CMB
No. 61
Production Indian electronics hardware production increased from ` 50,500 crore in 2004-05 to ` 97,260 crore in 2008-09, with a cumulative annual growth rate of 17.3%. The production of electronics hardware in the country is estimated to have grown from ` 97,260 crore in 2008-09 to ` 109,940 crore in 2009-10, a growth of 13%. The slower rate of growth of production during 2009-10 is attributed to the global economic slowdown. Communication and broadcasting equipment took the largest share (29%) in Indias electronics production in the year 2009-10, followed by consumer electronics (27.4%), computers (13.1%), industrial electronics (12.4%), components (12.2%) and strategic electronics (6.3%). Exports and Imports During 2009-10, Indias electronics exports
were valued at US $ 5.48 billion, with a share of 3.1% in Indias total exports. During this period, electronic exports have witnessed negative growth of -19%, over the previous year. During April September 2010-11, the exports of electronic goods were US $ 3469.95 million, witnessing a growth of 10% over the corresponding period in the previous year. In the year 2009-10, the imports of electronic goods were valued at US $ 20.96 billion, a negative growth of (-) 9.2% over the previous year. During April-September 2010-11 the imports of electronic goods were valued at US $ 10.11 billion, a decline of -5.4% over the corresponding period in the previous year. Major export destinations for Indian electronic goods include USA (14.8%), Singapore (8.2%), UAE (8.2%), Germany (6.7%), Hong Kong (5.8%), and Netherlands (4.9%). In the case of imports too, Asian countries (74%) were the
largest import sources for India, in the year 2009-10, followed by European Union (13%), America (8%) and Middle East (2%). CHALLENGES AND STRATEGIES CHALLENGES Small Size / Scale of Operations The size and scale of operation of majority of electronic manufacturing units in India are small compared to global standards. This leads to non-operation of economies of scale in terms of cost disadvantage in production (low capacity translates into higher per unit cost), as well as catering limited ability to adhere to supply commitments. Non-operation of economies of scale offset the overall advantage of low-cost labour in manufacturing. The skewed tax structure in favour of small scale units had encouraged establishment of more small scale units in various locations across the country. Low Level of Component Base The Indian electronics components industry is restricted to passive components. Even here, relatively larger presence is only in few sectors. The low domestic volumes and import/ customs procedures and regulations do not encourage stock and trade of components. In the case of mechanical parts, suppliers do exist with technical capability. However, the industry has not positioned itself to cater to the needs of high-volume customers and would need substantial up-gradation of management skills. Challenges Associated with Supply Chain and Logistics Management While inadequate (roads, ports) and high cost of infrastructure (power) hinders the competitiveness of the Indian electronic industry in international market, the challenges of supply chain management and
Note: * Estimated Source: Exim Research, data derived from Annual Report, Department of Information Technology, Government of India ELCINA Electronics Industry Association of India
CMB
CMB
CMB
logistics solutions, which are essential for timely delivery of electronic products, are also affecting the competitive landscape of Indian electronics industry. Adequate supply chain and logistics system will ensure timely delivery of electronic products and will provide a better competitive landscape of Indian electronics industry. Challenge of Shorter Product Life Cycle New technologies, changing standards and shorter product life cycles constantly challenge the manufacturers of electronic goods. The vendors have to match short product cycles through quick response to changing technologies, by producing equipments that will cater to the production of new generation products. All these call for a high level of open systems design, modularity and flexibility in hardware and software architecture. Low Level of Technology Absorption The low volume of production implies that any capital equipment with a given technology used by an Indian company is not optimally utilized; while its physical life lasts for a longer time, technologically they become obsolete in a short span of time, calling for modernization and upgradation. Yet, most of the Indian companies prefer not to go for new technology / capital equipments as they are costly proposition in view of sub-optimal utilization of capital equipments. Limited Facilities for Standards and Testing In electronic hardware segment, technology is changing rapidly. Most of the countries in the world have laid down standards for new products to ensure that low quality products are not dumped into the country. India has
