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September - 2007 - issue > Cover Feature
The Indian electronics industry- past, present and future
Steve Sanghi
Wednesday, August 29, 2007
When I came to the U.S.A. in 1976, the American electronics industry was experiencing a rapid growth. The large companies of today, such as Microsoft, Intel, Dell, Apple, Cisco, and Google were either small companies or not yet formed.

During this era, there were four Asian tigers: Hong Kong, Korea, Taiwan, and Singapore. They were all considered third world countries. But, the economies of these countries were going through a fast paced growth. In the subsequent 25 years, each of these countries took advantage of the first wave of the electronics and semi-conductor outsourcing trend. They first focused on building semiconductor assembly and test plants and later fabrication centers. In addition, Taiwan built a PC infrastructure, Korea built a cellular-phone infrastructure, Singapore built a storage disk-drive infrastructure, and Hong Kong built a variety of subcontracting plants while positioning itself as the gateway to China. Today, these four countries are neither poor nor third world countries any more.

During most of this era, I watched India miss a series of opportunities on the international scene to establish itself as an outsourcing hub, and to rapidly grow its economy. It missed the semiconductor assembly and test plants, the fabs, the computer manufacturing, and then the cell-phone manufacturing. There were two main reasons. First, India went through a series of government and policy changes that sought to protect local companies and viewed foreign investments with suspicion. The second reason was that all of the earlier industries were hardware industries. India, with its traditional bureaucracy, had a difficult time providing the infrastructure and logistics support required to manufacture hardware efficiently. For example, it used to take days to clear an incoming or outgoing international shipment.

It was only in the early1990s that India shifted from its historical socialist bent to a free-market environment and as a result its economy began growing fast.

Then, the software and IT industries came. And this time, the chips were stacked in India’s favor. Software has no bureaucratic shipment hurdles, because you can ship it over the Internet. Aided by the significant policy changes from the government, the special focus of a few state Governments, and the world-class educational institutes like the IITs the traditional, hard-working Indian engineers swiftly grabbed the opportunity and turned India into the software and IT outsourcing capital of the world. Large outsourcing companies like Infosys and Wipro are common names in the U.S. Old Indian conglomerates like Tata and Larson & Toubro also formed divisions to grab a share of the IT work outsourced from the western nations. The industry grew further when American corporations began opening technology centers in India. Today, most American corporations - such as Microsoft, Intel, Dell, Cisco, TI, and Microchip Technology - have a significant presence in India.

One challenge westerners now have with India is high employee turnover. Indian engineers, especially in high-tech centers like Bangalore, change jobs rapidly. This slows down the formation of experienced, high performing teams, and has been an impediment blocking the continued and increased commitment of American corporations to India. Many are now building competitive technology centers in places like China, Romania, Hungary, and the Philippines.
While the IT industry is providing excellent opportunities to educated engineers, there is still more that needs to be done to employ the very large uneducated masses. This is where the hardware manufacturing industry comes in. India must find a way to attract the next wave of semiconductor fabs, assembly and test plants, and also computer, cell-phone and other consumer-electronics manufacturing plants. China is clearly the runaway leader in this arena. India has a lot to do to even get started - setting up a few export zones with good infrastructure and logistics support, lowering the import duties, and reducing bureaucratic hurdles and bribery would be good starting points.

I would close with two things that I tell my two children about their grades: ‘A very nice job, and there is room for improvement.’

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