Global power products major ABB has some products that are only made in India

It has been less than 10 months since Finnish telecoms equipment giant Nokia started manufacturing at its Chennai facility, but it is already talking of doubling headcount to 7,400. Know why? For a facility that churned out more than a million handsets in its first two months alone, the $150-million factory just can't roll out mobile phones fast enough. After all, India is expected to be the world's second largest market (by volume) for mobile phones by 2010. Nokia isn't the only hardware manufacturer thrilled to be in the country. A variety of electronics manufacturing services (EMS, or contract hardware manufacturers) companies, including Flextronics, Solectron, Elcoteq and Jabil have either already set up operations in India and are expanding, or on the verge of opening shop. In fact, Jabil, a us-based hardware manufacturer, will be starting its fifth manufacturing services centre in India by 2007. "We believe India will become an increasingly important location to support hardware development and manufacturing for export to the global market," Jabil's President & CEO, Timothy Main, had said while announcing the acquisition of home-grown EMS firm Celetronix International in January 2006.

Point: For both exports and domestic opportunities, India is turning out to be a major electronics destination. The market for air-conditioners is growing at more than 20 per cent, colour televisions and microwave ovens are clipping at 10-15 per cent, and a whole new market is opening up for products like LCD/plasma TVs and set-top boxes. "While growth will continue to come from it, telecom, consumer electronics and automotive industry, demand will also come from the boom in the $10-billion (Rs 46,000-crore) market for set-top boxes and interactive TV in India," says Vinod Sharma, President, Elcina, one of the 25 industry associations.

That's a quick and surprising turnaround of an industry that not too long ago wasn't expected to have a chance against countries such as Taiwan and China. Duties on imported electronics items were rapidly falling and today most of them attract zero duty. So what changed? Two things: The boom in domestic market, and the falling into place of software-led electronics ecosystem. The industry is still import-dependent, though. Of the $25-billion (Rs 1,15,000-crore) annual demand for electronics, the local industry is able to cater to less than half of it. Exports are a modest $1.6 billion (Rs 7,360 crore). But some companies are hopeful of cracking even tough markets like China. Delhi-based Continental Device India (CDIL), which makes diffused silicon wafers, among others, supplies to more than 10 companies in China. Some of its customers are also its competitors, but since CDIL is a minnow compared to them, the buyers don't feel threatened by it. "If you can't beat them, join them," quips Pankaj Gulati, Executive VP & COO, CDIL. The company, for instance, makes it a point to introduce two new products every six months, while phasing out some of the older ones.

In another part of Delhi, picture tube manufacturer Samtel's Satish Kaura is following a different route to the global markets. "Tear down and redesign is the new formula for all players in the industry," says Kaura. That means, tear down the cost and improve the manufacturing cost by increasing production without increasing the overhead. "Also, design and development of new products is an integral part of the process now and no company can afford to stagnate at this level," he adds. Other players like Moserbaer have learnt the art of making seemingly innocuous improvements to manufacturing processes to stay competitive in the commodity business of optical media storage. "Technical superiority, cost competitiveness and product innovation are some of the basic requisites for survival of any company in this industry," says Ratul Puri, Executive Director, Moserbaer.

Players like Moserbaer have learnt the art of fine tuning their processes continuously to stay competitive in global markets

A surging economy and low-cost manufacturing have been a boon for the electrical industry as well. "The industry has been upgrading technology and is capable of manufacturing any item and can even undertake complex projects on a turnkey basis for exports also," says Sunil More, Secretary General of IEEMA, another of the industry associations. Global manufacturers like Siemens and ABB don't disagree. The former manufactures a variety of products such as switchgear items, electric motors and generators, switchboards, control boards, control systems, and protection systems in India, while ABB actually has products that are only made in India. For example, the 72.5 kV outdoor circuit breakers and 11kV to 40.5 kV medium voltage outdoor circuit breakers and magnetic actuators. Interestingly enough, ABB doesn't describe India as a low-cost country, but as a high-productivity centre and is currently investing $100 million in capacity expansion. Says ABB's India boss, Ravi Uppal: "Anyone who sees India only as a low-cost country is missing the bigger picture. India's overall competitive edge comes from a composite value proposition in terms of manufacturing advantages, productivity and a high degree of engineering skills." Adds Juergen Schubert, Managing Director, Siemens India: "The competitive position of Indian manufacturing industry is driving exports and India is slowly becoming the preferred destination for sourcing of industrial goods and components."

An inverted duty structure (where inputs attract higher duties than finished goods) is something the electronics industry in particular worries about. Yet, the potential for growth is phenomenal. According to one estimate (McKinsey), there's potential to "capture" $15-18 billion (Rs 69,000-82,800 crore) worth of electrical and electronics export by 2015.