Customers preferring India over China

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EB: After the recession, the lead time for procuring components has increased significantly, and is affecting the EMS business. How are you tackling this problem?

Mukesh Gupta, managing director, Smile Electronics Ltd

The lead time for components is very high now as most component manufacturers had cut down on production during the recession. Now with the demand rising, they are struggling to meet orders. Previously, we worked on order basis, but now we are focusing on the projection based model with customers. In the projection model, the customer gives a forecast for the next six months or so and the components are ordered by us accordingly. In other words, an advance order of the components is made with a provision to cancel or defer the order within the cancellation window given by the component vendor. But this model is in its nascent stage and we have still not seen the fruits of it.

EB: What are the current market trends with reference to EMS?
There are more orders pouring into India as customers are not happy with Chinese manufacturers. They find Indian manufacturers more reliable. Also, the EMS model is fast gaining popularity among the ODM customers as they are concentrating more on their core competencies of technology and marketing, outsourcing production to the contract manufacturers.

EB: Has the EMS market picked up after the recession with reference to MNC customers?
The EMS market hasn’t picked up well with European customers; but we do have more enquiries from the US. We can’t declare that the market has completely revived but it has certainly started moving towards revival, in a significant way. Truly speaking, for Indian companies, the recession was never very serious. People were only cautious and now they are shedding that caution rapidly.

EB: Has there been a growth in EMS manufacturing too?
Of course, there has been growth for the EMS companies too, as they are the real manufacturing units for product companies who outsource their manufacturing activities.
EB: What are the segments that are driving the growth of EMS firms?
Telecom and defence sectors continue to drive demand in the EMS market. Government is investing huge amount in the defence sector. Also, with the government rule that MNCs have to ensure that 30 per cent of the value of their defence order is from India, there is a huge opportunity for Indian EMS companies. Medical electronics is also on a better footing now with more manufacturing based in India. Even security and surveillance market is picking up. The demand in the consumer electronics market will continue. We also feel that LED market is picking up.

EB: Are there many EMS players for low volume PCBA (for R&D purposes)? And how do you maintain competitive price points in low volume production?
In the low volume PCBA production sector, there are not many players as it is a niche area, catering mainly to R&D requirements. Really cutting edge technology becomes a very important factor here and not many EMS companies are geared up to the desired level. Since R&D budgets are usually liberal, customers do not really fret over the prices when working with EMS vendors who have state-of-the-art facilities. The business model for low-and mid-volumes is good for tier II players, while with high volumes, we only have wafer thin profit margins.

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