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Moving forward with confidence
Poornima Shenoy
Thursday, February 1, 2007
Augusto Lopez-Claros, Chief Economist and Head of the World Economic Forum’s Global Competitiveness Network suggests that based on available evidence, the Indian economy may have entered a high growth plateau and the challenge for the authorities will be to ensure that this process is sustained. The potential factors for economic growth are human capital, large domestic markets and being the hub of design services. India ranks high globally on all these factors.

India improved its position by two places in the World Economic Forum’s Global Competitiveness Index (GCI) rankings for 2006-07 coming in 43rd, well ahead of Brazil (66), China (54) and Russia (62).

According to BRIC Report, India has the potential to show the fastest growth over the next 30 and 50 years. Growth could be higher than five percent over the next 30 years and close to five percent as late as 2050 if development proceeds successfully.

With this background, the Indian semiconductor industry moves into 2007 with hope, expectations and confidence.

A little over 30 years ago, India kick-started its first semiconductor related operations at Bharat Electronics and in 1985 Texas Instruments became the first multinational to open its offices in India. Co-incidentally both chose Bangalore in Southern India to commence their operations thereby opening the floodgates for this little town to become a bustling metropolis and a principal mover in the intellectual world.

Last year saw the completion of a unique feature—all the global top ten fabless design companies had India operations and 17 of the top 25 semiconductor companies were present here. Key players in the manufacturing equipment and suppliers of the ecosystem were setting up liaison offices and waiting to see the action in one of the world’s fastest growing economies. And this is without commercial chip manufacturing-not yet anyway.

In India the semiconductor industry is often overlooked by media, government and other stakeholders and is viewed as an offshoot of the software world. It was for the first time in the country’s history that the sector got a public seal of approval when the finance Minister P Chidambaran chose to mention it in his Union Budget address 2006. The sector now awaits a comprehensive semiconductor policy and one that will hopefully address both R&D and manufacturing.

The past year has seen increased activity on the M&A and private equity front. Portal Player was acquired by NVIDIA, ATI by AMD and NuLife by Texas Instruments. Private equity players took positions in NXP and Freescale.

India saw a flurry of activity with global leaders visiting the country. For some these were repeat visits –strong indicators of the growing importance of India in their business agendas. Mike Fister of Cadence, Dr Dwight Decker of Connexant, Rich Beyer of Intersil, Dr. Suhat Sutardja of Marvell, Dr Walden Rhines of Mentor Graphics, Harold Huges of Rambus, Vic Kulkarni of Sequence, Rich Templeton of Texas Instruments are some of the leaders who have paid official visits. There were other visits from Chairmen of global Japanese companies. Several of the international experts like Mohan Yegneshankaran and Sunil Parulekar of NatSem, Ajay Manocha of NXP, and Prof Aravind of MIT took part in various forums. International delegations from China and Taiwan came for fact finding and business collaborations.

What could be some of the factors that are driving global leaders to focus on India?
These companies primarily address an international demand but there is increasing adaptation of design to address domestic requirements. India provides a plus with a quick turnaround time that helps early market access, and a high quality workforce. India already has a semiconductor industry employing the cream of engineering talent and generating IP which is strictly protected.

Declining margins and research and development budgets have forced companies to look for cost-effective centers without compromising on the quality of work.

Highly dynamic markets demanding new product variants/models from companies have forced original equipment manufacturers OEMs /product companies to reduce the product development cycle time by outsourcing to companies.
Availability of a large base of engineering workforce coupled with their proficiency in English has made India an attractive destination for design and development.

Captive companies i.e. subsidiaries of multinational companies, making strategic investments in India are looking at the growing domestic market and the consistency of consumption growth in the end-user markets.

With its growing middle class population of nearly 400 million people which will only increase over time, India’s electronic equipment consumption which was estimated at around $28.2 billion in 2005, is expected to reach $363 billion by 2015 growing at a CAGR 29.8 percent. Indian electronics equipment domestic production was $10.99 billion in 2005 and projects an opportunity to touch $155 billion in 2015. India’s total semiconductor consumption in 2005 was about $2.8 billion. This demand is likely to exceed $36 billion by the year 2015.

Where is the real value created and captured in the value chain? Clearly, it lies in the space of product definition, product creation and brand building. We can take this from both the national as well as the business perspective and argue that most of the value created by Indian designers today is captured by multinationals and has only a marginal impact on the Indian GDP.

Given how pervasive electronics is becoming and the huge market opportunity that the Indian middle class offers, it should be possible to define and develop products for this segment.

Going beyond that, there is the huge “bottom of the pyramid”, with its own unique needs and opportunities. The assertion is that if Indian companies can leverage the proximity and understanding of this huge consumer base to define and develop products for this market, it can help significantly with capturing greater value in India impacting both the growth of the industry as well as national economic prosperity.

The India Semiconductor Association ISA sees its role as facilitator to achieve this dream. ISA is engaged in public policy, working on generation of both quality and volume of talent and building the brand of the Indian semiconductor industry that needs to project its strengths and the opportunities of this market.

The ISA Vision Summit is one such powerful magnet to work towards achieving some of these goals. Every February the industry will see the coming together of both leaders and influencers from the design, manufacturing and venture world .These are from the domestic industry as also from elsewhere in the world-Europe, US, Israel, Singapore, Taiwan, China. Peripheral industries in the components and electronics industry are expressing interest to participate and understand short term and long term implications for them.

The role of government is crucial to the growth and development of the semiconductor and electronics industry. They are also being addressed and strategic recommendations assimilated here.

These are exciting times to be in India and with our growing confidence as a rising nation; we will march forward to meet our dreams and expectations.

The author is the President of India Semiconductor Association.
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