IT.Biz 2011 -India: A hub for global electronics manufacturing? A ...

IT.Biz 2011-India: A hub for global electronicsmanufacturing?A. GururajOctober 2011© QUAD

Agenda1. Emerging Trends in EMS: Global & Indian Scenario2. India Competitiveness3. Vittal Innovation City/Quad Electronics

1EmergingTrends in EMS: Global &Indian Scenario© QUAD

Emergence of a New Era in Indian EMS• With the launch of the “Aakash”, the world’s cheapest tablet PC, made in India, a new erahas emerged for the Indian Electronics Manufacturing Services (EMS) and in general theIndian electronics hardware industry.• Manufactured at QUAD Electronic Solutions Pvt., Ltd. an Indian EMS company located inHyderabad, the launch of the “Aakash” signals start of a phase of possibilities of highvolume electronics manufacturing for Indian markets for products for products other thanmobile phones.• The National Mission on Education with a budget of Rs 4612 crores looks to reach out tohigher education and faculty population of around 22 million, thus creating large volumedevice manufacturing requirements in India.• The efforts of QUAD Electronics and the designers of the product are an example of theIndia’s capability to cater to cutting edge technology at prices globally competitive.© QUAD

The global market for electronics is growing at a rapidpace….• The 13th WEF in Tel Aviv reported the global electronics industry at US$ 1.7Trillion – the largest and fastest growing manufacturing industry.• There was a moderately healthy EMS & ODM growth with a CAGR of11.9% in EMS and 11.4% in ODM.• Production capacity is concentrated in Asia with a 55% share. Remainingcapacity is spread across Americas (25%) and Europe (20%). Asia’s shareexpected to rise further to 69% shrinking the share of the Americas to 17%and Europe to 14%.• ODM production concentrating at 96% in Asia, 2% in Americas and 2% inEurope, with stabilization expected at 90% Asia , 5% Americas & 5%Europe.© QUAD

The Indian electronics demand is growing even quicker,intensifying demand for local manufacturing….• Current Indian electronics market is valued at US$ 40Billion. The market is growing at ~ 25%and would exceed US$ 400 Billion by 2020.• The present domestics production is ~$20 Billion - about 50% of the domestic demand!• Domestic companies can expand the production to USD 85 Billion by 2014 and USD 320 billionby 2020. This would constitute a very significant contribution to the GDP, at 20% for 2020, atpar with other economies.5002500Projected demand-supply gap in electronics industry (USD billion)400320125854510426 42FY09 FY14 FY20Total demand Domestic production (target) Domestic production (at current CAGR)Production level electronicsindustry may reach with favorablepolicy environmentGap between current andexpected domestic production,offering significant opportunitiesfor improvementProduction level electronicsindustry will reach with currentpolicy environmentIndia’s import bill for electronics is projected to be bigger than it’s import bill for oil.© QUAD

…The Indian Market for Electronics will witness adramatic growth fueled by consumptionDrivers for Growth in IndianElectronics Consumption.• Rise in disposable incomeleading to growth indemand for consumerelectronics• Increasing Telecompenetration including voiceand broadband, coupledwith next-generationlaunches like 3G/4G.Consumption Billion $ 2005 2015GlobalsCream of countryMiddle ClassSuccessful workingclassAspirersService, SmallFarmers24 8262 280170 244Figure: Projected increase in consumption of Indian populationIndian Defense Electronics MarketIn $ Million• Increasing Governmentspend on broadbandinfrastructure and defenceFigure: Projected market for Defense electronics in IndiaThe Indian Government has initiated major projects such as the National Broadband Plan, National KnowledgeNetwork, National e-Governance plan, Smart Grid and the Student Laptop project with a projected totalelectronics spend of $35 Billion

Indian Electronic Ind. – Sector wise RevenueDecember, 2010 | © QUAD

Business Opportunities- Telecom• Mobile Handsets• Market Scenario• Handset Sales in 2009 --- Global – 1.12 billion ; India – 130 million units• India market growing at 15% p.a.• Total handset demand in India/SE Asia/Africa – 330 Mn units by 2014• Market size – Rs.85000 crores.• Opportunities in handsets• Branded players constitute 65% of the market• Emergence of mid-tier players viz., Micromax, Lava, Karbonn etc.• 600% increase in phones shipped by mid-tier players in India within a period of oneyear• Success of ODM device strategy – example: MicromaxDecember, 2010 | © QUAD

