India, an EMS Hub? It’s a Long Way Off

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There has been much speculation among stakeholders about In­dia’s possibility of transforming into the next electronics manufacturing services (EMS) destination. There is hardly any doubt that opportunities are substantial, but we need to comprehend that many countries are far ahead of us in staking this claim, owing to better infrastructural facilities, as well as gov­ernment support. The worldwide EMS market is worth around $200 billion, US and western Europe constituting the main markets, from where orders are placed to countries like China, Mexico, the Carribean Islands, Morocco, Ireland, Romania, Slovania and others. Today, the Chinese market com­mands 20-25 per cent of the global EMS pie and India doesn’t even have a 1 per cent share in it. India clearly has miles to go before it can even fathom reaching China’s prominent status. India’s backwardness in the EMS domain does come as a surprise though, because it is a massively gifted country. According to Amrit Manwani, manag­ing director, Sahasra Electronics Pvt Ltd, “India’s strength lies in its low labour costs, large technical manpower, massive workforce, English-speaking capabilities and flexibility in terms of volume and re-engineering.”

By Atanu Kumar Das

Sunday, April 19, 2009: India needs to play very smart if it wants to get orders from Europe and the US because the customers there pursue total solutions, right from the manufacturing of products down to the packaging stage. EMS players in India need to adopt this one-stop shop strat­egy in order to get more orders.

Weaknesses aplenty

Pointing out the weaknesses that im­pede India’s success in the global EMS domain, Manwani says, “Duty structures and governmental hindrances, logistics, power and energy shortages, lack of component availability and quality perception are major issues. I feel that people in the western countries are la­bouring under the misapprehension that manufacturers in India cannot give them quality products. We need to change that mindset in order to clinch more deals.”

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Atul Lall, deputy managing director, Dixon Technologies (India) Pvt Ltd, says, “India has to start manufacturing components, primarily active compo­nents, so that manufacturers don’t have to source these from other countries. For any EMS player, it is very important to source components locally, as this al­lows him to increase productivity as per the requirements of the customer. Al­though if one is importing components, logistics becomes a major issue as it takes a lot of time to place an order for components from other countries.”

The EMS market in Asia will grow from $121.5 billion in 2006 to $281.8 billion in 2011, according to market re­searcher In-Stat. China is expected to have a share of 76 per cent in the pie. Overall, Asia will account for 55.1 per cent of the global EMS market in 2011, up from 45 per cent in 2006. Even though China will dominate the EMS/ODM market—mostly through Taiwan and other multinational companies that operate there—countries like India, Thailand and Vietnam will emerge as credible contenders.

Slow growth of LCD market

India has 220 million households out of which, current television penetration encompasses approximately 115 million giving manufacturers a 100 million plus households to convert. The present trend demonstrates a tilt towards LCD TVs from the traditional CRT TVs. Also, there has been a deflation in the inter­national CRT TV market, from a healthy sale of 166 million TV sets in 2004 to 92 million in 2008, and is expected to skid further down to a 61 million sales count by 2011.

The LCD market is growing by leaps and bounds. It has increased from 9 mil­lion sales in 2004 to 95 million in 2008, and is expected to scale a whopping number of 142 million sales by 2011. The plasma market too is expanding, but only at the rate of 10-15 per cent each year. It is expected to amplify to 13 million sales in 2009 and to a robust 17 million by 2011.

In 2008, the demand for colour pic­ture tube (CPT) TVs in India was 11.6 million units and is projected to touch 148 million by 2014. In terms of flat panel display (FPD) TVs, the country displayed a demand of 1.2 million units in 2008, which is expected to burgeon to 48 million by 2014.

“Multinational players like LG, Samsung and Philips are dominating the market. In terms of Indian compa­nies, the Videocon group and Onida overshadow the domestic sphere at present. Outsourcing of manufactural functions has become very common. LG outsources 100 per cent of its printed circuit board (PCB) and 40 per cent of its colour television (CTV) assemblies. Philips outsources 100 per cent of its CTV requirements, including PCB as­sembly. Even multinationals are prob­ing the possibilities of original design manufacturing,” informs Lall.

By 2010, the market size of CTVs in India will be around 11 million units, amounting to Rs 55,000 million, whereas the LCD TV market will reach close to 4 millionunits,amountingtoRs100,000mil­lion in sales revenue. Dixon Technologies Pvt Ltd estimates that 50 per cent of this marketisgoingtobeoutsourcedandrepre­sentstremendouspotentialforEMSplayers as Rs 77,500 million can be pumped from the Indian CTV market alone.

DVD market yet to pick up

In 2007, 7 million DVD players were sold in India and this upsurge in sales is steadily strengthening at 15 per cent per annum. Globally though, the DVD player market has been stagnant, primarily because of the rise of DVD recorders and DTH players offering on demand movies and the option of re­cording movies on the television itself. However, in India, this trend is yet to pick up, prolonging the DVD player’s successful stint in the nation.

There is a mix, at present, of com­pletely built unit (CBU) imports and domestic manufacturing in India. The major players are LG, Philips, Samsung, the Videocon group and Onida. Domestic manufacturing is happening because ma­jor players like Philips, LG and Videocon are adopting the domestic EMS route.

By 2010, the DVD market in India is assessed to arrive at a prodigious 10 million sales, which roughly comes to Rs 20,000 million. About 100 per cent of the manufacturing for these 10 million devices is expected to be outsourced to India, a delightful development for our EMS players.

Yet to take opportunity

In 2008, 119 million homes across India were using television sets, out of these, around 79 million were pay TV households and around 8 million, direct to home (DTH) households. By 2012, India will have around 132 million homes with television sets, comprising 115 million pay TV households and 25 million DTH households.

The demand for set top boxes (STBs) is expected to approach 500,000 units per month in India, which could trans­late into a mouth-watering opportunity for EMS players. Domestic manufactur­ers for digital pay TV operators include Humax–Kortek, Thimson–Jabil and Kaon–Dixon. Presently, Tata Sky is the only digital operator sourcing boxes from within India itself, the rest are all importing STBs. By 2010, the demand for STBs is esti­mated to shoot to 9 million units, which converts into an impressive sum of Rs 18,000 million, for which manufacture is expected to be outsourced locally, making the STB market exceedingly viable for Indian EMS players.

If we solely consider CTVs, DVD players and STBs, the market for EMS will be worth Rs 115,500 million and this is without taking into account the latent potential of the mobile phone market. These figures clearly laud India as the next major EMS hub. The domestic market is huge and if we start looking at exports as an option, then sky is the limit for EMS players in India! But, cer­tainly, severe limitations hold back the EMS players from surging aggresively and capturing a large chunk of the global pie. The industry and the gov­ernment should wake up to this reality and try their best to encourage invest­ments in the hardware manufacturing domain by improving the country’s infrastructure, rationalising tax issues and encouraging indigenous component manufacturing.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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