By: Murali Srinivasa, Founder & CEO, LionCircuits and Venkatesh Kumaran, President & Partner, AxLerateNow
Over the last several decades, supply chains and manufacturing got more centralized with efficiency as the top-most focus. Just-in-Time manufacturing pioneered by Toyota and other efficiency improvements in manufacturing, low-cost mass production enabled by China and mass manufactured goods sent globally via many shipping routes became the harbingers of cross-border trade and globalization.
Major disruptions have suddenly been triggered because of ongoing trade wars, Geo-politics and COVID-19 pandemic. Fissures has developed in traditional efficiency focused centralized manufacturing and supply chain models. This has risked and impacted supply chains worldwide and now most boardroom discussions and analyst meets highlight alternate supply-chains, manufacturing and de-risking strategies. Trade Wars, anti-globalization sentiment, pandemics and the recent anti-China geopolitical storm has created a major shift in thinking of alternate supply chains and reducing over-reliance on any one country or region. A recent announcement from Japan on incentivizing Japanese companies to move away from China is a leading example. The intention of creating D10 by United Kingdom to move reliance on one country for telecom infrastructure is another example of the ongoing sentiment and concerns.
Hence many companies are considering or have already started to establish alternate supply chain systems, mostly as their 2nd and 3rd base after China. Besides cost, supply chain teams have also started looking for proximity to markets, availability of raw materials and eco-systems, talent base etc. considering to build up a more distributed model as opposed to the centralized efficiency driven model of the last few decades. With the post-covid world of muted travel, remote operations, more costlier transportation, a distributed model of local supply and demand across the value chain, becomes a feasible model to explore. Automation, advances in manufacturing and digital transformation has also enabled efficiency improvements in relatively smaller setups while saving on the cost of integrating supply chains, transportation and customs duties with ongoing trade wars.
Countries like India, South-East Asia, Eastern Europe, Mexico and Latin America are the ideal destinations, with adjacencies and access to large markets for setting up such alternate manufacturing bases.
At the same time, post-covid world requires the need to ramp up Digital Transformation for the entire supply chain and manufacturing. We are starting to see acceleration of remote workforce and Digital Transformation even in stoic companies. Managing a distributed multiple supply chains effectively and efficiently requires a significant amount of automation. Current manual interventions in the process and lack of transparency coupled with multiple iterations of designs to go from prototype to production makes the entire flow complex to work with multiple manufactures. The need for automation in manufacturing becomes very evident as global companies implement distributed manufacturing strategies.
Coming to Electronics Manufacturing and supply chain, China has been the 800 pound Gorilla while India has been a muted observer for many years even with a very large and growing consumption market. Previous efforts with #MakeInIndia has been in fits and starts, but lately the Smartphone manufacturing and value add from India has significantly picked up, thanks to consistent policies with both carrot and stick approach and similar efforts are now underway for other electronics. With the geo-political crisis heating up, there has been some serious efforts in #MakeInIndia in Defense, local sourcing and multiple other efforts across all other sectors. At the same time, the design aspect
in India is extremely strong with many large MNCs having their local R&D design teams in India (for many India is the second largest R&D site next to headquarters) augmented by the various Systems integrators and R&D Service providers. This proximity of the Design and Manufacturing brings in a lot of synergies for low to mid volume high-touch manufacturing and as well as the growing consumption market addresses the consideration of India as a strong candidate for creating alternative manufacturing sites. A huge local and global demand for electronics provides a unique opportunity for Indian manufacturers in the electronics industry to be part of the global supply chain worldwide. With only under 10% of global electronics being manufactured in India, there is a huge upside for the Indian electronics manufacturing industry in this age of disruption.
Is India Ready?
While India is heavily dependent on China for raw materials, machinery, printed circuit boards, electronic components and high volume manufacturing, let us take stock of the current ecosystem, the areas where India has excelled, where pools of talent exist, where the serious gaps are and what interventions are necessary to ramp them up.
India has an established high-end ecosystem of defense and aerospace sectors, thanks to the indigenously developed space (Indian Space and Research Organization – ISRO) and missile programs. Now with a big push of #MakeinIndia in Defense, these capabilities are being ramped up.
Automotive sector has been the forte of India’s economy with a strong ecosystem of manufacturing small cars and 2-wheelers both for the domestic and export markets. While India has seriously lagged on the EV side, the capabilities are rampant with 100s of startups and established players now working on the various ecosystem components including motors, powertrain, charging infrastructure and varieties of 2 and 3-wheeler vehicles. Pockets of Industrial mid to low volume manufacturing that requires high touch, proximity to design teams have been ongoing for a decade with large industrial MNCs who all have design and manufacturing facilities in India including GE, Schneider, Bosch, ABB etc. Make in India campaign since 2014 enabled us to go from 2 to a whooping 264 mobile phone assembly units in India. The Internet of Things (IoT) sector now has close to 1700 IoT Startups tracked by IoT Thinktank ( IoTForIndia.org ). Though we do high-end mobile phone assembly in India now, bare boards come from other countries like Taiwan or China. Most components including 100% of semiconductor chips are sourced from overseas as well. The government should immediately create an environment to encourage use of locally fabricated boards, locally sourced basic components like resistors and capacitors, and rapidly build a deeper vertical integration of manufacturing which includes raw-material for fabrication and machines used in the fabrication. This will open up the larger electronics ecosystem in India on a fast-track mode. Capabilities and talent base at a ground level is
widely available and needs attractive policies and capital to achieve the vision of # VocalForLocal .
Entrepreneurs should look at building and supporting this ecosystem which has immense scale-up potential because of the push to create distributed and alternate supply-chains triggered by trade wars, anti-globalization sentiment, pandemics and the recent anti-China geopolitical storm. When global companies with regional teams are operating in the new world, there is a need to manufacture and source locally to avoid disruptions especially for large consumption markets like India. eCommerce growth in the last few years in India has improved the logistics networks in India which can augment the supply-chain ecosystem for manufacturing. There are a lot of improvements in the Indian customs and logistics network that are required though including systems in customs to be more automated and infrastructure for seamless timely delivery. Across the electronics manufacturing value chain there are significant opportunities, the upside is significant coming from a
relatively small base.