What Is the Future of Electronic Contract Manufacturing in India?
As per some industry-body estimates, India’s Electronics Manufacturing Service Industry will grow six-fold to $152 billion by 2025. So, how plausible is this growth forecast? It is not that far-fetched if you ask us. There are several reasons for us to believe that.
For instance, India has a large market for electronics spread across different sectors. Many previously electrical or mechanical products have been upgraded with the addition of electronics.
There are over 700 electronics manufacturing services companies in India serving the local and global markets. They can all grow, and there will be room for new entrants as well.
However, as there are two sides to every coin; in this case, a few factors can prove to be a roadblock in the path of this forecasted growth.
In this article, we will analyse both the favouring and opposing factors to the growth of electronics contract manufacturing in India.
Favouring Factors of Electronic Contract Manufacturing in India
As we have already seen, there are several reasons to believe that the future of electronic contract manufacturing in India is bright. We have listed some of them here:
1. Inclusion in government growth plans
At the beginning of 2021, the Indian government introduced financial incentives for companies to produce IT hardware. This shows that the government is ambitious about boosting manufacture at the domestic level and turning the country into a global manufacturing hub. This move was started several years back but has been gaining momentum recently.
2. Growing digitisation
Another important factor favouring the growth of electronics contract marketing in India is growing digitisation. In recent years, the pace of digitisation across the country has increased significantly.
This has led to electronic manufacturing production processes becoming more efficient. For instance, industry 4.0 and the Internet of Things (IoT) in areas such as supply chain monitoring and asset maintenance have particularly aided this increase in efficiency.
3. Ideal workforce
When it comes to manufacturing, India is often compared to China, as both of them have huge populations. However, the average age of the Indian workforce is lesser, and the wages are lower.
Moreover, our workforce has multilingual capacities that could also fuel the country’s manufacturing sector. This shows that India has the ideal workforce to support the growth of electronics manufacturing.
4. Incoming MNCs
More and more multinational companies are looking beyond China to diversify their supply chains. However, this factor is surcharged by several political and economic points of view.
Major corporations and electronic manufacturers such as Apple, among others, are looking at India as an alternative or complementary production location in their global manufacturing footprint. This shows that many MNCs are turning towards India for third-party manufacturing.
Opposing Factors for Electronic Contract Manufacturing in India
We saw many factors favouring Indian manufacturing, but some factors can deter companies from setting up manufacturing bases in the country:
1. Poor intellectual property (IP) protection
When multinational companies come to India, they bring their technology. So naturally, they look to develop future tech in India. So if India wants to become an electronic manufacturing hub, the country will need an effective IP protection regime.
This is because no company wants to spend billions developing their technology and then wait in line for years to enforce their patent rights.
So, our country will need to instil confidence in the manufacturing ecosystem. The companies need assurance that their ideas and technologies are protected and will get due damages if necessary.
2. Inefficient global manufacturing supply chain
It is a fact that any country can become a part of the global electronics supply chain. For instance, companies might use chip production tools from Japan or the US.
Malaysia or Mexico can then carry out the packaging, and then the component can be assembled into a finished device in Taiwan or Vietnam before being consumed anywhere in the world.
But to make this possible, a country will need several things. This includes proper access to airports and harbours, support from the government – including tax incentives and reliable utilities – and a prepared workforce.
In addition to these factors, one must also consider that the investment and sales commitments mandated by India’s Production Linked Incentive (PLI) scheme will largely exclude smaller companies.
This is because the qualification criteria, such as high global turnover, are strict in India. This makes it very difficult for new and smaller companies to join unless they have a considerable design and technology advantage, and that too within a niche high-margin market.
Despite all the negative factors (positives far outweighs the negatives), there are opportunities for electronic contract manufacturers to build strong relationships with original equipment makers.
Also, India’s firmware development is capable enough as many companies provide support for firmware development and embedded software design.
Agreed, numerous challenges exist, such as the need for an innovation ecosystem that includes skill-building initiatives, land and labour reforms, energy security, and access to finance.
But on the other hand, the government has replaced the archaic laws, paved the way for foreign direct investment, and set up industrial corridors, among other efforts.
As a result of these efforts, India’s ranking in the World Bank’s Ease of doing business index has gone up from 142 in 2014 to 63 in 2020.
We at Oakter, electronic manufacturers, are an example of India’s bright future of electronic contract manufacturing. We launched in 2015, and within just six years, our annual revenue run-rate crossed USD 50 million.
We supply a range of high-quality smart home appliances and services such as connected electronics development and full-stack IoT software development. We will help you find your business’s solutions, from concept to production. Contact us today to take your business to the next level.