Growing demand for EMS in the consumer electronics space

The urgent need to ‘Make in India’, particularly for the consumer electronics segment, represents vast growth opportunities for electronics manufacturing services (EMS) firms in the country. Here is a sneak peek at the business opportunities

By Sudeshna Das
(with inputs from Baishakhi Dutta)

The domestic consumer electronics and durables sector has witnessed substantial growth over the last few years. According to a report published by global consulting firm, Ernst & Young, India’s appliance and consumer electronics sector is expected to reach US$ 20.6 billion by 2020 at a compound annual growth rate (CAGR) of 13.4 per cent. However, the level of locally manufactured consumer electronics and appliances is insignificant and hence, this segment is one of the biggest contributors to India’s current account deficit.
There is a need to increase domestic manufacturing in this segment to achieve the ‘Make in India’ dream. In fact, manufacturing in China has started to get expensive and India now has the opportunity to become the preferred electronics manufacturing destination. This presents a significant growth opportunity to the Indian electronics manufacturing services (EMS) industry.
Considering the importance of consumer electronics as a growth driver for EMS, we decided to take a holistic look at how the growing demand impacts this industry. Hence, we asked a few questions to senior stakeholders from within the industry as part of our monthly industry poll.  In this article, we take the pulse of the EMS industry in India.

Methodology
For this report, we received inputs from 15 senior professionals involved in the EMS industry. This sample group is a microcosmic representation of India’s EMS industry ecosystem. These senior professionals shared their insights on:

• Consumer electronics being the major growth driver of the EMS industry in India
• The key consumer electronics products that are in demand
• The strategies to get a competitive advantage while targeting the consumer electronics sector
• The importance of turnkey manufacturing services to expand business in this segment
• The need for ODM (original design manufacturing) in consumer electronics
• Possible demand for reverse logistics services (repair, rework, refurbishment, etc) in this domain
• The challenges faced by EMS companies that cater to this particular segment in India

A trend analysis was done on the basis of their inputs. The results of the analysis are presented here.

Opportunities galore
Among the survey participants, 94 per cent predict (Figure 1) that the EMS market in India will be highly dynamic, driven primarily by the consumer electronics sector. Manufacturing partnerships in the consumer electronics segment have been growing steadily, as OEMs are striving to cut costs to maintain their competitive advantage in the face of rapidly changing market conditions, technological advances and global competition.
EMS companies operate as strategic partners of OEMs by providing them with a full range of services, which include contract design service, prototyping, final system assembly, configuration, order fulfilment, and even after-market services, including repair. By using the services of EMS providers, consumer electronics brands can concentrate on their core competencies such as research and product development, brand building, sales and marketing. Outsourcing to EMS providers also enables OEMs to gain access to the latest equipment, process knowledge and manufacturing knowhow without having to make substantial capital investments, as the risks are converted into variable costs.
Survey participants feel that ever increasing end-user demands and fast-paced technological developments compel OEMs to continuously introduce new and innovative products in the consumer electronics market. Consequently, OEMs have to increasingly depend on EMS providers who offer significant benefits such as cost savings, reduced time-to-market, reduced time-to-volume, quality and flexibility. Leveraging the capabilities of EMS providers, OEMs can focus on research and development activities as well as sales and marketing strategies, while saving on capital investments.
The survey participants felt that there is a huge opportunity for manufacturing in India, as is evident from the expansions undertaken by the major players.
Currently, most of the PCBA and related assemblies required for the consumer electronics industry are imported from China or other countries. But the Indian EMS industry will be able to do some value added work in this sector due to the recent government policies that encourage electronics manufacturing and localisation in the country.
Survey participants indicate that the top three consumer electronics product segments (Figure 2) that will need EMS providers in the country will be:
Mobile phones
LED lighting
LED TVs
There are further opportunities for EMS providers outside these three segments, namely, in set-top boxes, washing machines, water and air purification devices, etc.

Strategise to grow
Since OEMs are very selective in choosing their EMS partners, EMS providers need to focus on nurturing long-term relationships with their customers through enhanced value-added services, strategic partnerships and alliances, as well as through diversification.
In response to the growing competition in the industry, EMS providers continuously adopt innovative and strategic business models. These include better knowledge of customer needs, understanding the business models of customers/OEMs, effective communication tools, creating global footprints and focusing on core competencies. According to the survey participants, the top three business strategies (Figure 3) to get a competitive advantage while acquiring business in the consumer electronics segment would be:
1. Effective supply chain management
2. Maintaining scalable business solutions
3. Better knowledge of customer needs
EMS providers should also focus on customer-centric models, penetration into niche markets and effective information technology tools.
Moreover, considering the intense competition, the survey participants feel that EMS providers need to enhance their value proposition by offering integrated and end-to-end solutions. They also suggest that a strategic partnership with OEMs can enable the EMS providers as well as the OEMs to contribute effectively to the success of the end product. This, in turn, helps both parties to achieve high profitability and a good market share.

