Indo-US Trade Ties US companies hike production in India

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By Jesus Milton Rousseau S & Himanshu Yadav

India-US bilateral trade rose from US$ 13.49 billion in 2001 to US$ 31.917 billion in 2006. The US is one of the largest foreign direct investors in India. The cumulative FDI inflow from USA up to July 2008 was $7.96 billion. FDI inflows from USA constitute about 8 per cent of actual FDI inflows into India, in rupee terms. The Indian market has shown tremendous growth in segments like telecom, communications, consumer goods, power, industrial, energy management, wireless infrastructure and security and surveillance. US companies have a major presence in India, both in the electronic hardware and consumer electronics markets. The demand for electronic goods in India is expected to quadruple in the next five years and numerous US firms have augmented production of cellular phones, monitors, TVs, etc in India.

Potential market

US companies reign over the Indian market in analogue and power management products and wireless sectors. Industrial, energy man­agement, wireless infrastructure, security and surveillance, automo­tive and consumer are some of the sectors that are seeing positive signals of growth. Power manage­ment devices can help in efficient use of available power in electronic products. Companies feel that the growth in India’s industrial and telecommunications infrastructure presents many opportunities for businesses in this space. Although, India lags behind in manufactur­ing, it has made a mark as a major centre for electronic design.

“With the number of scientists and engineers in India,we see more multina­tional corporations establishing design centers in India.They will involve a high level or architecture design for products in the area sofcommunications,medical and automotive. The increase in design activities in India will definitely help to spur growth,” says Damien Tan, area sales manager, ASEAN, Linear Technol­ogy Corporation.

Major semiconductor firms like Lattice Semiconductor, Texas Instru­ments and Cypress Semiconductor have a strong presence in the Indian market. Arun Jain, director, sales and marketing, Texas Instruments India feels, “In the next decade, semiconductor technology will have a massive impact on healthcare and medical electronics, making them more efficient and affordable and both these markets are noticing a heavy rise in this space. There will be a demand for portable electronic devices. Also, the programmable system on chip (PSoC) market is promising for the US companies in India. Rajeev Mehtani, senior vice president, Cypress India Operations says, “The Indian market for PSoC looks promising and is picking up. PSoC has established its presence in process control and medical and industrial automation in the Indian market. Some emerging applications include the e-bike, in consumer gadgets and capsense, in white goods.”

Alluring market

India is an excellent investment des­tination and is going to get better, owing to the growing middle class and its increasing spending power. “This, in turn, will help the growth of industries,” says Jayaram Pillai, MD, IndRA (India, Russia and Ara­bia), National Instruments. The most obvious advantage is that the Indian electronics market is growing and thriving and hence, the demand is also rising. “With a growing number of both native and foreign companies in the market, doing business in India helps us grow our global business while serving Indian customers lo­cally,” shares Mehtani.

Another benefit felt by enterprises is that the Indian market provides economies of scale. Sanjeev Keskar, Country Manager-sales, Freescale Semiconductor India Pvt Ltd, adds, “The Indian market provides scale, which is our biggest advantage. The growing consumer base provides opportunities for sales and develop­ment of products that cater to this burgeoning market.” The other major benefit is the large pool of technically skilled, English speaking engineers and scientists, who make it easier to increase business.

Doug Hunter, vice president of cor­porate marketing, Lattice Semiconduc­tor, substantiates, “Due to its relative youth and dynamic growth pattern, the Indian electronics market is an alluring one for investments. Lattice continues to invest in its local presence withthe addi­tion of both personnel and locations. In fact, it would be fair to say that we have actually over-invested in India because we are so confident that this growing market will reward our investments.”

Challenges faced

The US market is extremely com­petitive, requiring companies to continuously enhance their techno­logical capabilities and price their products competitively. E-commerce and globalisation have quickened the pace of change. India and US play significant roles in the global arena. US is India’s largest export destination and also, one of the leading foreign investors in India. The governments of both countries should devise means to bolster and accelerate this growth process, including import/export regulations. Flexibility in outsourcing laws will boost bilateral trade between the two nations.

However, there are certain bar­riers that US companies are fac­ing in the Indian market. Lack of infrastructure, power shortage and a flawed bureaucracy are a few of them. “One disadvantage is the lack of infrastructure in India. The power supply, at the moment, is not suffi­cient to keep pace with the growth in the market, based on consumer and industrial demand,” says Keskar. Tan points out, “Public infrastructure and bureaucracy might influence long term growth and need to be further developed.”

Furthermore, trade barriers have raised the grey markets. “While do­mestic consumption has grown in the last few years, the rise of electronic manufacturing in India is still limited. This is chiefly due to the fact that the trade barriers cause grey markets to thrive,” explains Mehtani.

Mehtani elaborates, “Trade rela­tions between India and USA seems to be strengthening. However, we believe that India will continue to be a knowledge hub as opposed to a pro­duction hub in relation to the trade between the two countries.” Neal Greenberg, VP, sales and marketing, SchmartBoard, adds, “The future will be determined by a combination of talent, quality and cost. What can India do better and cheaper or at least on par with China, Taiwan, and Korea is what will determine its success.”

The government can play a crucial role in reducing these barriers by lower­ingtaxesandbecoming moreconsistent in its policies. Tan suggests, “The Indian government should have lower taxes and transparent rules and regulations. Also, consistent execution of policies and political constancy will help Indo-US relations.” Mehtani adds, “Trade barriers between the two countries should remain low. Also, India should adopt more aggressive intellectual property (IP) protection laws.”

GROWTH AREAS

Following are some of the factors that are attracting fresh invest­ments in the Indian market from an increasing number of US cor­porations:

  • Growth in energy efficient LED lighting
  • Growth in industrial and tele­communications infrastructure
  • Policy announcements on 3G in telecom
  • The unique identification card (National ID) has created new opportunities for MNCs
  • Subsidies on power generated from solar has created demand for power PSoC products
  • Availability of highly skilled, English speaking engineering and managerial talent pool
  • Increasing demand for medi­cal electronic products in the market that are likely translate into opportunities in biometrics, blood pressure monitoring, blood analysis and other remote technologies as well as geriatric telemedicine
  • India has established itself as a major centre for electronic design
  • The growing middle class and its increasing spending power
  • Growing consumer base provides opportunities for sales and devel­opment of products

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