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India comes full circuit: Global tech giants set sights on the country for electronics production

Have you ever thought about how much goes into making the smartphone that is your window to the world? Here’s some food for thought: As per a report by the White House, asemiconductor chip, that is used within the Bluetooth and Wi-Fi component of your phone, could’ve crossed international borders as many as 70 times before it reached you.

And this entire process can take up to 100 days, 12 of which are spent in transit between various supply chain steps. And this is just one tiny component that makes up the lifeline of the digital world. Components are as critical as the final device. But most of the components currently come from countries such as Taiwan, China, South Korea and the US. This is going to change soon, however.

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India’s ambitions of becoming a global electronicsmanufacturing hubrests on one critical factor: Component makers setting up shop in India, thereby laying a solid foundation for theelectronics manufacturingandchip industryto take off in a big way.Apple’s largest suppliers Foxconn and Pegatron already have large operations in India. Its other supplier Wistron, which has a facility in Karnataka, has been taken over by Tata Electronics to expand its capability in contract manufacturing of high-end electronic items and accessories. And there are more.Apple’s supplier Corning has committed to setting up a new facility for the production of cover glass manufacturing in Tamil Nadu at an investment of Rs 1,000 crore. Similarly, ET had reported that specialised lens maker Rayprus, a subsidiary of Apple’s largest supplier Foxconn, is also looking at an India foray. Corning setting up a manufacturing plant to bring their gorilla glass making capabilities and specialised lens maker Rayprus considering coming to India are solid indications of the tide turning in India’s favour with regards to its manufacturing prowess.

Ramping up

Among the existing suppliers, Foxconn has invested huge amounts to expand its manufacturing footprint. Just last month, the Taiwanese giant said it would spend Rs 1,200 crore to build a new factory in India. For its Karnataka facility, Foxconn has announced that it will inject $2.7 billion and expects to commence iPhone production by April 2024 in the southern state.

Tata Electronics, Apple’s only Indian vendor, is looking to ramp up its existing Hosur facility and has committed a large sum to further its electronics manufacturing ambitions while also taking over the Wistron facility in Karnataka to scale up its capacity. With this heightened activity in the electronics manufacturing space, IT Secretary S Krishnan had said last month that there is a clear focus to increase value addition in electronics and expand India’s share of components production.

“These are the two things that I think are really Ministry of Electronics & Information Technology’s (MeitY) next goal, riding on the success of the production linked incentive (PLI) scheme (for large scale electronics manufacturing) which is one of the most successful PLI programs that the Indian government has run in recent times,” he said at an event in New Delhi. “The next one which is coming up is (PLI for electronic hardware) electronic hardware, where there’s been a very enthusiastic response from a large number of companies and is taking off quite well.”

He said that despite the success of those two PLIs, the next frontier and the next steps that MeitY is working towards is to have the design and the intellectual property belonging to India and more components being manufactured domestically. In a recent report titled, ‘The India opportunity: Developing resilient electronics supply chains’, PWC and Observer Research Foundation (ORF) echoed this sentiment, noting that onshoring device manufacturing, which entails the technical assembly of components into finished devices, is not enough to achieve supply chain resilience in electronics.

“Countries must also expand their capabilities to develop production systems that can manufacture the required components like display, casing and printed circuit boards (PCBs),” the report read. “However, component manufacturing is not an easy vision to achieve. Several east Asian countries have struggled to localise component manufacturing, even if they have achieved significant assembly capabilities in recent times.” It added that India’s ability to produce for the global market has been showcased primarily in four key electronics sectors — mobile phones, consumer electronics, IT hardware, and electronic components — comprising more than 70 per cent of India’s domestic manufacturing landscape.

From 2015 to 2022, mobile phone production has surged from 60 million to 310 million at an impressive CAGR of 26 per cent. Strengthening the supply chain has been the focus of companies who have invested huge amounts to now slowly move from purely assembling smartphones to also building more components in India.

Geopolitical realignments

All of this has been fast-tracked post the Covid-19 pandemic, which brought with it huge supply chain disruptions. That only got compounded with recent geopolitical realignments. The rapidly evolving geopolitical landscape has made companies and governments more wary of over-reliance on a small number of countries for the supply of critical raw materials, components and products across sectors.

