By Himanshu Yadav
India has experienced a huge influx of MNCs, propelling its economy to greater heights. The world’s economy has faced a tumultuous time in the past one year but despite that, India seems to hold great potential for multinationals from various countries. Although, a majority of these companies are of US origin (US companies account for about 37 per cent of the turnover of the top 20 firms operating in India), other nations, like China, Singapore, Taiwan and others, too, have realised the massive potential that India offers. More and more companies from the European Union (EU) like Britain, Italy, France, Germany, Netherlands, Finland, Belgium, etc have outsourced their work to India and are contemplating investment plans in the country. Finnish mobile handset manufacturing giant, Nokia has the second largest base in India. South Korean electronics giants Samsung and LG Electronics are doing excellent business here. Japan is also not far behind, with a host of electronics and automobile shops thriving in the nation. Companies like Singtel of Singapore and Malaysian giant, Salem Group, too, are expressing interest in investing in India.
One of the main reasons that these MNCs consider India a business destination is its rising economy. Companies with well established bases in the Indian market or those who are already involved in business here have seen very little of the downturn and that is giving them the confidence to invest more in the Indian subcontinent. As per figures collected from the ISA-F&S Report (2008-10), electronic equipment production and consumption in India has witnessed an unwavering growth, ranging from 25-30 per cent, since 2005.
Sectors that have experienced tremendous growth in the past few years are electronics, information technology (IT), telecommunication, automobiles, consumer goods, power, industrial, energy management, wireless infrastructure, medical, security and surveillance and LED lightings. Manufacturing within the electronics industry is positioned to rise at five times the global electronics production between 2009 and 2015. Following this growth, there has been an upsurge in the electronic component manufacturing segment, which is evident by the presence of players such as Perlos, Salcomp, Dell, Samsung and Aspocomp in this space. Major end user products that noticed growth are mobile handsets, desktops, notebook PCs and set top boxes. This growth can be attributed to the increased purchasing power of the middle class, favourable government policies, increased outsourcing and establishment of electronics manufacturing services.
How MNCs view the market
Major MNCs already doing business in India also feel that it has is a potential market for a gamut of businesses. Texas Instruments(TI), a US based semiconductor firm, believes India is a significant market for semiconductor companies because of the high growth potential of the electronics industry. With world class technical talent available in large numbers, India has emerged as a major destination for electronic design and development and with time, it is also expected to make inroads into electronic manufacturing.
The mobile communications market in India has already been acknowledged as a key segment, not only locally but also globally, in terms of local market consumption and R&D for the same. The automotive segment is also picking up speed, especially with the pioneering work that is in progress in the low cost segment. Infrastructure projects regarding transportation, the power sector and renewable energy are also gaining importance and will emerge as major areas in the near future.
Firms like Nokia, Incap Contract Manufacturing Services, etc are doing business in India due to the available market potential. Jarmo Koelmainen, MD, Incap Contract Manufacturing Service Pvt Ltd, says, “We find India a good investment destination. We established our operations in India in 2007 and are very satisfied with the same. Skilled labour, improved business infrastructure, vast market potential are, among others, the advantages of India that we value.”
India is perceived to be at par with China, in terms of its FDI appeal. Multinational companies operating in India cite its highly educated workforce, management talent, laws, transparency, cultural affinity and regulatory environment as favourable factors. Moreover, they acknowledge India’s leadership in IT, business processing and R&D investments.
India has access to numerous resources—manpower availability and technical talent as well as natural resources, which can be tapped to establish a sturdy manufacturing base. Infineon Technologies India Pvt Ltd considers India a vital market and a pool of R&D talent. Besides a huge domestic market, India has the potential to become a major hub for electronics design and systems. It can focus on designing and manufacturing global products to tap other emerging markets and also attract foreign companies for business investments.
Challenges and drawbacks
Despite the immense market potential, there are some challenges faced by the foreign companies investing in India. These deterrants include irrational tax structure and trade barrier policies, low investment in infrastructure and slow improvement reforms. There is a need to accelerate scale economies and hone productivity and operational efficiency, thereby lowering prices. Another area of chief importance where India needs to acquire specialisation is building a complete supply chain. For instance, an area where excellence can be developed is the telecom sector, wherein the Indian government has mandated that local manufacturing take place. Cypress India Operations says, “The government of India has a role to play here by providing the necessary focus and direction to promote the establishment of such vocational institutions and manufacturing bases.”
The demand for appliances and energy efficient consumer electronics is also great and can be explored. The Indian industry should also focus on inventing products that matter to rural and bottom of the pyramid segments. However, the future of the industry can be determined by the role played by the government, in terms of investment policies and infrastructure offered.
The Indian government announced the semiconductor policy two years ago to attract MNCs but many companies are still reluctant to invest in the country. Rajeev Mehtani, senior vice president, Cypress India Operations, says, “The semiconductor policy may have been announced but we are yet to go into that space. Let us not forget that a manufacturing base requires an efficient infrastructure and a well drafted tax regime, things that still need serious consideration where the Indian scenario is concerned.”
In our showcase, ‘Country Special’, we have covered four eminent markets and economies—US, Taiwan, Singapore and China as potential investors in the Indian market, especially in the electronics hardware segment. All these countries share a good trade relationship with India. Major firms from these countries, in the arenas of semiconductors, consumer electronics, telecommunication and automotives are investing in the Indian market and will continue to expand there businesses here in the future.