EMS: The Preferred One
Comparisons between India and China are inevitable, and the sad truth is that China manufactures electronics hardware worth more than $200 bn compared to India's $13 bn. Electronics Manufacturing Services (EMS) have been a major contributor to China's growth and India too can look forward to a significant share of the EMS pie coming to locally based global as well as Indian manufacturers.

Brand owners are outsourcing their manufacturing needs due to the significant advantages it offers such as the onus of flexibility in production is transferred to the EMS provider, coping with shortened product life cycles by reducing time to market, efficient use of capital enhancing RoI and reducing manufacturing costs and so on.

The recent acceleration in EMS activity in India is due to rapid growth in all segments of the market for electronics hardware products. This growth is a result of a number of drivers, which have emerged globally as well as in India:

• Increased use of electronics in all spheres of life to make products and services intelligent and efficient.

• Strong and growing domestic demand for mobile phones, personal computers, consumer, medical, strategic, and automotive electronics.

• Increasing demand for telecom infrastructure equipment, teledensity to increase from the present 100 per 1000 in 2005 to 220 by 2007.

• Highly talented workforce, especially for design and engineering services with good communication skills.

• Rising labor costs in western countries and now also in Asia.

• Presence of global EMS majors in India and their plans for increased investments in India to diversify risks and access the Indian market.

• More outsourcing of manufacturing by both Indian and global OEMs.

These advantages, combined with a buoyant economy, a large and aspiring middle class of 350 mn and spread of telecom services to rural areas has expedited growth in EMS. Within the next five years penetration of telephone users (both landline and mobile) is projected to increase from 100 to 500 per thousand while for PC's it will increase from 10 to 30 plus per thousand. As market penetration levels are low for all electronics products in India, this growth is expected to continue for the next 10 years and beyond.

The challenges and pitfalls faced by the industry are still largely related to the business environment, infrastructure, and policies. These challenges have been long overcome by competing nations of much smaller size, such as Taiwan, Thailand, Malaysia, and, of course, our large neighbor, China. They are extremely competitive and have the benefit of an extremely efficient eco-system.

India needs to create a similar eco-system with low indirect taxes, incentives for investments and R&D, and focus on high value added activities such manufacture of components, parts and materials that are the building blocks of a successful industry. A large share of the growth taking place currently is limited to assembly and low value added activities. There is an acute shortage of locally manufactured electronics components, which can become a serious handicap in the years to come. Much greater support and active participation of the government is required, especially as a facilitator for entrepreneurs. Emerging concerns in areas such as environmental management, electromagnetic compatibility and interference, test and R&D facilities need to be addressed and infrastructure created to support growth of industry. India is lacking severely in these aspects, and we are unable to meet international standards for export competitiveness.

The focus has to be on realizing the significance of electronics, not only because it could become a heavy drain on our foreign exchange resources, but also because it is an essential facilitator for all other sectors, a source of employment and revenue, and vital for our country for maintaining our technological edge and safeguarding future strategic concerns.

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