Consumer electronics fueling EMS industry growth in India

By Chitra Giridhar, Contributing Writer -- Electronic Business, 9/1/2006

The growing Indian economy is fueling a massive consumer boom. Demand for electronic gadgets, appliances and equipment is growing briskly—and companies are increasingly turning to electronics manufacturing services (EMS) firms to fill the pipeline.

The EMS industry in India is buzzing with activity, says Sathyamurthy Sabarinath, an industrial technologies analyst at Frost & Sullivan India. Frost & Sullivan estimates that the EMS industry (electronic PCB assembly and ODM services) in India will grow from $900 million in 2005 to $2.5 billion by 2010, at an annual growth rate of about 30 percent.

Much of this growth, according to Frost and Sullivan, is propelled by the burgeoning demand for telecom equipment and consumer products, including mobile handsets. The demand, in turn, is prompting manufacturers like Nokia, Samsung and Motorola, as well as top EMS/ODMs like Flextronics, Jabil Circuit, Elcoteq and Solectron, to establish manufacturing bases in India. Hon Hai Precision Industry and Sanmina-SCI are in the process of setting up their units.

Several companies have set up ventures or acquired existing manufacturing companies. Flextronics, for example, has acquired four companies over the past five years and plans to invest as much as $100 million in a manufacturing facility in Chennai. The company reports it is establishing a facility in a 250-acre Special Economic Zone to produce 1 million mobile phones per month.

Jabil Circuits has also said it will invest up to $100 million in India in the next few years. Last year, Jabil acquired Philips India’s manufacturing services and moved the operations to Ranjangaon, near Pune. The company has already invested $20 million in the facility, which manufactures electronic components for set-top boxes, consumer electronics and appliances. Earlier this year, Jabil Circuit paid $155 million for Celetronix and added 5,750 employees and 270,000 square feet of manufacturing space in three locations: Mumbai, Chennai and Pondicherry. In August 2005, Celestica made an entry into India with the acquisition of Ramnish Electronics, an EMS company in Hyderabad.

One company that has benefited from the boom is Solectron Centum. Srinivasan Desikan, Solectron Centum’s chief financial officer, says the company’s EMS business grew from $1 million to $10 million in one year (the period from April 2005 to March 2006). Solectron performs PCB assembly for customers including ABB, Schneider Electronics and Tejas Networks.

But it is not just multinational companies that are riding this bullish trend. Local players like TVS Electronics (TVS-E), BEL, WeP Peripherals and D-Link also perform contract manufacturing for marquee names like Cisco, Dell, General Electric, Hewlett-Packard, Lucent, Nortel, Philips, Sony and Sun Microsystems. TVS-E, which has state-of-the-art manufacturing and testing facilities at Tumkur (near Bangalore) and also in Chennai, is planning to expand its manufacturing capacity to keep up with its growing business.

Competitor for China?
If India develops into a major manufacturing hub, will it become a viable alternative to China?

“Experience is the key factor differentiating the Chinese and Indian electronics industries,” observes Bryan Wang, director of Asia-Pacific research at In-Stat. “India needs to improve its infrastructure and develop the electronic ecosystem to bridge the gap with China. However, India has an advantage in terms of its software expertise and its knowledge of the English language.”

Poornima Shenoy, president of the India Semiconductor Association, acknowledges that India is perceived to have a weak infrastructure compared with other countries. “This has been an impediment in attracting significant foreign investment in the manufacturing,” Shenoy says.

However, when it comes to the EMS industry, Vikas Sehgal, executive director, India business, at Booz Allen Hamilton and principal researcher of a recent report on India’s engineering capabilities, says, “India is five to seven years ahead of China in the engineering services space.”

Investment climate improving
The Indian government is well aware of the challenges it faces, especially on the manufacturing front, and is not sitting by idly.

Bill Muir, regional president, Asia, at Jabil Circuit, says that the Indian government is making efforts to address numerous deficiencies. “The easing of foreign investment procedures and labor restrictions will go a long way in improving foreign direct investments,” Muir says.

Ayekavadi Gururaj, general manager and director at Flextronics India, also says that the investment climate in the country has changed dramatically. “Even local governments are now vying with each other to attract investment,” Gururaj says.

An improvement in the manufacturing climate is also taking place, many observers say. “The EMS industry is moving from assembly to high-end collaborative design, development and manufacturing,” says Sabarinath of Frost & Sullivan.

Muir adds, “Indian manufacturing is leveraging innovation like never before, using it to push the envelope on operational efficiencies.” Faster product development, smart supply chains and India’s tested and proven skilled workforce will continue to enhance India’s appeal as an electronics manufacturing destination, he says.

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