Manufacturing? Yes and No

Comment

Digg

Del.icio.us

The difference between India and China? While the Chinese telecom boom is being fed by domestically-manufactured products, in India, most of the telecom equipment is being imported. While in China telecom biggies such as Lucent, Ericsson, Motorola, Siemens, Alcatel, Nokia have invested billion of dollars to set up manufacturing plants, they are not even thinking about that in India.

Apart from the host of oft-cited reasons, including duty anomalies between finished products and components, and irrational tax structuring, there are much stronger reasons why Indian telecom manufacturing has failed. First, treating incumbent operators as captive markets led to local manufacturers completely ignoring R&D and value addition. Second, the Indian manufacturers forgot to even think about the growing telecom boom in emerging economies, where market conditions were very similar to India.

It will be sad if India, which has a huge growing and diverse domestic market is not able to get a part of the international telecom equipment business, which is estimated to touch $1.5 trillion this year. Asia-Pacific alone will be $112 billion. A lot of recommendations and suggestions have come from various quarters, but somehow the beginning is yet to be made. And time is not on India’s side.

Should, therefore, India keep trying again and again to somehow get some sort of a manufacturing act together? Yes and no. Yes it must and it can play its role in telecom manufacturing. But not in the sense of traditional manufacturing with factories and shop floors.

As telecom applications mature, as convergence begins to happen, and as competition builds up, one sweeping change that has come about in telecom equipment is the increasing role of software. Today, telecom equipment is more about software and IP capabilities than it is about hardware and manufacturing capabilities. The hardware of telecom equipment is low end, but the software is high end. According to experts, in terms of value, software now forms as much as 70 percent in equipment like switches.

So what is manufacturing? I think it is software. And those who manufacture telecom equipment—Lucent, Ericsson, Motorola, Siemens, Alcatel, Nokia—also think that it is software.

Ibrahim Ahmed