In the last three years, the telecom boom in India has infused fresh blood into electronic manufacturing services (EMS). But if we look at 2007-08 in perspective, EMS did not witness any major investment. Rather, the existing players focused on improving their manufacturing efficiencies and ramping up peak production volumes. While some analysts predict that India must sustain its momentum by further liberalizing the duty structures to retain its competitive edge, the biggest advantage that India's telecom equipment manufacturers are tapping is the talented labor pool and better infrastructure as compared to other developing Asian geographies.

Vast Potential
As we look at the telecom manufacturing landscape, Nokia's success story is often seen as proof of how things work in this part of the world. But Nokia turned out to be a roaring success by virtue of its ecosystem, whereby it was able to create an integrated manufacturing expertise in India. As per a recent report by Goldman Sachs, the Indian economy will grow at about 8% until 2020, becoming the second largest economy in the world by 2050, next only to China. Similarly, a recent report by Gartner says that electronic equipment production in India is bound to reach $32 bn by 2011 compared to $14 bn in 2006, signifying a CAGR of 18%.

Gartner also says that semiconductor consumption in India will more than double from $2.8 bn as in 2006 to $7.2 bn by 2011. The growing domestic demand for electronics equipment coupled with other favorable factors like low labor costs, large talent pool, and various policy moves by the Indian government like fiscal incentives for local hi-tech manufacturing are making India an attractive electronics manufacturing investment destination.

According to industry sources, in the last two and half years alone, India has seen commitments of over $17 bn investments in the IT and telecom sector. In telecom manufacturing alone there has been a commitment of more than $1.5 bn. As per estimates by the Communication and IT Ministry, India can expect fresh commitments of about $2 bn in the next year. This is a serious affirmation of India's manufacturing prowess.

According to sources in TEMA, with India achieving the highest telecom growth in the world, and becoming the third largest telecom market, it has generated tremendous interest in the large number of players in the telecom manufacturing space. India now offers a big market with an industry friendly environment. And will soon become a hub for manufacturing. Also, DoT and DIT are working hard to announce various policies.

Success Stories
Elcoteq is one of the big-ticket telecom investments that has come the Indian way. The company launched its Indian manufacturing operation way back in 2005, being one of the four volume manufacturing plants in the Asia Pacific region. Elcoteq's manufacturing operations are centered on segments like wireless communications network equipments, communication terminal products, and after sales services. The company's plant in Bangalore is equipped with the latest in manufacturing technologies like surface mount technology (SMT) and testing, and employs more than 1,000 employees.

According to Carsten Barth, director, corporate strategy and global marketing, Elcoteq, “We value our operation in Bangalore. India is an important market for communication technologies. The available labor is skilled and well educated, so that we can manufacture with highly motivated staff and deliver high quality products and services. We are confident of success in India and are well positioned with upcoming technologies like WiMax.”

US headquartered Laird Technologies, a global leader in the design and manufacture of customized, performance-critical products for wireless and other advanced electronics applications, has set up its first offshore manufacturing facility in India. Laird Technologies, a unit of the UK-based Laird Group, employs over 14,000 employees across 40 facilities located in 14 countries. The 160,000 sq ft manufacturing facility is located in Nokia's SEZ in Sriperumbudur near Chennai. Set up at an investment of over $15 mn, Laird Technologies will employ over 1,200 people at its Chennai facility, when fully operational.

The manufacturing facility will initially produce antennas, battery packs, and EMI shielding products for cellular handset applications for Indian customers. The company also expects to export the products, manufactured at the Chennai facility to overseas markets. Laird Technologies already supplies products to large Indian enterprises in the mobile phone, telecom infrastructure equipment, computer hardware, and automotive electronics sectors, from manufacturing facilities outside India.

According to Sri Talpallikar, managing director, Laird Technologies, India, “Availability of skilled workforce, support from the local government, the presence of good logistics, excellent infrastructure facilities, lower costs, and our close to the customer strategy were reasons for choosing Chennai as our first offshore location in India.” Laird's new facility will support its Indian customers with new products as the company is poised to aggressively expand its customer base in India over the next 12 to 18 months.

Players like Ericsson have also committed investments in India. Says Mats Granryd, MD, Ericsson, India; “We believe that there will be tremendous growth in the next four to five years in India, with the expected addition of over 8 mn subscribers every month. This makes for a good platform for companies to set up large capacities, and over time, an entire ecosystem of chip and component makers, equipment manufacturers, and handset makers to come up. We are happy that the government has announced a special forum to push exports as well.  We are sure that over time it will help develop India as a manufacturing hub.”

What is driving mobile handset vendors to set base in India is the soaring domestic demand. Instead of importing devices from elsewhere, setting a base in a booming market makes more sense. If we sample some consumer statistics since the mid 1990s, the average per annum growth of mobile phone users is in excess of 85%. With this boom in the backdrop, no wonder players like LG have announced an investment of Rs 500 crore, in a phase of five years, on manufacturing. According to Anil Arora, business group head, GSM at LG Electronics, India, “the GSM potential in India is huge and LG is well poised to address the soaring demand.” The company had set up its manufacturing arm in 2005 in Pune with ambitious expansion plans.

Motorola officially inaugurated its manufacturing facility in India near Chennai recently. With an initial investment of Rs 172.4 crore, the Motorola owned and operated facility supports an integrated telecom products portfolio. This includes GSM and CDMA mobile devices and networking equipment such as base stations and system controllers. The facility, spread over 270,000 sq ft, has a capacity of producing over 12 mn mobile phones and 6,500 base terminal stations each year. “The telecom market in India is expanding at a rapid pace and this facility will help us provide customers with compelling products, competitively priced with local content, timely delivery, and improved availability,” says Sammy Sana, country president, Motorola India.

MRO-TEK has invested Rs 12 crore in R&D. The company has developed new products addressing the perennial issue of last mile broadband connectivity. These products operate under future proof fiber optics technology that provide huge bandwidth in the last mile and deliver triple play services

Outlook
At the end what is clear is that India has emerged as one of the destinations for telecom manufacturing. But to attract more investments the government must further liberalize, paving the way for more players to enter into the country. What the industry expects from the government at this point are tax friendly polices, and easier access to power, water, and better sewage systems. Notwithstanding the expectations, the players in the fray have committed huge investments and this itself will act as a driver for further growth in telecom manufacturing in the country.

Shrikanth G
shrikanthg@cybermedia.co.in