Manufacturing India Spreading Its Wings

Comment

Digg

Del.icio.us

India is slowly realizing the benefits of manufacturing and its role in creation of national wealth. Manufacturing as an engine for economic growth was totally neglected as we had shown only a marginal improvement from 15.8% of GDP in 1991 to 17% of GDP in 2003, whereas some of the East Asian economies have witnessed the manufacturing sector contribute around 25-30% of their GDP. If the Indian economy has to grow at 8-9% per annum on an average, the manufacturing growth rate must be in the range of 12-14%, as against the growth rate of 7% achieved during 1995-2004. With 12% growth rate, the share of manufacturing in GDP is expected to reach only 23% by 2015, which is well below that of Malaysia, Thailand, and China.

Things are moving as per plan on the manufacturing front. According to BRIC report by Goldman Sachs, India has the potential to grow faster than Brazil, Russia and China over the next 30 to 50 years. Though growth in G6 nations, Brazil, and China is expected to remain significantly slow over the next 50 years, India's growth rate is expected to remain above 5% throughout the period.

The Opportunity
According to VOICE&DATA, the Indian communications (equipment) market for FY 2004-05 was Rs 39,819 crore and is growing at a rate of 43%, whereas Indian communications (services) market is estimated at Rs 68,069 crore and is growing at around 16%. Things look rosy even in FY 2005-06 and beyond.

On the wireless front, there is a lot of action taking place and the growth is even larger. The wireless infrastructure market in FY 2004-05 is estimated at around Rs 11,277 crore and is growing at a rate of 68%: the GSM handset market is growing at 76% and is pegged at Rs 7,384 crore whereas the mobile services market is growing at 60%. On the subscriber addition front, the country is adding around 5 mn lines every month. It is expected that in 2010, India will become the second biggest mobile device market in volume terms. All this is giving a lot of confidence to vendors as well as EMS providers who have planned or are planning manufacturing in the country.

Talking about the future, P Balaji, president, TEMA India said “In 2007, India plans to have 250 mn telephones, 9 mn broadband connections, and 18 mn Internet connections. In 2010, the target is to achieve 500 mn telephones, 40 mn Internet users and 20 mn broadband users; and in 2015 it is 800 mn telephones.”

Telecom Equipment Scenario in India
Year	Local Production (Rs in Cr)	Exports (Rs in Cr)	Imports (Rs in Cr)
FY 2001-02	15,437	150	1,672
FY 2002-03	14,400	402	7,694
FY 2003-04	14,000	250	20,000
FY 2004-05	16,090*	400	20,560
*Includes Rs 2,800 crore for turnkey services Source: TEMA

FY 2006-07 has started with a big bang. The mega tender from BSNL for 45.5 mn lines is already out and is to be completed in three phases-17.5 mn, 14 mn, and 14 mn. It is mandatory for companies participating in this tender to get core equipment manufactured through established or proposed contract manufacturer in the country and the vendor has to achieve a minimum of at least 30% value addition on indigenously manufactured core equipment. Therefore, in total, BSNL is planning for around 63.5 mn lines. Even MTNL has floated a tender for 2 mn lines, where the terms and conditions are the same. In total, MTNL is planning for 4 mn lines. Even Bharti has recently gone for a RFP of 61 mn lines. Expansions are also on the card for Reliance, Tata, Hutch, and others. These opportunities will help boost manufacturing operations in the country.

This is not the end. If one looks at the export market in terms of growth in neighboring countries, India's manufacturing looks very attractive. All this, coupled with IT and entertainment, is making the market equally attractive for EMS players who are also planning to extend their wings for IT as well as for the entertainment market.

It seems India is attractive for those who see it as a global destination for manufacturing, than who want to manufacture only for India, says Ravi Sharma, MD and president-South Asia, Alcatel.

'The initial plant capacity is 1 million mobile phones per year...'
-HC Ryu, MD, Samsung Telecommunications India

What are Samsung's manufacturing plans?
Samsung Telecommunications India, a 100% subsidiary of Samsung Electronics Korea, has already started commercial production of its mid-range GSM handsets, SGH X-200 at its Manesar plant in Gurgaon. This plant boasts of highly advanced production facilities and technologies, along with an excellent workforce. The initial investment for the plant in the current financial year is $15 mn.

In terms of manpower deployment, what's the plan for the Gurgaon plant?
At present, STI has a total manpower of 200 people.

What's the capacity of the plant? Will it cater to export or only the India market? If export, which countries will be served from India?
The initial plant capacity is 1 mn mobile phones per year and that will be expanded steadily over time. With domestic market, this unit will also act as the export base for the Middle East and other Asian countries.

Is there any plan for co-locating component suppliers within the premises? If not, what's the strategy planned for component outsourcing?
There is no plan to co-locate component suppliers within the premises. We are outsourcing the components from international vendors but will try to source more and more components from the local vendors.

How are you going to benefit from Samsung's software development center based in Bangalore?
All our R&D and product localization is done at Samsung Electronics India Software (SISO) at Bangalore. This center helps us customize our products as per the local demand.

What are the problems related to manufacturing which still need to be resolved?
Poor infrastructure and stringent labor laws are some of the areas that need to be looked into.

When do you see India moving up the value chain from a pure manufacturing country to a manufacturing hub?
India has already started to move up the value chain, and is fast becoming a favorite manufacturing hub for major telecom giants. We are using our Manesar unit, as the manufacturing hub for Asian and Middle East countries.

'Chennai will initially cater to handsets, digital products and telecom infrastructure'
-Gururaj A, general manager and director, India operations,
Flextronics Technologies (India)

How do you compare India and China with respect to manufacturing?
From Flextronics' perspective, both India and China are equally important to the company's growth plans. We have, however, been able to make more rapid strides in China as we entered China much earlier, but are now stepping up our investments in India as well. India will not just be a major manufacturing hub for us, but is also hosting our Global Shared Services Centre (GSSC). Flextronics GSSC centralizes the administrative activities into one nerve center and allows our sites to prune costs and streamline operations.

What's the manufacturing set up that Flextronics presently has in the country? What's the plan for manufacturing wireless infrastructure equipment and handset?
Flextronics has two manufacturing plants in India located in Bangalore and Pondicherry. A third facility, the Flextronics Industrial Park, is coming up in Sriperumbudur near Chennai and will be operational in the third quarter of 2006. The facility at Chennai will initially cater to mobile handsets, consumer digital products and telecom infrastructure equipment like base stations.

How is the India plant different from other plants located worldwide in terms of size and production capacity? Are there any plans for a co-location facility also in Chennai?
The industrial park coming up in Chennai is modeled on the industrial parks we have elsewhere in the world. These campuses provide total supply chain management by co-locating our manufacturing and logistics operations with our suppliers at a single low-cost location.

What's the number of people planned to be deployed for manufacturing operations in the country?
We currently have around 680 employees in manufacturing alone, in India, and this number is expected to go up to 1,500 by the end of 2006.

What's the capacity of the plant. Will it cater to export or only the India market?
It is positioned to serve both the domestic and global markets, depending on customer demands.

Are there any plans for co-locating component suppliers within the Flextronics park premises?
Yes, as explained, the concept of an Industrial Park works on the principle of co-location of suppliers and other strategic partners like logistics providers, etc. We have seen a lot of interest from both global and local suppliers in setting up their facilities at our Industrial Park.

When do you see India moving up the value chain from being a pure manufacturing country to being a manufacturing hub in Asia?
The very fact that several multinational players, Flextronics included, have decided to set up their manufacturing facilities in India is validation of the fact that India is well on its way to becoming a major manufacturing destination.