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Nokia exports about 70% of its production, accordingtoindustryestimates. The factory has a total production base of5lakhcellphones per day. Story at other telecom bigwigslikeMotorola,LG, Samsung and Ericsson is not very different.

EMS vendors are expected to take the spotlightinthemanufacturing story. Their share of total mobilephoneproductionin India will grow to nearly 40% by 2011, accordingtoGartnerestimates. Last year, the research company hadpredictedthat theglobal handset vendors in India will outsourcetheirproduction toEMS vendors to reduce time to market andachievefaster penetrationfor their own branded handsets.

“The reason for successful development of a veryvibranthandsetmanufacturing units is the large scale demand formobilehandsetsin India. We consume about 8-9 million mobile phonesamonth andthat has attracted all the major handsetmanufacturingplayers inIndia,” says MAIT executive director, VinnieMehta. Hehas a point.A large market has forced manufacturers to asktheircomponentsuppliers to set up their units in the country. Butthisstory isnot limited to only mobile industry. It may behappening inothertelecom segments.

Already, the total value of telecom goods manufactured inIndiaisRs 20,000 crore and is estimated to be Rs 25,000 croreby2009,according to NK Goyal, chairman emeritus,TelecomEquipmentManufacturers Association (TEMA). “One of thereasons forthis kindof growth in the telecom componentmanufacturing segmentis themarket size, liberal reforms withrespect to foreigndirectinvesment and

the rationalisation of duty structure in the importoftelecomcomponents,” says Goyal.

PC industry has not yet seen the economies of themobilehandsets.The manufacturing process has primarily been anassemblyline affair.The PC component manufacturing also does nothave awide base as seenwith mobile handsets.

Though leading players like HP, Dell, Lenovo and Acer,havetheirassembly units here just like the large domestic brandslikeHCL,Wipro and Zenith, manufacturing processes do not seem tobegrowingdeeper.

One of the reasons is the much smaller PC market base(7.5millionannually) that has detracted the domestic as wellasforeign playersto set up component manufacturing units. MostPCvendors scout forcomponent manufacturers in othercountries.“Countries such as China,Vietnam, Czech Republic,Malaysia andLatin America are rapidlystrengthening theirmanufacturingecosystem. India contributes lessthan 1% of globalproduction,while China outnumbers us almost 100times. Theecosystemsurrounding the PC manufacturing does not reallyexist inthecountry as most of the component manufacturers do nothavetheirmanufacturing in India. Most of the components aredesignedandmanufactured outside India,” agrees ShailendraBeniwal,director(sales), Personal Systems Group, HP India.HPcurrentlymanufactures all its PCs in India.

For Ajai Chowdhry, the chairman and chief executive officerofHCLInfosystems, one of the key drivers is to achieve economyofscalesand bring down cost. “For countries such as India, this isachickenand egg situation. The first thing is to build the sizeofthe PCmarket, which will open doors for the entire ecosystem.Overa periodof time, with the right policy and logisticsenvironment,theecosystem will build, but there are no short cuts.It isnocoincidence that the mobile phone manufacturing ecosystembegantodevelop, once a critical scale emerged.”

“I believe the challenge for the domestic manufacturers istogoto the next step of setting up of component shops.Thisisessential if we want to compete with the large globalbrandswhocan achieve economies of scale because theiroperationstargetglobal market,” says Kaustuv Roy who heads ChiragComputers,alocal brand.

Manufacturing operations are not limited to PCs likeHPinUttarakhand and Dell in Chennai. Assembly lines have beensetupfor peripherals too. HP and Samsung, for instance, havesetuptheir printer units. HP has a

manufacturing base of 1.5 lakh inkjet and laser printersperyear.“The global companies are setting up their assemblyunitshere as theconsumption in Indian market is growing and asmallportion of it isbeing supplied to other Saarc countries too,”saysShiladitya Sarkar,who looks after the peripheral researchgroup atIDC.

It is not manufacturing but assembling of components,whichcomein CKD (complete knock down) form, he points out. ForSarkarifIndia wants to have a printer manufacturing base, fewthingshaveto be planned. “We need more SEZs which will cater totheITmanufacturing needs. Instead, we have few stateslikeUttarakhandoffering tax sops. The SEZs should come up acrossthecountry wherethe domestic and foreign manufacturerswillparticipate in themanufacturing process.”

There is considerable interest from Taiwane******paniesintheIndian market. Taiwanese have invested heavily inmainlandChinabut Taiwanese laws are changing. For one, VAT isbeingmadeharmonious between foreign investors and domesticmanufacturersto14% from 3% for foreign investors recently. Labourlaws nowdon’tallow hire and fire and minimum wages have beendefined. Withthis,China has now become expensive, so companies aremoving toVietnam.

“But Vietnam has problems—there is no local market andlabourisin short supply with inflation at 25% plus. Therearerampantlabour strikes,” says Mehta. He says it is just therighttime forIndian companies and the government to woo theTaiwaneseandothers.

Though China has been a preferred destinationformanufacturingfor long, India is beginning to acquireconfidencenow. Both techand telecom manufacturing space in Indiahave all thesigns ofemerging as a key growth driver. Ajai Chowdhry,elaboratesonexperiences of a global electronics manufacturer.According tohim,the comparison showed that India beats China inlabour cost,labourproductivity, delivery cost and manufacturingdefects. ButChina isahead in inbound freight cost and responsetime.

Beating China might seem an ambitious proposition, but youcannomore write off India’s manufacturing potential....