. Manufacturing companies must manage multiple compliance calendars including FLA returns, transfer pricing documentation, corporate tax filings, GST returns, and sector-specific regulatory filings. Working with an experienced compliance partner is essential.

Land Acquisition

Securing industrial land can take 3-12 months depending on the state. Established industrial parks and SEZs offer a faster alternative with pre-approved land parcels.

Sector-Specific FDI Routes and Caps

Most manufacturing sectors allow 100% FDI under the automatic route. Key exceptions and considerations:

For a complete overview of India's FDI framework, see our Complete Guide to FDI in India.

IP Protection and Technology Transfer Considerations

One of the most common concerns for companies moving manufacturing to India is intellectual property protection. India's technology transfer framework and IP regime have matured significantly, but require proactive management:

• Patent protection: India is a signatory to TRIPS and has a functional patent office. However, patent enforcement through courts can take 2-4 years, so contractual protections with manufacturers and suppliers are critical.
• Trade secrets: Indian law recognizes trade secrets under contract law and the IT Act, but there is no standalone trade secret legislation. Companies should use robust Non-Disclosure Agreements (NDAs) with liquidated damages clauses.
• Technology licensing: Royalties and technical service fees for technology transfer from a parent company to an Indian subsidiary are subject to transfer pricing scrutiny. Rates must be benchmarked against comparable transactions—typically 2-5% of net sales for manufacturing know-how.
• Trademark registration: Register trademarks in India before commencing operations. The process takes 12-18 months but provides protection from the filing date.

Companies that have successfully navigated IP concerns—Apple, Samsung, Bosch—typically combine contractual protections, physical security measures at manufacturing facilities, and selective technology transfer (keeping the most sensitive processes at home initially).

The Road Ahead: What 2026-2027 Holds for India Manufacturing

Several developments will shape India's manufacturing trajectory over the next 12-18 months:

• PLI 2.0: The government is preparing a successor program to the current PLI scheme, which expires March 31, 2026 for many sectors. The new program is expected to expand incentives to components and sub-assemblies, not just finished products.
• Semiconductor fabs: With the Tata-PSMC and HCL-Foxconn semiconductor plants under construction, India's first domestically manufactured chips are expected by 2027-2028. This will reduce import dependence for electronics manufacturing.
• Infrastructure upgrades: The Dedicated Freight Corridors, new port developments at Vadhavan (Maharashtra) and Vizhinjam (Kerala), and expansion of industrial corridors like DMIC (Delhi-Mumbai Industrial Corridor) will progressively ease logistics bottlenecks.
• Trade agreements: India is negotiating free trade agreements with the UK, EU, and Australia, which would reduce tariffs on Indian manufactured goods in these markets and make India a more attractive export base.

For companies evaluating their China+1 strategy, the window to establish India manufacturing operations is now—before land costs rise in premium industrial zones and competition for PLI incentives intensifies. Early movers like Apple and Samsung are already reaping the benefits of scale. The next wave of entrants will benefit from an improving ecosystem while facing higher entry costs.

For guidance on structuring your India manufacturing entry, explore our FDI advisory services or our country-specific registration guides.

Key Takeaways

• China+1 is real and accelerating: Companies like Apple, Samsung, and Foxconn have committed billions to India manufacturing, with iPhone production reaching 55 million units in 2025.
• Cost advantage is substantial but nuanced: India offers 50-60% lower labor costs than China, plus a 17.16% effective tax rate for new manufacturers, but logistics costs and infrastructure gaps partially offset the savings.
• PLI incentives are meaningful: 4-6% of incremental sales over 5 years, with Rs. 2.0+ lakh crore already invested across 14 sectors and 12.6 lakh jobs created.
• Entity setup is straightforward: 100% FDI is permitted in most manufacturing sectors via the automatic route. A wholly owned subsidiary can be operational within 8-12 weeks.
• Infrastructure is the biggest constraint: Companies must factor in longer logistics timelines and supplier ecosystem development when planning their India manufacturing strategy.