Marquee brands like Apple, for instance, have their production centred heavily in China and have been ramping up their capacity in India and other countries in a bid to diversify their supply chain. HCL co -founder and EPIC Foundation chairman Ajai Chowdhry said that in the current geopolitical situation, the world wants to have resilient supply chains — where there is preference for reliable democratic countries. “In electronics, China is an undisputed leader,” Chowdhry told ET.

“If any company in the world wanted to design and manufacture products, the single destination was China. Till now, all who wanted a product went to China got the product designed, got it manufactured in an EMS (electronics manufacturing services) company, brought it back, labelled and sold it. This is the case for a lot of global brands.” He said it was time for India to be the global, world-class product developer and manufacturer that replaces China and become a ‘reliable’ nation for manufacturing with its own large domestic market, PLI and initiatives of the government for manufacturing exports.

“The industry needs icons to come into play,” said Atul Lall, vice-chair at Dixon Technologies and president of the Electronic Industries Association of India (ELCINA). “When some iconic companies and brands come into play in any country or industrial footprint, that’s when the ecosystem follows. The global player comes in and then the Indian companies take over. In the electronics industry, it’s Apple and Samsung coming into India. When such a giant puts in so much resources and there is so much at stake, things fall in place and that is what is happening.”

Strengthening supply chain

Martin Yang, senior analyst of emerging technologies and services at Oppenheimer, said that there is potential for Corning to set up a glass melting and cutting facility in India , a s l o n g a s there are local partners to co-invest in the project and local demand to absorb the supply. “Direct supply chain partners such as LCD panel makers and cover glass manufacturers will be needed to have India-based operations for Corning to enter,” he said. Others, like Counter point Research’s vice-president Neil Shah told ET that these developments are just the pieces of the Apple diversification puzzle coming together.

“The addition of leading component players setting up manufacturing facilities and becoming part of the India supply chain, many of which are also important Apple partners nicely builds the foundation blocks for Apple’s diversification story, setting a strong precedent for other suppliers to be the part of JIT (just in time) supply chain not only for Apple but other key OEMs (original equipment manufacturer) as well,” Shah said.

The localisation angle

But it is important to remember that it is not just global suppliers like Corning that Apple is looking to bring in. The company is also evaluating who they can partner with in India to truly diversify their supply chain away from China. While this is a logical step for the company to take directionally, experts said that a lot would depend on which components they’re looking at replacements for.

“Apple may have already segmented the different components into how easy they are to migrate or replace with Indian suppliers,” Yang said. “India does represent a very substantial incremental market in terms of how much more the iPhone can be shipped. When you compare China to India, China has 40-60 million iPhone shipments. India is maybe less than 10 million, but the two countries are pretty comparable by size. India can see 4x to 6x growth for iPhone sales per year.”

When speaking of components that would be hard to replace, he said the camera lens was an example as it would require custom built tools designed by Apple and a very precise calibration process. “Components like these are highly technical, but there are easier components that they could look at finding a replacement for like the capacitor wherein the core components would be easier to source,” Yang explained.

“India will take years to develop components like the camera lens, image sensors and actuators. And it is not even realistic to expect that everything can be done in-house. Even China has not been able to do that as Apple has a heavy dependency on Korean, US and Japanese suppliers.” India Cellular and Electronics Association (ICEA) chairman Pankaj Mohindroo underscored the “transformational” opportunity that Global Value Chain’s lead firms like Apple, Dell, HP and Foxconn building Indian suppliers could have.

“These lead firms transformed the electronics industry in China by nurturing fledgling companies into giants like Luxshare, Lyngyi Tech and AAC,” he said.

“These capabilities were the moving force to build global Chinese brands like Oppo, Vivo and Xiaomi etc. We will see that happening in India as well, which is witnessing a remarkable progression in its mobile phone manufacturing sector, particularly in deepening the mobile phone value chain.”

Mohindroo said that key sub-assemblies such as batteries, chargers, PCBAs and USB cables have achieved near complete localisation. Going forward, he said that more Indian companies would dabble in the camera module space — which consists of the lens, sensor and mechanics — and requires a capability that is somewhat similar to that of OSAT. “ Every sub assembly h a s further components and parts which is where the opportunity lies for Indian companies provided they can show the capability to produce quality products,” he explained.

“Moreover, the potential and growth prospects of electronics manufacturing in India presents a compelling opportunity for traditional non-electronic companies and corporations to venture into this sector, thereby contributing to the scale and robustness of the industry.”

 

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