Mentor’s Musings On Life Beyond Covid-19…A Silver Lining For Indian ESDM Ecosystem?

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Starting from a wet market in China’s Wuhan (or maybe a nearby Lab), the novel coronavirus has reached the remotest corners of the world. The impact it has had and continues to have on each and every aspect of our life is in fact beyond words. The global business dynamics is going to witness a sea change in the coming times.

We may not yet know how this story ends, but we already know for sure that this pandemic has brought the greatest reversal of our times, turning the world along with its wisdom on its head… This is our freak chance to unlearn and learn. Let’s not blow it.

Crisis often begets opportunity

The corona crisis has also presented India and especially the ESDM (Electronics System Design & Manufacturing) ecosystem with an unexpected, longer-horizon opportunity to expand its manufacturing base and play a larger role in revamped global supply chains, spawned by the sudden but inevitable global rush to reduce economic dependence on China. Is India prepared to compete to fill the vacuum created by a widely acknowledged global overdependence on China?

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Today, the world is in pursuit of new business models. India, a youthful nation known for its innovative zeal can take the lead in providing a new work culture. India, with the right blend of the physical and the virtual infrastructure can emerge as the global nerve centre of complex modern multinational supply chains in the post COVID-19 world. Can our ESDM rise to that occasion and seize this opportunity?

If India wants to be a serious player in this competition – while also fulfilling perennially urgent goals of boosting manufacturing and creating jobs – a number of fundamental changes in policy and mindset are necessary.

May start with changing the “Make in India” slogan to “ Make in Global India” (MGI).

Make in Global India (MGI)
Make in Global India (MGI)

The government needs to reinforce the PMs massage, clearly signalling international as well as domestic audiences that India is eager and is ready to step up as global trade and investment flows shift. In announcing a “Make in Global India” (MGI) initiative, we need not single out glaring overdependence on China – others can and will. Rather, we should emphasise India’s intention to adjust its policies to compete aggressively for investment in the emerging international manufacturing and supply chain architecture.

The Make in Global India initiative should specifically target Japanese and US companies. Japan has just announced a massive programme for Japanese companies to shift production from China, including $2.2 billion in incentives to move manufacturing to third countries like India. As for US corporates, a mid-February, pre-pandemic survey of American CFOs by the UBS Evidence Lab separately found that 76% of the respondents have either started diversifying manufacturing away from China or are planning to because of protectionist policies. The same survey also found that India is among the top potential destinations in Asia for this manufacturing shift. US secretary of state Mike Pompeo told journalists last week that India and the US “want to mesh the supply chains … that are important for our national security.” However, we already have a very strong competition from countries like Vietnam, Indonesia & Thailand, which shall need to be out-bided comprehensively.

The ESDM

Research and development capabilities paired with engineering, software and technology integration abilities are essential ingredients for manufacturing enterprises. “India’s rich talent pool of scientists, researchers and engineers as well as its large, well-educated English-speaking workforce and democratic government regime make it an attractive destination for manufacturers.” India is today viewed as a country with the capability to design, develop and manufacture innovative products for sale in local as well as global markets.

These factors explain, in part, India’s rise from a low-cost, back office location to a country that is well positioned to be an active participant in the entire value chain, and is now being viewed as an integral part of the global manufacturing enterprise and location strategy of most of conglomerates with global footprints.

Scepticism

Being the sceptic that I am, I am inclined to express my reservations that these trends, perceptions and expectations of the world may not be true for our electronics industry (ESDM). We have a highly skewed ecosystem for electronics products in India. While there is a reasonably large talent pool available for contract engineering services, the manufacturing ecosystem is not very deep. Whilst many global and a few Indian EMS service providers exist, critical components and deep system design talent are both missing in India.

There is also a bit of a “chicken-and-egg” situation in India. While most experts agree that a vibrant component ecosystem is vital for the Indian electronic products industry to grow, the component makers are reluctant to invest in India citing lack of a vibrant systems industry which will buy their products. Adding to this, is the problems with inverted duty structure, global Trade Agreements, which result in duty-free import of components, deep supply chain issues such as challenges with inland logistics etc.

The imperatives

To make our electronics industry a significant contributor to the manufacturing competitiveness, we need to build up a comprehensive indigenous ecosystem to cater to local as well as global needs. For this, we need to build a sustainable development mechanism and true technical competence in our engineers, design houses and EMS companies so that they can meet the ever growing and changing needs and expectations of the society.

Just as Modi warned that India would be pushed back 21 years if it did not manage the original 21 day lockdown, it may be another 21 years before India again has this type of strategic opportunity to lift its ESDM in the global leadership position.

Read Part 2


 

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