BENGALURU, India — Growing affluence is causing demand for electronic products in the Indian market. Strikingly, however, few Indian manufacturers are poised to be strong players in any of the product segments.
Relatively big-ticket investments have been announced in domestic manufacturing by foreign electronics companies, including Nokia, Foxconn, Samsung and Sanmina SCI, but these only serve to show how little Indian companies are investing in electronics manufacturing.
The consortium of transnational electronics manufacturing firms, the Electronics Manufacturing Services (EMS) Alliance, said it expects its members' revenues from India to rise from the current $773 million to $2 billion in two years. EMS said it is planning a major manufacturing base in India to cater to the domestic electronics market.
South Korean companies, such as LG and Samsung, entered the consumer electronics market in India some years ago, and they now hold leading market shares in most product segments. In many cases, Indian brands have disappeared altogether.
With few Indian companies interested in making a name for themselves in electronics, these South Korean companies, along with other international brands dominate the Indian electronics scene. Mirc Electronics is the only significant Indian company that is competing with the foreign brands. The western-India based company's Onida brand still holds a decent market share in most consumer electronics segments.
The EMS Alliance puts the size of India's electronics industry currently at $25 billion and believes it will grow to $70 billion in the next two years.
The Indian government, too, is aware of the country's potential for electronics manufacturing, not only to meet the growing demand of its own population, but also to gain a share of the converging global markets of information, communication and entertainment.
"India has the potential to develop and manufacture electronics hardware; however, the growth of the electronics [and] information technology hardware industry has not been consistent with the market potential," the government admitted in a recent white paper analysis of the industry.
These obstacles may have been overcome to some extent by the semiconductor and electronics manufacturing policy incentives announced earlier this year. Yet these changes benefit only new units and investments over $250 million.
Dell chairman Michael Dell, who visited India earlier this year, said Dell has more than 80 suppliers that may consider investing in local manufacturing here. But, he said, this will happen only if the Indian government rationalizes its duty structure to favor manufacturing. In India, he said, taxes make up nearly 25 percent of a computer's price.
"India is losing investments due to its tariff structure," Dell said during his visit.
The huge potential demand for electronics here is undermined by the clear disincentive to manufacture here. "While there has been rapid growth in the industry, there are some worrisome issues. These include huge delays, costs and paperwork involved in clearing entry tax," said Ashutosh Vaidya, vice president of Wipro's Computing Systems Group.
Wipro is increasing manufacturing capacity at its computer manufacturing plants, but the company is discouraged by the current roadblocks. The paperwork and delays are "big dampeners in the smooth flow of business and add inefficiencies and delays in the whole supply chain," Vaidya said.
There may be hope, though, now that the government has identified electronics manufacturing as a key thrust area. A group has been formed as part of a special task force under India's Planning Commission to make recommendations. The group is in the process of drawing up its suggestions for the task force.
According to the government, consumer electronics production during 2006-2007 was nearly $5 billion, a growth rate of about $500 million over the previous year, with consumer electronics accounting for 35 percent of the total electronics hardware production.