Opportunities for InvestmentsIndustry SegmentsThe various segments of the electronics industry need to be given an impetus. Each segment of the electronicsecosystem varies in the extent of value addition it requires, its contribution to the economy and its future growthpotential. These factors have been elaborated on in the matrix below:December, 2010 | © QUAD

2IndiaCompetitiveness© QUAD

According to Deloitte, India is the second most competitivemanufacturing location worldwideKey reasons for India’s competitiveness are:1) Labour cost2) Skilled labour3) English speaking engineers• In the study, the top drivers for competitiveness score were talent driven innovation, labor and rawmaterial costs and energy costs and policies, in that order.• Ascent of India underlines the importance of R&D strength coupled with engineering, software andtechnology integration abilities.• India is now viewed as a place to design, develop and manufacture products for local as well asglobal markets.• Indian is ranks favorably on IP protection & copyright environment versus other countries in thestudy.Source: Deloitte© QUAD

Cost Savings in India Sourcing: Commodities wiseCommodity %Packing & manual 10Hardware fasteners & others 7Aluminium Die Cast 6Machined Parts 5Aluminium Heat Sinks 3Hard Tools Stamped Parts 3Accessories, cables & chargers 3© QUAD

India compares favorably in terms of wages and availabilityof labour•India is cheaper than China in terms of manufacturing wages per hourManufacturing Wages (USD per hour)Availability of skilled labour (1=Low,10=High)Availability of qualified engineers (1=Low,10=High)USA20.3India8.9Japan19.0Singapore7.9Korea8.4USA7.3Singapore7.8Mexico6.4Taiwan6.1Taiwan6.6Mexico2.3Korea5.7China0.8Mexico5.3India0.4China3.9Source: KPMG & IMD Competitiveness YearbookLabour arbitrage is important interms of the feasibility of theelectronic components industryElectronics manufacturers in India statethat the knowledge of English in thisresource pool expedites the pace andquality of technology transferIndian produces 400,000 Engineers in ayear as Engineering and Medicine arehighly sought after degress in the Indianpsyche.

There are, however, impediments to efficient manufacturingin India such as Infrastructure, Procedural delay & Labor laws.Cost of power to industrial consumersSource: IMD Competitiveness Yearbook 2003Bottlenecks to Trade, India vs China§ Infrastructure- China invests 2.5 percent of its GDP on roads asagainst 0.3 percent in India- Power to industrial consumers is twice asexpensive in India as against China- Due to frequent outages, most units need togenerate their own captive power§ Procedural delays- Delays at port and poor infrastructure from portsin terms of roads, rail etcProcessing time atcustoms forimportsTime at customsfor exportsLoading/unloadingat port0.60.6210.010.010.0§ Labour regulations- World Economic Forum (WEF) ranks India as 96thamong 102 countries in terms of hire and firepolicies; China ranks 26th- China has pursued labour reform includingcontract labour, and hire & fire policies since itinitiated its liberalization process© QUADSource: CII and McKinsey

The government has acted on some of the factorsThe Indian Government has set up Export processing zones-EHTP & SEZs. EHTPs to make it easier formanufacturers to export goods from their current facilities while SEZs to develop export orientedmanufacturing clustersSEZ/EHTP Advantages• Infrastructure• Dedicated infrastructure for roads, uninterrupted power, water and communications.• Public & Private partnership model• Incentives to private developers to stimulate investments in infrastructure• Procedures• Single window & faster clearances for Central and State approvals.• Labor Regulations• Proposed Manufacturing policy advocates relaxed labor laws while placing the responsibility ofpreventing labor exploitation on SEZ Authority, instead of individual units.• Fiscal Incentives• No customs/import duties and local duties for inputs• No excise, export duties, income tax or sales tax on final product• Bank finance on priority basis and at concessional rate of interest© QUAD

In Conclusion: Outlook for Indian Electronics Manufacturing•Clear trends:•Exponential increase in local and global demand•Shift of mass manufacturing base to Asia•Government’s realization of electronics manufacturing’s importance•Shrinking time-to-market timelines•Global OEMs de-risking China•The Indian Companies who would do well will have:•Right combination of Indian and global customers•Strong sourcing network throughout Asia•Prototyping and High Mix-Low volume presence near global OEMs forshorter time to market•Mass manufacturing bases in India for local sales and exports from SEZs•End-to-end design, prototyping, sourcing, manufacturing and logisticscapabilities.© QUAD

Questions & Answers© QUAD