EMS in India
18 June 2007
India’s EMS market is forecast to grow at an astonishing five times the global average. Anand Sethi reports on the reasons for this success.
According to a recent Frost & Sullivan report, the Indian electronics market is forecast to grow from $ 28.2 billion in 2005 to a staggering $ 363 billion by the year 2015. This works out to a growth rate of over 5 times that of global electronics production in the period 2010 – 2015.
Further, a recent study by California based ‘Technology Forecasters’, states that in Year 2010 India will account for a projected 10% of the total global outsourcing work, up from only 2% in 2005. Electronics production is slated to rise from $ 11 billion in 2005 to $ 58 billion in 2010 and $ 155 billion in 2015.
Whilst there have been many Indian companies, ranging from the very large public sector enterprises to several medium and small sized ones in the private sector, it was really the Finnish major, Elcoteq, who in 2005 established the first international level EMS facility in India.
The setting up of the Elcoteq facility, followed shortly after in 2006 by Nokia’s establishment of their own production facility near the city of Chennai (ex- Madras) opened the eyes of other big EMS companies to India’s potential. A boost to local production came after the Government of India announced a policy requiring the large public sector telecom service providers to source most of their capital equipment requirements on the basis of local assembly.
Currently, in addition to Elcoteq, six out of the top ten Global EMS companies are in various stages of an Indian presence. These include, Hon Hai, Flextronics, Sanmina – SCI, Solectron, Celestica and Jabil. OEM’s, in addition to Nokia , that have or will have major India based facilities include Foxconn, Ericsson, Samsung, Motorola, LG, etc.
So, will India repeat the China story as far as EMS goes? The short answer would have to be – perhaps, but not in the immediate future. The Indian electronics manufacturing sector is today at a stage that China was at about a decade ago, but with a significant difference. The burgeoning EMS activity in India is predominantly aimed at the fast growing local market and not as a base for low cost manufacturing for exports.
Furthermore, one must take into account the absence of a good component and materials supply chain in the country, a situation brought about by the sudden opening up of imports under a liberal policy regime after India’s economic reforms were initiated in 1991. The problems of India’s component and electronics materials manufacturing companies, with capacities and technologies hopelessly out of sync with international standards, were exacerbated by the spate of bilateral trade agreements that India signed allowing for large scale minimal import duty or duty free imports. Most Indian electronics companies ended up shutting shop.
To some extent, the supply chain problem is being ameliorated by large OEM’s such as Nokia, encouraging their own select suppliers to set up units within the designated Special Economic Zones (SEZ’s) of the OEM’s. Thus, for example, companies like Aspocomp and Perlos have recently established facilities within the Nokia SEZ.
So, given the supply chain deficiencies, other infrastructural glitches and most importantly, the near astronomical growth in local demand for a range of items from mobile phone handsets, to computers and automotive products, it is no wonder that companies would rather target the Indian market than go after low margin export business. The sectors that currently appear to provide the mot attractive opportunities in India are Telecommunications, Automotive, Medical, Industrial and Defence Electronics. Barring the production of the lower range of mobile phone handsets the other sectors are in the medium to low volume, higher cost category.
With the rapid global growth of EMS activities, the need has arisen for more sophisticated designs, higher levels and speeds of automation requiring lower cost design engineering and software skills, an area where India excels and has a major edge over China. This has made many leading EMS equipment manufacturers to open up Design and Software facilities in India. Watch out for this developing story!
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