Is Europe-plus-one the new China-plus-one?
With Russia’s major gas pipeline, Nord Stream 1’s indefinite shutdown, Western Europe’s gas crisis has worsened. Consequently, there are fears looming large over the European economy and other countries.
China-plus-one is a strategy in which companies avoid investing in China and diversify their businesses to alternative destinations. China was an attractive investment location at one point in time due to low labour costs and production costs and a booming domestic consumer market.
Companies moved to alternate locations to invest in because of supply chain disruptions caused by the pandemic and China’s Zero-Covid policy. This was further fueled by associated container shortage thus causing uncertainty and disrupting the supply of materials.
Additionally, China disclosed their data privacy law which specified the process of collecting and storing data and caused foreign technology companies to downsize their presence in mainland China.
The China-plus-one model gave the EU, Mexico, Taiwan, and Vietnam a boost as companies began to invest in these alternate locations.
India was also at an advantage as MNCs invested in emerging countries because of its low production cost and favourable business environment.
There is a fear that companies might start disinvesting across Europe because of poor gas supply. This may cause blackouts and shortages all throughout winter. Factory shutdowns may also be a consequence.
Europe is looking to propose a mandatory target for reducing electricity consumption. This will eventually lead to lower production and will cause supply chain disruptions thus, leading to losses for companies with manufacturing units across Europe.
This makes India an attractive destination for investment. The huge investment by the government in infrastructure will prove to be a boon as it will accelerate foreign investment. India can provide a base for the manufacturing and production units of large companies if it takes steps to promote such investment.
All in all, Europe began to register a record high inflation at the beginning of the Russia-Ukraine war. The indefinite shutdown of Nord Stream 1 and incoming winters has exacerbated the problem. Thus, high gas prices and inflation all across Europe might scare off investors. Things might work out in India’s favour if investors are sufficiently attracted towards investing here.
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