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India the next stop for EMS providers, electronics OEMs
By siliconindia
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Wednesday, 03 January 2007, 18:30 IST
Despite the manufacturing industry facing many challenges in the Indo-China region, OEM and EMS companies are looking at India as their next target for expansion. In its recent Quarterly Forum, Technology Forecasters Inc. (TFI), a supply chain research firm and consultancy reported that about 20 percent of the 400 electronics companies it surveyed planned to manufacture in India within the next two years.; in addition to the fact that 25 percent of the respondents already manufacturing capacities in the region.
Despite many in the forum expressing considerable frustration at having to comply with environmental regulations and finding profitable and socially responsible ways to manufacture the low-volume, high-mix products, many OEMs and their EMS partners are looking at India to tap into the growing demand for consumer products and low labor costs. These interestingly were the same factors that had brought the companies to China a few years earlier. Citing the example of Solectron, Steve Fox, a Merrill Lynch analyst said at the conference:
Solectron believes that the primary drivers for expansion include domestic market demand; high import duties; proximity to design centers; and contractual requirements, which in some cases require companies to manufacture in India to win business. Lower labor costs are also a factor driving manufacturing to India. For example, although indirect labor costs in India and China are comparable, Solectron estimates that direct labor costs are 35 percent lower in India than in China (70 cents per hour versus $1.07 per hour).
The conference also sought to tackle the elusive answer to the question: Just how big is Indias consumer electronics market? That depends on your assumptions about the size of the middle class, said Bruce Rayner, TFIs vice president of research.
For most electronics goods, significant purchasing doesnt occur until household income reaches an income level of approximately $4,500 per year. The number of Indian households earning $4,500 a year or more today is about 18 million, or slightly fewer than 100 million people. Over the next five years, that figure is expected to double, with dramatic consequences for the consumption of electronic goods, including cell phones, televisions and refrigerators.