limited standard and testing facilities in the country and also have limited number of wellequipped labs (such as Electronic Regional Test Laboratories, and Society for Applied Microwave Electronics Engineering and Research). Setting up of modern testing labs will help electronic product designers and manufacturers in achieving their compliance requirements as quickly and efficiently as possible. Grey Market Frequently this form of parallel import or grey market occurs when the price of an item is significantly higher in one country than another. This situation is commonly prevalent with consumer electronic items. According to industry estimates, the grey market for premium watches is almost 50% of the total sales, 30% of the gaming console market, and 25% in the digital camera market. Managing E-waste As the demand for electronic goods is increasing, so is the challenge of managing the E-waste. According to some estimates, Mumbai tops the list of cities with around 12,000 tonnes of E-wastes, followed by Delhi (around 10,000 tonnes), Bangalore, Chennai, Kolkata and Ahmedabad (around 4,000 tonnes each). Though the challenge of managing E-waste in India is at a nascent stage, this may turn out to be a serious challenge at a later stage. Low R&D Intensity Lesser spending on research and development by electronics industry has increased Indias dependence on electronics imports, which has been growing over the years. While Indias
Shortage of Skilled Labour India has shortage in skilled labour in the electronics industry. Not enough industryready trained personnel are available. The talent pool is also concentrated in a few metros, and attracting such talent to Tier II cities and small towns is a difficult task. High attrition rate due to the small pool of talent available is another challenge faced by the industry. Low Value Addition Indian electronic industry faces the challenge of low value addition. Usage of electronics is pervasive in many other sectors as well, like automobile, aviation, etc. As the domestic electronic industry is not having a strong manufacturing base, most equipments are imported with hardly any value addition being done in India. R&D plays a very important role for value addition in the country. However in India R&D intensity is very low. Complying with Environmental and Social Standards Most Indian electronics goods are considered as relatively inferior in global markets. Limited awareness about environmental and social standards and the cost involved in obtaining the globally recognized certifications are the major reasons for limited number of players adhering to such standards. STRATEGIES Rapid Customer Response To keep a step ahead of the competition, companies should maintain a customerfocused, forward-looking business strategy and keep abreast of new standards and new technology developments. The solutions should address the complete range of
CMB
CMB
CMB
CMB
CMB
CMB
Skill and Human Resource Development In order to achieve the plans of raising production, mastering the sophisticated technology, and for achieving market leadership, it is necessary to have adequate human resources with superiority in skills, knowledge and resources. It is necessary to develop skills in the human resources matching with the latest technological innovations. Steps should be taken to impart training in human resources that lead to skill development based on evolving consumer demand. Capturing the Rural Market Indias rural market provides a huge demand base, with more than 720 million consumers spread across 627,000 villages. Furthermore, their per-capita income has been rising at a consistent growth rate of more than 4 percent, which has resulted in increasing disposable incomes. Electronics companies operating in India have started developing plans to tap the rural market. With rural and suburban markets gaining importance, such innovative strategies would help electronic product companies to tap the potential offered by these markets. More Support to Telecom Equipment Sector Globally, Governments have created a supportive policy framework to encourage their telecom equipment manufacturing and R&D. China has been actively supporting its telecom industry and has been providing significant support in the form of incentives and lines of credit and thereby stimulating their exports. Israel, with just about 200,000 technology professionals, has been able to create R&D driven companies, exporting telecom equipments globally. Based on the public-private partnership model, quite a few Centres of Excellence (CoEs) have also been set up in India in the areas of telecom, wireless technology, bioinformatics, lasers and optoelectronic devices and nano-electronics. India should focus on improving and developing these Centres of Excellence, and thereby achieve product excellence. Promotion of Intelligent Manufacturing Significant engineering skills, with the combination of hardware, software and system integration skills, are required in the evolution stage of advanced technology products. India has a competitive advantage in this sector where a large proportion of value addition is through software and system integration. Establishing joint ventures with Chinese firms, which
