The global chemical industry has long been characterized by its reliance on extensive supply chains that span continents, with concentrated production in certain regions having lower labor costs, such as China and Southeast Asia. However, the COVID-19 pandemic exposed the fragility of being highly reliant on one country only, leading to shortages of essential chemicals and raw materials, coupled with escalating geopolitical tensions including the Russia-Ukraine crisis, the Israel-Hamas conflict, and the Red Sea shipping crisis have created significant business disruptions and intensified various risks, prompting companies to reevaluate their supply chains and manufacturing strategies.  

Interestingly, almost all, if not all, of the top risks to business growth for organisations, identified in 2022 for the next 12 – 18 months, continue to exist even now. Hence, companies are increasingly considering “friendshoring” or “allyshoring” as a viable strategy to mitigate risks and enhance supply chain resilience.  As per the World Economic Forum, “friendshoring” essentially refers to the rerouting of supply chains to countries perceived as politically and economically safe or low-risk, to avoid disruption to the flow of business. 

India, being a reliable partner, with its growing manufacturing capabilities, large pool of English-speaking skilled workforce, stable government and favorable macro-stability influenced policies, sustainable practices including use of green energy, strong technology capabilities etc, has emerged as a prime candidate for friendshoring chemical production.   

Moreover, the Indian chemicals industry, one of the fastest-growing sunrise sectors in the country, growing at approx. 9 per cent CAGR, driven by increasing domestic demand, government initiatives, and a focus on sustainability, is highly diversified, covering over 80,000 products and employing more than 2 million people. It is ranking 6^th in the world and 3^rd in Asia in global chemical sales.  These factors position India as an attractive destination for friendshoring chemical production, to ensure impactful productivity, operational gains and reduce business disruptions. 

This article explores the motivations behind friendshoring chemical manufacturing to India to diversify the global supply chain, the benefits it offers, and the models that companies may explore in this transition. 

Motivations for Friendshoring to India 

Geopolitical Stability: The geopolitical landscape has become increasingly unpredictable, with trade wars and sanctions affecting global supply chains. Friendshoring to India allows companies to reduce their dependence on politically unstable regions and maintain greater control over their operations. India has proven to be not only a stable but reliable business partner to the globe, making India the third most sought-after manufacturing destination in the world, having the potential to export goods worth US$ 1 trillion by 2030. 

Supply Chain Resilience: The pandemic highlighted the importance of supply chain resilience. By establishing manufacturing facilities in India, companies can create more localized supply chains, reducing lead times and enhancing their ability to respond to disruptions. 

Cost-Effectiveness: While labor costs in India are rising, they remain competitive compared to developed countries. Additionally, the Indian government offers various incentives for manufacturing, making it a cost-effective option for companies looking to offshore. 

Skilled Workforce: India boasts a large pool of skilled labor, particularly in engineering and technical fields. This workforce is essential for the chemical industry, where specialized knowledge is required for production processes and quality control.  Moreover, India’s median age (28 years) is one of the lowest globally and the working-age population for India expected to grow till as late as 2050.  There is also an aspirational movement from low-wage agricultural jobs to manufacturing jobs, providing a large pool of resources that can be deployed at factory sites.  

Sustainability Goals: Many companies are increasingly focused on sustainability and reducing their carbon footprints. Year 2023-24 saw 45.4 per cent of India's electricity from non-fossil sources, insulating firms from natural gas price hikes and potentially increasing orders, market share and shifting production to India.  Friendshoring to India can facilitate the adoption of greener manufacturing practices and enable companies to leverage renewable energy sources.   

Benefits of Friendshoring Chemical Production to India 

Enhanced Control and Flexibility: Friendshoring to India provides companies with greater control over their manufacturing processes. This flexibility allows for quicker adjustments to production schedules, enabling organizations to respond rapidly to dynamic market demands. 

Reduced Lead Times: Manufacturing in India can significantly reduce lead times for product delivery, given India’s unique geographic position enabling faster delivery across various continents. This is particularly important in the chemical industry, where timely access to materials can impact production schedules and customer satisfaction. 

Access to Emerging Markets: India is not only a manufacturing hub but also a rapidly growing market for chemical products, swiftly enhancing its production capabilities in fine chemicals, agrochemicals, and specialty chemicals. By establishing production facilities in India, companies can tap into this burgeoning market and cater to local demand. 

Government Support: The Indian government has implemented various initiatives to promote manufacturing such as the Public Procurement (Preference to Make in India) Policy, the creation of plastic parks and centers of excellence, the Chemicals Promotion and Development Scheme, and the Proposed New Petroleum, Chemicals and Petrochemicals Investment Region Policy 2020-35, along with Production Linked Incentives and Remission of Duties or Taxes on Export Products, apart from tax incentives, subsidies, and infrastructure development. These supportive policies can ease the transition for companies looking to reshore.  Several states such as Gujarat, Maharashtra, Karnataka, Orissa, Rajasthan are also offering various incentives such as tax exemptions, land subsidies, infrastructure support, research and development incentives, making them especially appealing to both domestic and foreign investors, thereby enhance India's attractiveness for manufacturing investments.  

