New Delhi, Oct. 13 -- "How are we supposed to compete with the rest of the world, with countries like Vietnam?" asks a garment manufacturer from Punjab employing more than 200 people. He has spent the afternoon walking us through its orders, what each one costs to fill, and how long it takes.

His exasperation comes despite a decade of industrial policy, production-linked incentives and reforms aimed at manufacturers like him. On the one hand he faces a shortage of labour and on the other difficulty in deploying labour because of restrictions under India's working hour regulations.

Competing in manufacturing requires factories to meet the speed and cost demands of modern supply chains. McKinsey's survey of apparel chief procurement offic...