Moving big industries to small towns
July 9, 2012

China’s ‘Go West’ policy is rubbing off on India. The South Asian nation is spurring a major investment incentive drive into her Tier II and III cities. Seeing demand drop in the larger metro’s by the sea and also to grow demand in smaller cities, both China and India are encouraging industries to move further inland. While China started the move prior to the 2008 financial crisis, India is recently driving the change.

“Tier II/III markets can be the future growth drivers for consumer durables given the growing disposable incomes, rising aspirations of people to own quality products and improved infrastructure support that the government is providing with respect to the development of these cities,” Sunil Nayyar, senior general manager, sales, Sony India told the Times of India. The company gets a higher contribution of 56.50 percent from tier II and tier III cities compared to 40.80% from tier I cities and the company expects to maintain it at the same level in the near future as well.

The investment incentives are expected to drive growth, creating more job opportunities, and thereby an increase in prosperity for both the people and economies of smaller cities. Governments also hope that by creating better job opportunities in smaller cities, migrants will move back to their hometowns, reducing the burden on infrastructure cities are currently reeling under. Lastly,  growth of tier II and III cities will also mean a future of more equitable growth, leading to a more harmonious social structure, a goal both developing nations aspire towards.

While Beijing has been encouraging industries to move further westwards, ie inland towards the provinces of Sichuan, Guizhou, Gansu and Yunnan, India is prodding industries towards cities like Jalandhar, Hubli, Bharuch, Rourkela, Rajkot, Kolhapur, Bellary, Warangal, Sambalpur and suburbs of large metros, such as Virar and Dombivali near Mumbai and Faridabad near New Delhi, which are said to be bubbling with activity.

Godrej Interio, the home and office furniture retail business of Godrej & Boyce Manufacturing Co, for instance, has lined up a capital expenditure of around Rs 80 crore on expansion plans this year. H&R Johnson, which is the largest tile maker, has invested around Rs 250 crore in adding capacities, while Sony India is increasing its network of sales channels, including brand shops, national chain stores and distributors from around 10,000 to 12,200 in the current fiscal year.

While infrastructure and a lack of talented labour might be issues companies grapple with while moving inland, costs  are relatively much cheaper. Further, with certain provincial governments in China and India, reducing red tapism and cutting bureaucracy out of the equation as well as promoting favorable laws within their states, many industries are flocking to these regions regardless of the state of the rest of the country.

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