DAIKIN

Looking Toward Localization

Looking Toward Localization

India is gaining traction as a competitive alternate to China for electronics manufacturing.

Original equipment manufacturers (OEMs) are increasingly moving product design and development processes to electronic manufacturing service (EMS) partners. Product design, a part of the specialized design services market which is globally expected to reach USD 157 billion in 2020, is being outsourced to reduce overall costs and shift from fixed costs to variable costs. EMS companies are offering more design services for subassemblies and finished products. OEMs are collaborating with EMS partners and moving into new models such as joint design manufacturing (JDM) and outsourced design manufacturing (ODM).

In comparison to the global ESDM industry that exhibits below 5 percent year-on-year growth trends, Frost & Sullivan expects the Indian ESDM industry to have one of the highest growth rates, representing a CAGR of 17.5 percent from 2014 to 2020. The Indian ESDM industry currently characterized by the low value addition is expected to witness investment in manufacturing and thereby is likely transform to a high value-adding sector by 2020. The electronics products markets dominates with approximately 81 percent share in the ESDM industry in 2017, whereas component and EMS markets are expected to witness high growth rates between 2014 and 2020.

China has long been an irreplaceable electronics manufacturing hub that has attracted numerous global electronics companies to set up manufacturing operations in the country. For a decade, the global logistics industry for electronics has been driven through China and its neighbors, which mostly involved China receiving the electronics components needed to assemble complete products that were then exported to global markets. However, today, manufacturing investment is starting to dry up in China as labor costs are on the rise. Gradually, multinational companies are looking to relocate their manufacturing facilities to other low-cost countries in the region.

India Must Not Miss the Bus

India is gaining traction as a competitive alternate to China for electronics manufacturing. Some of the major factors driving this in India are economic growth, domestic market demand, regulations and policies, design and engineering capabilities, labor cost, and availability of skilled workforce. India possesses superior design capabilities and availability of talented workforce at approximately 150 percent lower wages than China, which strengthens its position as a futuristic domestic-cum-export-oriented manufacturing destination for the globe.

Growing investment and increasing local value addition levels will also see a manifold jump as more OEMs look toward localization of their products from India. Currently, FPDs, which comprise ~70 percent of value in the bill of materials, are imported, thereby leaving limited scope for domestic value addition.

GST

The indirect tax structure for the country has been completely overhauled with the introduction of GST on July 1, 2017. Historically, the indirect tax structure in India was fairly complex, with multiple indirect taxes levied at different points of time (such as excise duty on manufacture, sales tax on sales, and service tax on provision of services). Now, all the major indirect taxes are subsumed under GST and only one tax, namely GST, will apply on all transactions. The introduction of GST also promised various other benefits such as increase in input tax credits due to a liberal credit mechanism, efficiencies in logistics management due to the abolition of various checkposts and possible reworking of the distribution network, lower compliance costs, etc. All these benefits will support the growth of the industry.

Many OEMs had set up manufacturing facilities in hilly states, where they were enjoying area-based excise incentives in the form of excise exemption/refund. Such incentives have been discontinued under the GST regime. The government announced a scheme for grant of budgetary support to these units. As per the scheme, budgetary support in the form of 58 percent of the central GST (CGST) component paid in cash by such units is granted. This marks a reduction in the quantum of incentives since in the excise regime, such units were eligible to get a refund of 100 percent of the excise duty paid in cash. This reduction in incentives will force manufacturers to increase prices, resulting in the products becoming costly for end consumers. This would reduce the demand for products and impact businesses adversely. To support the industry, the government could consider revisiting the quantum of incentives offered under the budgetary support scheme and grant 100 percent of the CGST component paid in cash as budgetary support.

The Indian OEM Market

The Indian OE market for FPD sets is estimated at 2.32 million sets in 2017, a 12 percent increase over 2.07 million sets in 2016. Dixon commands a 42 percent share, at 0.97 million sets. Malhotra Electronics manufactured 0.5 million sets, and had a 21.5 percent share. The SVL Group and Videotex production was in the 0.11 million sets vicinity, while Noble and Conic manufactured about 0.7 million sets each.

This industry is characterized by the changing technology and user preferences, evolving industry standards, and the frequent introduction of new products and enhancements. Most vendors, facing intense competition from China and other Indian suppliers provide end-to-end product solutions, have backward integrated major manufacturing processes as have developed in-house capabilities in plastic molding products, sheet metal products, wound components, and LED panels assembly. And most of the manufacturing facilities have been accredited with quality management systems and environmental management systems certificates for compliance with ISO 9001-2008, ISO 14001-2004, and 14001:2015 requirements, respectively.

Based on market research conducted by TV Veopar Journal in February 2018.

Share this:

Leave a Reply

Stay Updated on TV Veopar Journal.
Receive our Daily Newsletter.