Indian Electronics Industry >> EMS

India, next stop for EMS - Contract manufacturers Establish Operations in the nation

Why we need EMS Industry in India?

1. Asian Tiger nations like China, Singapore, Malaysia, Taiwan, Thailand etc. have built the success stories on the foundation of Electronics Hardware Industry.
2. As software Industry can employ only white collar labour force, what about the huge blue collar workforce which forms the backbone of the industrial landscape of India?
3. In the background of fears of indiscriminate globalization of trade and commerce, there are genuine concerns of employment retention and well being of a large work force whose skill sets are valuable assets to the nation.
4. India is not an island nation like Singapore, Taiwan or Mauritius where the entire work force can aspire to have only white collar jobs.
5. As we have to grow our own agriculture, similarly we have to build our own Hardware products that are low cost and are designed for the Indian environment that cater to the needs of the Indian masses.

India's contract manufacturing business is expected to nearly triple in revenue over the next five years, according to a new study.

Revenue generated by electronics manufacturing services (EMS) providers and original design manufacturers (ODMs) in India will rise from $774 million in 2004 to $2.03 billion in 2009, says researcher iSuppli

The growth of the EMS/ODM industry in India will contribute to India's overall electronics industry growth. The Indian electronics industry will grow from $11.5 billion in 2004 to $40 billion in 2010, according to researcher In-Sta

India V/s China
Outsourced manufacturing in China will grow at a double-digit rate over the next five years, iSuppli predicts. The nation's EMS market will achieve a 21 percent Compound Annual Growth Rate (CAGR), while the Chinese ODM market will experience a 22 percent CAGR during the next five years.

Is India on a similar growth path? Recent developments indicate that the EMS industry has India on its mind. These developments include:

• Jabil Circuit Inc. on Dec. 21 announced the opening of a new 175,000-square-foot facility located in Ranjangaon, near Pune, in the state of Maharashtra. According to Jabil, the facility will be fully operational by mid-2005 and will offer printed circuit board, enclosure integration, distribution and repair services with in-region design services support. This site will serve the consumer, instrumentation, networking, peripherals and telecommunications industries. Jabil noted that the facility is expandable to 400,000 square feet.
• Over the past 12 months, Flextronics Corp. has expanded into India by acquiring three design-centric companies located here: Hughes Software Systems, DeccaNet and FutureSoft. In an effort to manage its product-design and engineering capabilities, Flextronics will consolidate the software companies into a new subsidiary based in India. The new unit will consist of 4,000 employees and will be led by Arun Kumar, the president and managing director of Hughes Software Systems. The division will focus on providing higher-value, higher-margin design services for cell phone and telecom/networking software. Nokia and Alcatel are among the existing customers of the newly-formed division. Flextronics also maintains an ongoing investment in Celetronix, one of the largest electronics equipment manufacturers in India.
• Elcoteq Network Corp. on Jun. 3 announced plans to expand its operations into Bangalore, India. In the announcement, Elcoteq officials noted that it plans to hire more than 1,000 employees by the first quarter of 2005. Elcoteq's plant initially will manufacture 4 to 6 million handsets per year, according to Henry Gilchrist, business development director of Elcoteq. In comparison, the Nokia plant in Beijing makes an estimated 35 million handsets per year, according to BusinessWorld.

In Comparison with China, India has much to gain from these developments.

Like other emerging markets, India offers several features that have attracted the attention of Jabil, Flextronics and Elcoteq.

The population of India is more than 1 billion and the nation is projected to have a Gross Domestic Product (GDP) growth rate of 6 percent in 2005, according to the International Monetary Fund (IMF).

In 2005, the country has more than 50 million handset subscribers, PC sales of more than 4 million and color TV shipments of more than 9 million. The total electronics consumption in India is approximately $20 billion in 2005, with the consumer segment contributing the largest portion of revenue.

Furthermore, the available workforce in India is highly educated.

Over the next five years, the Indian contract manufacturing industry will not threaten China's position as the epicenter of electronics manufacturing, says iSuppli. India's contract manufacturing activities primarily serve the nation's indigenous demand. OEMs primarily outsource manufacturing to cater to the Indian domestic market, although export of Indian-assembled electronic goods does occur.

In the longer term, India may compete with Chinese providers in select products as the nation's share of the global electronics market increases. For OEMs, using contract manufacturing services in India can help them penetrate the local market

"It might take a few more years, but it appears there is a definite opportunity for the equipment manufacturers to benefit from the market development in India," said Gul Iqbal, board advisor to Celetronix.

However, like other emerging markets, there are a number of challenges to doing business in India, including infrastructure, changing governmental policies and an inadequate component supply base. Thus, the equipment manufacturers will need to import all of the components needed to assemble boards and/or systems.

"It will take some time to redirect or establish new supply and capabilities to support Indian manufacturing," noted Elcoteq's Gilchrist.

ADDITIONAL FACTS ON EMS INDUSTRY

Growth on EMS industry is because a growing number of brand owners are outsourcing their manufacturing needs based on the following criteria-

• Increased flexibility in production
• Substantial reduction in time to market as product life cycles shorten
• Sharp reduction in manufacturing costs
• Reduced need for capital resulting in higher returns on invested capital
• Ability to focus capital and IP on core competencies
• Ability to start a new product company without competencies or investment in manufacturing

Recent trends show that an increasing number of engineering and design activities are also being outsorced to EMS companies and they are becoming ODMs (Original Design manufacturers) and also provide final system integration and logistical support

E&Y have projected that India can target a share of 1% in North America, 2% in Western Europe, 4% of Asia and 5% of Rest of the World of the Electronics Manufacturing Services market. Thus India can target 2.2% of the world-wide electronics EMS market of US$497 Billion by 2010 which works out to a potential of US$11 Billion.

The recent acceleration in EMS activity is mainly due to rapid growth in the electronic Hardware market in all segments particularly rapid growth has taken place in Telecom Infrastructure Equipment, computers, Consumer & Hand held devices.

The Growth drivers are:-

1. Strong and growing domestic demand for mobile phones, personal computers, consumer and automotive electronics.
2. Increasing demand for telecom infrastructure equipment -teledensity to increase from the present 9 per 1000 to 22 by 2007.
3. Highly talented workforce, especially for design and engineering services with good communication skills.
4. Rising labor costs in China.
5. Presence of global EMS majors in India and their plans for increased investments in India.
6. More outsourcing of manufacturing by both Indian and global OEMs

Apart from this, the Growth drivers are, robust and consistent growth in Electronic Hardware market of approximately 25% due to a stable economy & large middle class of 350 million people. The fastest growing segments are demand for telecom services particularly cell phones, internet subscribers & growth in demand for it products with increasing penetration of computers, falling prices & Government support to rapidly encourage usage of IT in all sectors. Within next 5 years penetration of telephone users (both landline & mobile) is projected to increase from 100 to 500 per thousand while PC's increase from 10 to 30 plus per thousand.

Telecommunication, Computing & Consumer sectors would grow the fastest.

The reasons are - Government mandate and market growth. According to the latest Gartner report, in 2005, about 34 million mobile phones units will be sold compared to 21 million last year. World's largest mobile vendor, NOKIA has decided to set up their tenth mobile device manufacturing facilities in Sriperumbudur with an investment of between $100-150 million. Government's ambitious growth plans to increase country's teledensity, in the next few years will help grow telecom hardware market to $13 billion.

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