have manufacturing strengths and substantial market share in third world countries, would help in increasing high tech exports, in the short term, to developing countries in Africa and the Middle East. Promoting Repair/Reconditioning/ Refurbishment of Electronic Goods According to the Strategy Paper on Doubling Exports in Next Three Years (2011-12 to 201314) prepared by the Ministry of Commerce and Industry, Government of India, the American market for repair/reconditioning/ refurbishing of electronic goods is estimated to be US $ 10 billion annually. India has a few large emerging companies which are beginning to provide these services but the combined turnover is of the order of only US $ 5 million. India should take refurbishing business as a big opportunity because Indian workers are recognized as having better diagnostic skills and would thus enjoy core competence in the area of repair and re-export. Simplification of customs procedures After the signing of the ITA-1, the electronic hardware sector was the first sector to open up with zero duty on most items, as also reduction in overall duty rates. However, the customs procedures have undergone with limited simplification. According to the Strategy Paper on Doubling Exports in Next Three Years (2011-12 to 2013-14) the customs procedures should move from a refund regime to a selfdeclaratory regime as is the case with excise duties. This will go a long way in reducing a major non-tariff barrier faced by the electronic goods exporting units. Effective supply chain and logistics system Adequate supply chain and logistics system will ensure timely delivery of electronic products, and will provide a better competitive landscape of Indian electronics industry. Firms and their supply chains need to closely integrate themselves into a network, carefully manage the complexity that ensues, align their business strategy with logistics and supply chain operations, and leverage information and communication technology with process improvement, and pioneer operational innovation for superior performance. Grey Market One of the ways of fighting grey market is to conduct awareness and educate customers against piracy and counterfeit products,
through interactive events, PR and advertising. Higher taxes are considered as reasons for the flourishing grey market in India. Measures should be taken to combat this issue. Also, legal protections, such as coding the products, should be adopted to reduce the challenge of grey market . CONCLuSION Many countries, especially in Europe and ASEAN, have identified electronic industry as one of the thrust areas for national growth and development. India is also a signatory to ITA, and India has also placed greater thrust on this industry for developmental growth. The market size of the electronic industry is projected to exceed US $ 150 billion by 2015. According to Ministry of Commerce and Industry, Government of India, the export performance of electronic goods is expected to be US $ 15 billion by 2013-14. In order to achieve this level of growth, India needs to concentrate and focus more on designing and manufacturing global products, and then reach out to the rural areas in the domestic market, and emerging export markets. Also, India should leverage its strengths in software to build high-complexity, but medium-volume products for the global market. Further, the Indian industry should focus on inventing mass-products that matter to rural and bottom of the pyramid segments. The demand for appliances and energy efficient consumer electronics is huge and can be explored by the Indian electronic industry. Increasing R&D intensity should be a joint approach of both Government and industry. With such strategies, Indian electronics industry would excel both in domestic and international markets.
The contents of the publication are based on information available with Export-Import Bank of India and on primary and desk research through published information of various agencies. Due care has been taken to ensure that the information provided in the publication is correct. However, Export-Import Bank of India accepts no responsibility for the authenticity, accuracy or completeness of such information
Publication is available with: Dharmendra Sachan Chief Knowledge Officer EXPORT-IMPORT BANK OF INDIA Centre One Building, Floor 21, World Trade Centre Complex, Cuffe Parade, Mumbai - 400 005, India. Phone : +91 22 2218 0379 Fax : +91 22 2218 3070 E-mail : dharmendra@eximbankindia.in Website : www.eximbankindia.in
Contact Numbers : Ahmedabad : 2657 6852, Bangalore : 2558 5755, Chandigarh : 2641910, Chennai : 2522 4714, Guwahati : 246 2951, Hyderabad : 2330 7816 , Kolkata : 2283 3419, Mumbai : 2282 3320, New Delhi : 2332 6625, Pune : 2645 8599 Addis Ababa : (251116) 630079, Dakar : (22133) 8232849, Dubai : (971) 43637462, Johannesburg : (2771) 6094473, London : (4420) 73538830, Singapore : (65) 653 26464, Washington D. C. : (1202) 2233238
CMB