Things are moving fast for Indian telecom thanks to the mobile revolution in
the country. Cellular has outstripped fixed services in terms of growth (both
value as well as volume) and will outstrip fixed line base by the end of 2004.
In terms of additions, the country has added around 19.75 million cellular lines
and only 2.12 million fixed lines in FY 2004, i.e., nine mobiles per fixed line
connection. The above numbers are not going to come down, but will only move up.
Newer opportunities in the mobile space will emerge with service providers (all
integrated ones plus Hutch) readying aggressive plans.
First phase of the mobile revolution started in India with the commercial
launch of mobile service in Kolkata on 31 July 1995. And after nine years, India
will witness the second phase when mobile manufacturing starts in the country.
Elcoteq, Europe's leading electronics manufacturing services (EMS) provider
and global number two in mobile phones, will set up India's first mobile
manufacturing base in Bangalore. And this will open up new opportunities for EMS
providers in the country, which were untouched for a very long time.
The India Timing
Elcoteq, like any EMS provider, has been actively watching the Indian mobile
market for a long time. Even for Nokia, the worldwide market leader in mobile
space, the focus is on BRIC countries (Brazil, Russia, India, and China) as it
feels that future mobile growth will be driven by these economies. For Elcoteq-Nokia
and Ericsson are two key clients as they contribute around 70 percent of its
revenues and so the company has aligned its strategy accordingly and is the
first EMS company offering manufacturing services to infrastructure and handset
OEMs in India.
The company started looking at the Indian market seriously only during the
last 18 months. The Indian market had been showing signs of good growth, but it
had more than its fair share of concerns-the legal battle between cellular and
fixed service providers. But with the coming of unified access service, Elcoteq
was convinced that growth was unquestionable. On the other hand, India's
economy was also growing at a good pace, and a large Indian population, still
without any communication devices, gave Elcoteq further confidence that it is
worthwhile to spend in India.
The company did a feasibility study and a business case was presented to the
board. Seeing the enthusiasm in India, the board gave its approval for setting
up manufacturing operations in the country. Elcoteq's announcement coinciding
with the formation of a new government at the center was purely coincidental,
says Henry Gilchrist, director (business development and marketing), Elcoteq
Asia.
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The company has already announced that it will expand its operations in
Bangalore during 2004, and in doing so, it will become the first EMS company to
offer manufacturing services to infrastructure and handset OEMs in India. This
will help in encouraging hardware manufacturing in the country, a good sign for
India's equipment industry, which has been undergoing a bad patch for a long
time.
Manufacturing Base
Elcoteq's Bangalore manufacturing operations will replicate its China's
manufacturing operations. Even the manufacturing base is comparable to that of
China. The unit will be a big one and its expansion will depend on how quickly
the company is able to rope in customers, says Gilchrist, who is overseeing the
India operations.
The company has already shortlisted locations for its manufacturing
operations and will finalize it at the earliest. The company is initially
looking at 25,000 to 50,000 square feet of space and is looking at an investment
to the tune of a few tens of million euros, depending upon the customer
requirement, says Gilchrist. Investment will also depend on the number of
assembly lines that the company opts for in the future.
In terms of the number of people, Elcoteq plans to recruit around 1,000
people in the next 2—3 years. All this will be driven by the customers'
requirements. Out of the 1,000 people, 15 percent will be graduates (electrical
and mechanical) and 85 percent will be operators and technicians. Elcoteq will
recruit employees for design, production, SMT, and quality.
As per the plans, Gilchrist will implement the manufacturing setup within 6—9
months. So, in all probability, it is expected to be ready by the end of this
year or the first quarter of next year. The nature and degree of manufacturing
will depend upon the agreement that Elcoteq sign up with its customers.
Product Portfolio
In India, Elcoteq plans to focus both on terminal products and network
equipment. On the terminal front, the company is looking at both GSM and CDMA
product offerings. The terminal products include high-volume wireless
communications products. These include mobile phone and accessories, smart
phones, PDAs and accessories, wireless modules, and home communication products.
For terminals, Elcoteq provides services covering the entire value chain from
design, new product introduction (NPI), and manufacturing. Design services
include complete and partial product design, software design, and product
verification services.Â
On the network equipment front, the company manufactures cellular networks,
WLANs (Wi-Fi), and broadband networks. It covers base station and base-station
controller modules, plug-in units for mobile base stations, tower-top
amplifiers, base station antennas and broadband access multiplexers, routers,
and optical devices. In these cases, the company provides NPI and manufacturing
services.
In both the product categories, the company has been providing design as a
part of the value proposition.
The company also offers reference design or design modifications for mobile
phones. Also on offer are base platforms and modifications of the base platform
chips. Sufficient skill sets and competencies to develop and utilize indigenous
design services are available in Bangalore, where the company plans to set up
its manufacturing base.
"In Asia Pacific, we design these competencies and so we are planning to
develop these competencies" says Gilchrist," and added, "It is
not possible in day one, but we are trying to develop that expertise in
India."
The Clients
Elcoteq is in talks with all existing and potential customers for manufacturing
of terminals products and network equipment from its Bangalore base. Chinese
brands have also shown interest for the terminals as well as equipment.
"The response has been significant for localizing supply of products, be it
handset manufacturing or partial handset manufacturing," says Gilchrist.
The company is planning to localize our global customer and globalize our local
customer, he added.
On the terminal front, Elcoteq's key customers are Motorola, Nokia,
Philips, Sony Ericsson, and Sumitomo. Whereas, on the equipment front, its
customers include Andrew, Ericsson, Huawei, Kathrein, Marconi, Nokia, Siemens,
and Tellabs. Presently, the company is not divulging its key customers and will
announce them once the manufacturing process starts.
Many Challenges
Being the first mover, Elcoteq will face lots of challenges, like conversion
from SKD or semi knocked downs to CKD or completely knocked downs, supply-chain
management, and localization. The company has to replicate its Chinese-style of
manufacturing operations for its India operations too. Most of the products for
its China unit are sourced locally. But the challenge will be the speed with
which it can start sourcing a majority of the products from the Indian market.
First, it needs to convince local component manufacturers for manufacturing of
components and second, it should be able to convince multinationals to set up
shop in India. Since fab units are not currently available in India, silicon
could be sourced from Asia Pacific.
On the supply chain part, the company can get some support in Bangalore, from
companies like Molex and MyPro. But the company needs to sign more such
agreements. Sourcing products locally is good for everybody-both OEMs and
suppliers. OEMs also have to play a role and make a strong commitment to local
manufacturing in India, as it will benefit them in terms of freight and
logistics costs.
Initially, Elcoteq plans to go for an SKD model. It will later move to a CKD
model subject to customer requirements.