India, the second highest populated county, with 1.252 billion people, has recently become the rising star within the global high-tech manufacturing industry.
Recently, many EMS companies are moving their manufacturing services to India. The world’s leading EMS, Foxconn, recently announced their aggressive expansion plan to employ a million people in India, by building up to 12 new factories within the next 5 years . Lenovo, a Chinese personal computer maker Lenovo started assembling smartphones in a facility in Chennai, which is run by the contract manufacture Flex , with the goal to produce 6 million units in 2015 – 2016. Another Chinese smartphone maker, Xiaomi, is going to start assembling their Redmi 2 Prime in an existing Foxconn factory in southern India . Earlier this year, France-based drone maker, LH Aviation, signed a memorandum of understanding (MOU) with Indian OIS Advanced Technologies to manufacture tactical drones in India .
The “Make in India” campaign, lead by India Prime Minister Narendra Modi in September 2014, seems to be effective. With the goal to attract capital and technology investments in India, the campaign focuses on 25 sectors including automobiles, electrical machinery, electronic systems, and more. Dr. Ashwini Kumar Sharma, at National Institute of Electronics & Information Technology noted that “The Make in India program represents an attitudinal shift in how India relates to investors: not as a permit-issuing authority, but as a true business partner. Our youth will be a part of this drive and we shall ensure their fruitful participation.”
Despite the policy support, there are many other reasons for the shift from China (The world factory) to India in the manufacturing industry. The increasing labor cost and tax in China and the reduction of demographic dividends in China are some of the main reasons for this change. For the electronic industry, the tremendous potential of the end-consumer market is another driving factor for the move. According to IDC, smartphone shipments in India grew 44% to 26.5 million units in Q2 2015. The double digit growth is expected to continue in the next few years and by 2017 India is expect to overtake the USA to be the second largest smartphone market in the world . With China’s smartphone market slowing down , moving factories near the growing market to cut cost is a logical decision for manufactures.
But, will India replace China to become the next global electronic manufacturing hub? Some investors and professionals from the electronic industry hold their doubts:
Infrastructure deficiency: The lack of solid transportation system and power supply system to effectively transport commercial goods raises red flags , especially for the electronic industry where just-in-time delivery is crucial.
Complicated regulation for business: Investors are time-sensitive on their return. Waiting for company registrations to go through and seeing products being held at customs will not make them happy . Out of 189 economies, India ranked 142 in Ease of Doing Business by the World Bank in 2015, whereas China ranked 90 .
Support services for supply chain: With decades of experience in the manufacturing industry, China has developed a strong supporting service sector when it comes to hospitality, communication, consumer transportation, and more. India has a lot to catch up in those sectors.
For the manufacturing industry to run smoothly, a lot of factors have to be considered. Cheap labor and the big end-consumer market will help India rule this supply chain market, but there are other pieces involved within the electronic industry. It’s a great start for India to attract investment from big companies, but India has a lot work to do to keep this business while making them happy.
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