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India closing the hardware gap with
China
By A Ganguly
BANGALORE
- After proving its expertise in servicing global
software needs, India is slowly emerging as a hub for
major electronic manufacturing service (EMS) providers
who seek a cheaper manufacturing destination.
The latest to hop on the bandwagon is Jabil
Circuit Inc of the US, which took over Philips India’s
printed circuit board assembly business at Pimpri for
US$4.89 million. The integration is likely to be
completed by the fourth quarter of the current financial
year.
Automotive giant Mico Bosch also recently
bought Philips’ closed circuit television manufacturing
facility in India and indicated that it would foray into
electronics manufacturing, signaling the growing
importance of India as a favored destination for
electronics sourcing.
TYCO Electronics
Corporation India Pvt Ltd’s networking division is
planning to set up an assembly unit for switches at its
optical fiber facility in Bangalore. The company would
primarily focus on assembling the 8,16 and 24 port
switches and plans to cater to both domestic and export
requirements. The company expects to introduce several
products, currently available in its parent’s portfolio
in India, as the telecom revolution sweeps the country.
Two years ago, the Singaporean EMS company
Flextronics International Ltd entered India when telecom
equipment maker Motorola Inc sold its 40,000 square foot
Bangalore cell phone plant to it. Besides cell phones,
Flextronics sub-assembles for local manufacturing needs
at the plant. Subsequently, Flextronics invested in
chipmaker MosChip Semiconductor Ltd.
Meanwhile,
Solectron Corp has strengthened its global engineering
base in India. Through its Force Computers subsidiary
and its acquisition of C-MAC Industries, Solectron has
two design centers in Bangalore. It also has a customer
call center in Mumbai that is part of its Stream
International subsidiary.
"India will be a
location to which EMS companies will shift some of their
business, as they chase the labor curve around the
planet," a technology analyst with Merrill Lynch said.
According to industry observers, every large EMS company
is at least investigating the Indian opportunity. "It is
likely to be another loop in labor arbitrage," the
Merrill Lynch analyst noted.
Although the Indian
hardware sector lags behind the scorching software pace,
there are "enormous opportunities" to drive up the
growth, analysts say. India’s hardware sector has been
growing steadily at around 30-35 percent annually over
the past decade. Last year, the hardware industry
generated $5 billion in revenue, led by PC, server and
network solutions. According to a study by consultancy
firm Ernst and Young, India’s hardware market is likely
to touch $62 billion by 2010. The software industry,
meanwhile, for 2001-02 was worth $7.76 billion, and
projected software exports for 2002-03 are $10.1
billion.
Though India’s lack of infrastructure,
logistics concerns and limited supplier base have in the
past kept EMS providers waiting on the sidelines, some
have taken the plunge to take advantage of its nascent
electronics industry.
However, China continues
to be the chief destination for EMS majors and the lead
will likely stay for another four to five years,
according to analysts. Cities such as Beijing, Dongguan,
Shanghai and Shenzhen have become popular manufacturing
hubs for EMS providers as China’s infrastructure has
developed over the past five years.
Even so,
India’s lower-cost and highly skilled labor force,
coupled with infrastructure development and
market-friendly regulations, could sway the global
players in favor of India. Inkjet printers, for example,
have over 150 plastic parts that have to be manually
assembled. And in areas like this, India stands to score
over China, as labor costs are likely to be almost half,
analysts said.
Areas of contract manufacturing,
like printed-circuit-board assembly, cable harness
assembly, product assembly and semiconductor assembly
seem to hold particular potential for India.
It
is true that India lags behind China in the hardware
segment, but human capital gives India an edge to
compete brutally with other emerging tech powers in the
Asian region. In the IT sector alone, India has close to
600,000 software services professionals, with
engineering graduates making up close to 75 percent of
that work force. With new engineering colleges cropping
up across the country, the number of trained engineers
is likely to shoot up by an additional 30 percent in
three years.
Massive telecommunication projects
undertaken by India’s largest publicly held group,
Reliance, and others like Bharti Telecom are expected to
generate huge demand for electronics and cabling
equipment in the near term. Moreover, the introduction
of code-division-multiple-access cellular operations
against still-dominant GSM technology has already
resulted in demand for telecom equipment suppliers as
the providers roll out their services in new pockets
across India.
(©2002 Asia Times Online Co, Ltd.
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