The electronics manufacturing services (EMS) market in India will be highly dynamic in the coming year since India promises to emerge as a hotspot for electronics manufacturing among south-Asian nations, owing to such benefits as low operating costs and low competition, which provide ample potential for penetration by OEMs and EMS providers across different sets of verticals
Import of electronics is the second largest contributor to India’s increasing current account deficit, just after crude oil. To make the situation worse, India’s electronics imports touched a record US$ 55.6 billion in FY19, as against US$ 51.5 billion a year before, and remained the largest driver of its trade deficit after oil, showed the latest official data (Fig. 1).
As per a report by Deloitte Touché Tohmatsu, India’s electronics imports could surpass the country’s oil imports by 2020 if the trend continues. This surge in imports clearly indicates a huge gap between demand and domestic supply (Fig. 2) and the need for local manufacturing, including electronics manufacturing services (EMS).
Favourable government policies for the domestic manufacture of electronic items have undoubtedly played their part in the rise of local manufacturing, particularly for smartphones, set-top boxes, TVs and other appliances.
This, in turn, offers a huge opportunity for the Indian EMS sector. Over the next five years, accelerated local manufacturing of electronic products to cater to the growing domestic demand will drive the market for the EMS sector in India.
Local brands under Make in India initiative as well as global manufacturers looking to relocate their manufacturing base from China to such alternate locations as India, Vietnam and Indonesia (due to mounting labour costs in China) are driving the trend. Thus, India has the potential to emerge as a global EMS hub.
Market at a glance
According to a ResearchAndMarkets report, the Indian EMS market is expected to grow at a CAGR of 38.1 per cent till FY23 from the market value of approximately ` 560 billion in 2018. The EMS market in India will be highly dynamic in the coming year since India promises to emerge as a hotspot for electronics manufacturing among south-Asian nations.For this the Indian government is providing several incentives.
The ever-increasing demand for cellphones, telecom products, and consumer and smart electronic devices is driving the growth of the EMS market (as shown in the table). Manufacturing partnerships in these segments have been growing steadily, as market demand for the products is extremely high and OEMs are striving to cut costs to maintain their competitive advantage in the face of rapidly-changing market conditions, technological advances and global competition.
There are further opportunities for EMS providers outside these segments, namely, in lighting, power electronics, automotive and strategic electronics (including aerospace, defence and railways). With increasing demand for the transition from electrical to electronic in the energy segment, power electronics is emerging as one of the most exciting areas in the industry. Aerospace and defence (A&D) OEMs have been increasingly depending on EMS providers to address risk management, logistics and aftermarket service needs. EMS companies with global supply chains and advanced technological capabilities are in the best place to exploit this trend.
Moreover, rapidly-evolving devices like smartphones and tablets account for the development of unique collaborations and partnerships between service providers and OEMs. This, in turn, directs EMS market players to deploy efficient manufacturing machines and service delivery facilities, which further fuels industry development.
Additionally, increasing investments in outsourcing activities by OEMs for availing logistics, manufacturing and testing services add up to the consumption of products.
Demand for green and energy-efficient devices and components that creates a need for these services further contributes to the growth of the EMS market. To cater to these demands, OEMs are developing strategic partnerships with service providers that aid them in controlling manufacturing costs. Service providers offer product design, development and manufacturing operations according to demand from OEMs. Due to these facilities, OEMs are able to achieve appropriate product supplies and save on major development costs. This trend allows EMS market players to develop green manufacturing facilities and energy-efficient products that support globally sustainable goals.
Indian EMS providers tend to show long-term affinity towards the high-volume, low-mix (HVLM) model as it ensures economies of scale, higher productivity due to minimum change-over time and optimum machine utilisation. Considering the low margin and highly competitive price scenario, optimisation of supply chain cost is crucial to the success of this model.
However, recent industry trends show a shift towards high-mix, low-volume (HMLV) model, which keeps high focus on quality and customisation as per customer requirements. Considering the high margin and niche market scenario, even major changes in market dynamics often do not impact such a production process heavily. However, in this model success depends on controlling and improving supply chain efficiently.
Innovative services in demand
In response to growing competition in the industry, EMS providers continuously adopt innovative strategies. These include better knowledge of customer needs, understanding business models of customers/OEMs, effective communication tools, creating global footprints, focusing on core competencies and most effectively offering value-added services. Moreover, considering intense competition, they need to enhance their value proposition by offering integrated and end-to-end solutions, and other innovative services, as given below.
One stop shop
Turnkey manufacturing services are the need of the hour to fulfil the increasing demand for one-stop shops for EMS. However, turnkey projects need a high degree of technical skills that can be customised according to 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.
Original design manufacturing
Electronics products need constant design revisions as end-users expect creativity and continuous innovation. Therefore consumer electronics product design and development is often outsourced to original design manufacturers (ODMs). 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 production and ramp-to-volume phases.
Moreover, ODMs can ensure unique products as the Indian market needs combining of Design in India with Make in India. Hence, ODM services become an important and cost-effective solution for the customers.
According to a report published by PricewaterhouseCoopers (PwC), “Many EMS companies are expanding into new services that offer high margins. They are providing new services along the spectrum. At one end they are offering more design services, for either sub-assemblies or finished products, while at the other end they are offering more testing services. The more services EMS providers offer, the more they move into new models of joint design manufacturing and outsourced design manufacturing.”
Considering the importance of electronics waste management as well as after-sales services, including repair and maintenance, reverse logistics has become an important activity.
Global OEMs also prefer outsourcing reverse logistics. Services related to repair/rework and refurbishment work will not only help EMS firms get additional business from OEMs but also enable them to play a role in e-waste management.
Going green with processes and products
There is a pressure on manufacturers to adopt green manufacturing processes while simultaneously producing electronics that are less expensive to use thanks to lower energy demands. Environmental concerns are paramount not only during the manufacturing process but throughout the lifespan of electronic devices. This, in turn, is compelling manufacturers to develop new methods to produce devices that consume less energy.
The ever-increasing end-users’ demand, and fast-paced technological developments, compel OEMs to continuously introduce new and innovative products in the 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.
EMS companies operate as strategic partners of OEMs by providing them with a full range of services, including contract design, prototyping, final system assembly, configuration, order fulfilment and even after-market services, including repair. By using the services of EMS providers, OEMs 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 know-how without having to make substantial capital investments, as risks are converted into variable costs. A strategic partnership between the two can enable EMS providers as well as OEMs to contribute effectively to the success of the end-product. This, in turn, helps both parties achieve high profitability and a good market share.
Since OEMs are quite selective in choosing their EMS partners, the latter needs to focus on nurturing long-term relationships with their customers through enhanced value-added services, strategic partnerships and alliances, as well as diversification.
Sudeshna Das is director at ComConnect Consulting