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India Needs To Start Manufacturing Electronic Components
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With virtually no domestic production of electronic components, manufacturers like Nokia, Elcoteq, Jabil, Dell and others have to import almost all components and this becomes a major cost factor.
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Wednesday, September 03, 2008:
electronicIndia 2008 started in Bengaluru amidst lots of expectations. The first day of the expo saw big industry players assemble together in addressing the audience regarding how the contract manufacturing/electronic manufacturing market is progressing in India, what are the present scopes, opportunities and challenges? In one of the presentations given by Dell, the last slide was a quote from Goethe, "Knowing is not enough - we must apply, willing is not enough - we must do." This quote aptly sums up what India needs to do to reach that elusive spot of becoming the biggest destination for hardware manufacturing.
According to Sukhvinder Kumar, general manager, Elecoteq Electronics (India) Pvt Ltd, "India has lot of positives to offer and the present scenario is quite encouraging.
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Indian EMS industry is expected to reach $2 billion by 2009, and the increased demand for telecom infrastructure and handsets is definitely driving this growth. Moreover, India has a large base of disposable income and the rising labour cost in the western countries also ensures that more and more global ventures are looking towards opening their manufacturing plants in India."
Opportunities
M.R. Sundaresan, operations director, Dell India Pvt Ltd, adds, "Indian semiconductor industry in 2006 was $3 billion, and it is expected to touch $13 billion by 2010, and this means a compound annual growth rate of 34 per cent. Moreover, the ICT industry in India was $29 billion in 2006 and it is expected to rise to $127 billion by 2010. By looking at these figures, I have no doubt that this is the right time to invest in India. The PC market in India was $13 million in 2007, and this figure will grow alarmingly and is expected to touch $170 million by 2015 and then India will be the third largest PC market, after China and the US."
Challenges
Even though there are lots of positives that we highlighted at the conference, but there is no doubt that we have to do a lot of catching up when it comes to the domestic components manufacturing. With players like Nokia, Jabil, Motorola, Elcoteq and others opening their manufacturing base in India, it becomes even more integral that these guys get to source components from the domestic market. But the present story is such that almost 90 per cent of components that are used by these manufacturers are being imported and thus the advantage we have of low labour costs gets nullified by the air freight charges these manufacturers pay for importing components.
According to Sachin Saxena, operations director, Nokia India, "Due to the lack of availability of components in the domestic market, it becomes really hard for us and other manufacturers. The mind set of local players is very difficult to change, they are afraid to take the risk of investing into components business. They want us to give them guarantee that if they manufacture suppose one million pieces of a particular components, we are going to use it. No manufacturer can give any guarantee; we can help them in technology or other value adds, but at the end of the day, they have to realise that in any business there is risk and this is what is lacking at the present."
Saxena also pointed out the fact that it is highly unlikely that global component majors like Vishay and others will think of opening a manufacturing plant in India. "I think that most of the global electronic component manufacturers have excess capacity in their present plants, so it is not financially viable for them to open manufacturing plants elsewhere, they can meet the demands from their present manufacturing unit."
What we can do
Some of the suggestions provided by Sundaresan to the hardware manufacturers in India are that they need to invest in manufacturing for both domestic and exports. Moreover, the hardware manufacturers need to innovate to build products for emerging countries. The role of the government should be that they should reduce duties to nil (presently it is more than 20 per cent for personal computers) across the value chain and maintain stability. The government also needs to simplify commerce — central sales tax (CST), special economic zones (SEZs) documentation. For the software and services segment, Sundaresan adds that they should come out with customer-centric solutions and innovate to build products for emerging countries.
Some of the other challenges for India today are infrastructure — roads, airports, seaports, distribution network and power scenario; electronic components manufacturing domestically needs to be encouraged, semiconductor industry is yet to see light in India and in India it is virtually high to import electronic components.
India needs to be aware that it is really a great time to be in the electronics hardware business, and we should let this opportunity go in letting more and more global players come to India and make it their manufacturing hub. Although the government has been aware of this, but the progress of infrastructure development needs to be much more faster as this often becomes the vital point for many prospective investors.
There is hardly any doubt that we have to do a lot of catching up and at the end everybody ends up comparing India with China. According to Sudaresan, "It is a $500 billion opportunity for all of us to achieve. We have to stop comparing India with China. Come and invest in India and I see India as equal to China plus knowledge process outsourcing (KPO)."
In terms of labour cost, Saxena said, "If we minus the air freight charges and lack of domestic availability of electronic components, then we can safely say that India is better than China in terms of labour costs. But to ensure that we can enjoy this benefit, manufacturing of electronic components locally has to happen, and we are hoping that it takes place sooner rather than later."
-- Atanu Kumar Das
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