Expanding Network of Free Trade Agreements (FTAs): India has entered into 14 FTAs, including four with the European Free Trade Association (EFTA), which comprises Iceland, Liechtenstein, Norway, and Switzerland. Additionally, recent agreements have been made with Mauritius, the United Arab Emirates, and Australia, while ongoing negotiations may lead to over 120 preferential trade relationships through FTAs with the United Kingdom and the European Union (EU).  These FTAs facilitate in reducing tariffs on imported raw materials and components thereby lowering production costs which enable chemical players to leverage on these local advantages while accessing global markets more effectively.  India and the United States have also initiated sectoral discussions under the proposed Bilateral Trade Agreement, aiming to finalise the first phase by fall 2025. The agreement seeks to enhance economic cooperation by expanding market access, reducing trade barriers, and deepening supply chain integration between the two nations. 

Focus on Alternative Feedstocks: Green hydrogen has emerged as a promising alternative feedstock for the chemical industry. The Indian Government is offering schemes to subsidize the production and export of green hydrogen and ammonia. As a result, India's chemical sector is increasingly shifting towards sustainability by utilizing alternative feedstocks and adopting low-carbon energy sources such as biomass, hydrogen, and bio-CNG. The Indian chemical sector is making significant strides, particularly among ammonia and methanol producers, in moving away from fossil fuel reliance towards sustainable production methods.  

Innovation and Collaboration: Friendshoring to India can foster closer collaboration between manufacturers, suppliers, and customers.  This collaboration can lead to innovation and the development of new products that meet evolving market needs, given India’s large talent pool of scientists for research and development. 

Models for friendshoring to India 

Several companies have successfully offshored their chemical production to India, across various models, demonstrating the viability of this strategy: 

Establishing wholly owned subsidiaries: Given that 100 per cent foreign direct investment is permitted under the automatic route by India in chemical manufacturing, several companies have set up their own entities in India and made significant investments over the years in establishing production facilities that leverage advanced technologies to cater to local markets and export from India.  A raft of companies such as Archroma, BASF, Bayer, Callisons, Celanese, Clariant, Corteva, Covestro, Croda, Dow, Evonik, Firmenich, FMC, Givaudan, Huntsman, IFF, Johnson Matthey, LANXESS, Linde, LG Chemicals, PolyOne, Solvay, Syngenta, Takasago, Yara, etc represent the above model.   

Establishing JVs: Some companies have preferred to establish a joint venture in India to enable them to have control over their operations and yet avail local market access and also benefit from the knowledge of the local JV Partner. For example Lubrizol-IOC JV for additives; Lubrizol-Grasim JV for CPVC resin; PPG – Asian Paints JV for paints and coatings solutions; Solvay – MP Birla group JV (Hindustan Gum) produce guar gum; Solvay – Anthea JV(CatàSynth) produce catechol derivatives; Wacker Chemie AG - Metroark Chemicals JV produce silicone chemicals; Givaudan - Privi JV (Prigiv) focuses on manufacturing complex fragrance ingredients using advanced chemical synthesis processes; Kumiai Chemicals with PI Industries produce agrochemicals; Mitsui and Nisso jointly alliance With Bharat Insecticides for crop protection products; and OAT Agrio Co and Insecticides India JV for researching and inventing new chemical entities in agrochemicals for India and the world. 

Contract manufacturing through local partners: Select companies who prefer an asset-light model, have chosen to tie-up with local Indian chemical manufacturers under a tolling / contract manufacturing arrangement for varied timeframes.  Some of the Indian contract manufacturers having long term contracts with global companies include Deccan Chemicals, Saraswati Agro, PI Industries, UPL, Anupam Rasayan etc. 

The Future of Manufacturing is Hybrid 

In a fast changing and unpredictable global economy, friendshoring chemical production to India represents a strategic shift toward localized manufacturing that can help companies mitigate geopolitical risks and enhance supply chain resilience. While such arrangements need careful consideration, the benefits of offshoring chemical manufacturing to India—such as derisking the supply chain through high quality offshore manufacturing, improved control, reduced lead times, and access to emerging markets—make it an attractive option for many organizations.  

As the global landscape continues to evolve, companies that embrace offshoring manufacturing to India may find themselves better positioned to navigate uncertainties and capitalize on new opportunities in the chemical industry. The future of manufacturing lies in a balanced approach that combines the advantages of globalization with the resilience of localized production, and India stands at the forefront of this transformation.