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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

September - 2007 - issue > Cover Feature

The time is ripe for Indian product firms

Syed Ali
Wednesday, August 29, 2007
Syed Ali
While the transformation of India’s economy over the last few years—fueled mainly by the burgeoning IT sector—has been heartening, our policy makers and companies have continued to focus on services rather than products. A slew of tax holidays and other sops have been extended to existing services firms and new players seeking to set up office in India, but there remains a clear lack of similar attention to the products arena. The services sector, which is showing healthy growth today, will face more challenges in the long term as Indian wages increase and the rupee appreciates in value. To continue India’s growth in the technology sector it is critical that corporate India starts taking the next obvious step: build end-products.

And the products argument is not just something that applies to the IT space; it is all-encompassing. There isn’t a single Indian brand today that has achieved global recognition. One can talk here of the rising M&As by Indian companies in the last one year—but even none of those have enabled the players to become household brand-names, like say Nokia, Samsung, or LG.

The fact is, the product space has the potential to generate far greater employment than services. While the latter has provided jobs for many, the opportunities have been limited to the technically-trained elite, a miniscule portion of the county’s population. Products and their design, development and manufacturing—whichever vertical or industry they are in—can create jobs on a mass scale. It has the potential to have a larger, and broader, impact on the economy and living standards of the people, reaching out to a much wider swath of Indians than the slice whose fortunes have been changed, arguably, by the IT boom.

There have been some efforts on the government’s part recently, in terms of setting up SEZs catering to manufacturing, but that in itself is not enough. The focus has to be on building Indian products, and not just manufacturing foreign-branded ones—the latter is not very different in its impact and role in the economy from providing services.

It is common knowledge in the industry that service businesses run at a 20-30 percent margin, while building and shipping products can offer margins of up to 60-70 percent. Also, a product company can succeed with a small team and setup—as you can see from the case of many Taiwanese firms that provide basic consumer electronic products to global markets.

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