‘One-stop shops’ are in demand
Survey participants unanimously accept the importance of turnkey manufacturing services as the need of the hour to fulfil the increasing demand for ‘one-stop shops’ for EMS in the consumer electronics segment.
Sometimes, OEMs follow the consignment contract manufacturing model to maintain greater control over the material planning and acquisition process. This also minimises the risks associated with a vendor-managed pipeline. However, in case of consumer electronics, with its typical low-mix high-volume production, OEMs prefer a partial or full turnkey model, in which the EMS provider controls the acquisition of material. This helps OEMs in reducing costs and remaining agile to address rapidly changing markets.
A common best practice among OEMs is to have systems that can analyse the total acquisition cost and use it to evaluate EMS suppliers as well as other types of contract manufacturers. These systems assign value to intangibles, such as the ease of working with a vendor. An OEM assessing an outsourcer must have a way to measure the other elements of the relationship that add to cost.
Turnkey projects need a high degree of technical skill that can be customised according to the specific requirements of the OEMs. Only a few Indian EMS providers offer turnkey solutions for PCBAs, utilising Chip-on-Board (COB), surface mount (SMT) and through-hole technologies. They also provide complete assemblies, including plastic mouldings, metal-die castings and sheet metal fabrications, apart from finishing, painting and printing – in short, delivering the final assembly of completed units. This opens up vast business expansion opportunities for Indian EMS companies.

The benefit of (ODMs)
Consumer electronics products need constant design revision, as the end users expect creativity and continuous innovation. Therefore, consumer electronics product design and development is often outsourced to ODMs (original design manufacturers). In such cases, the sooner an OEM engages the contract manufacturer for product design and development services, the better—particularly when the product being designed moves into the production and ramp-to-volume phases.
In instances where the ODM service is hired by the OEM for strategic reasons, the former is expected to have experience in designing and manufacturing similar products. This enables the OEM to minimise costly design iterations, helps bring the OEM product to market sooner and adds several other benefits to the contract manufacturing relationship.
Among the survey participants, 87 per cent (Figure 4) indicated that ODM services are in demand. They feel that it is important to effectively control the costs in the consumer electronics sector because it is highly cost-competitive. EMS providers can help customers to achieve this goal by offering turnkey solutions with additional value added services. Design is the best value added service that an EMS company can provide. Hence, ODM services become a very important and cost-effective solution for the customer.
However, 13 per cent of the survey participants do not see any value of ODMs in the Indian consumer electronics sector. According to them, most consumer electronics products are already mature, having been well developed in China and other markets. Indian products need efficient manufacturing strategies rather than ODMs. So there is minimal ‘Making in India’ but more ‘Bolting in India’ in this space.

Scope in reverse logistics
India is still not a use-and-throw market for consumer electronics products. After-sales services, including repair and maintenance, are quite important for the Indian consumer.
Echoing this view, 81 per cent (Figure 5) of survey participants said that additional scope for business lies in the area of reverse logistics. They feel that services related to repair/reworking and refurbishment work will not only help EMS firms get additional business from the OEMs but also enable them to play a role in e-waste management. However, considering the complexity of the reverse logistics processes, only a few expert EMS providers in India can enter this space.

What’s next?
We asked the survey participants to suggest possible challenges that could derail the growth of this industry in the country. Here is a collation of their opinions:
1. Inefficient supply chain for required electronic components
2. An unfair playing field, since companies from competing countries (China, Vietnam, Indonesia, etc) have access to finance at a much lower cost
3. Logistics inefficiencies and infrastructural bottlenecks, resulting in greater turnaround time and costs
4. The higher cost of infrastructure
5. Shortage of skilled manpower
6. Limited support from the government
Survey participants felt that the successful resolution of the above mentioned issues through appropriate industry initiatives and government interventions will help this industry to move ahead.

Major Indian and global consumer electronics companies have announced investments of around US$ 1.4 billion over the coming years in India. To meet the rising local and export demand to neighbouring regions. the Middle East and Africa, companies are planning to expand their local manufacturing in India and make the country an export hub.

(Source: Study on Indian electronics and consumer durables segment, April 2015, E&Y)

Major contributors

1. Amit Bhargava, MD, Asha Electronics
2. Ankit Jain, director, Ankit Electronics
3. Deepak G. Sawant, MD, Interfab Electronics India Pvt Ltd
4. Indrajit Vank, proprietor, Arkay Technologies
5. J. Narayan Kumar, MD, Sanjay Technologies
6. Milan Patel, director, Aminij Embedded Solutions
7. Muneesh Dhawan, VP, Dixon Technologies
8. R.K. Kapur, partner, Vital Electronics Manufacturing Co.
9. Ronak Sonthalia, director, Silizone Technologies
10. S.P. Suresh, DGM, East India Technologies Pvt Ltd
11. Sreeram Srinivasan, CEO, Syrma Technologies
12. Subhash Goyal, MD, Digital Circuits Pvt Ltd
13. Venkatesan G., head-SCM, Amara Raja Electronics
14. Vijay Gujarathi, CEO, EOS Power
15. Vikram Ranade, executive director, AMTL