OH! To feed TODAY’s modern lifestyle...

Today, we are all very familiar with the gadgets that define urban and modern
living–the Palm PDA; the Nokia cell phone; the IBM notebook and the Microsoft
Xbox. These are high-technology gadgets and brands that are ubiquitous, but what
most of us might not know is that these products are manufactured but by a
global industry call the Electronic Manufacturing Services (EMS) industry and
not by these companies themselves. EMS can be termed the manufacturers to the
world.

Fewer and fewer famous brands make what they sell. Previously technology was
not accessible but with protection laws in place, companies have begun to
outsource. Manufacturing for these companies is becoming capital and labor
intensive. Most companies are throwing their financial and intellectual capital
into product research, design, and innovation–conceiving the next generation
of gadgets and services, and marketing them under trusted brands thus
concentrating on the core competency.

EMS companies provide various advantages of outsourcing like:

n Rapid time to
market as product life cycle shortens

n Rapid time to
higher volume

n Sharing of capital

n Sharing of
components

n Asset deployment
flexibility

n Leading edge
manufacturing with reduction in costs

n Superior /cheaper
materials procurement/logistics

n Significantly
reduced need for capital

n Provides buffer to
demand fluctuations in the user industry

Evolution

The EMS industry evolved from the small and medium enterprise entrepreneurs,
commonly referred to as ‘contract manufacturers’ to the large all
encompassing service providers. Till the 1980’s the contract manufacturers
limited their scope to a few specific functions like "board stuffing".
Over the years, the digital revolution expanded, and demands from the consumer,
telecom, computer, and network companies increased significantly. As a result,
these contract manufacturers started receiving more and more projects and
indulging in more and more end-to-end services.

Consolidation

Growth through acquisition was a strategic route adopted by the EMS
companies to enhance service offerings and geographic reach. Infact, the 1990’s
can be termed as the decade of acquisitions for the EMS industry. Consolidation
today is in the form of larger EMS companies acquiring their smaller competitors
and buying their customer’s factories at low prices.

Activity

For EMS companies, the product design function forms the front-end. From
there they move on to product manufacturing and finally offer after sales
repairs and services. The concept, marketing, and R& D is left to the
customers. Electronics Manufacturing Service providers have evolved into global
companies with integrated end-to-end services.

Global scenario

The technology levels are high in companies catering to the consumer
electronics, communications, industrial electronics, networking and is by far
the highest in medical electronics, automotive electronics and the avionics
industry.

The following table depicts the inter-play between the capacity and
technology levels.

n USA adopts a
1A, 2A, and 3A combination

n Europe and Japan
1A and 2A

n China 3B and 3C

n Taiwan 1B and 2B

n India is
positioned with a combination of 2A and 2B.

China has moved ahead because of the vast infrastructure availability. It is
to be noted that today China has 500 SEZ’s as against 4 in India.

Worldwide Contract Manufacturing Demand Regionwise: 1998 through 2003 (in
billions of dollars)

(The above data was released in October 1999 by Technology Forecasters, Inc,
USA)

Indian scenario

Some companies in India have proved their mantle in the manufacturing sector
due to the burning desire to succeed despite the lack of infrastructure,
financial hurdles and bureaucratic entangles from the Government. Unlike the
software industry, this one involves the physical movement of goods and has to
tackle restrictions imposed by the Government and various institutions.

The EMS Industry generates more employment compared to most of the other
industries. Proposals have been put forth by organizations like MAIT to modify
SEZ policy to permit domestic sales after paying local taxes (and not import
duties) and to allow a flexible labor regime. We need to focus on local markets
once the Government takes measures to encourage the industry by relaxing customs
duty norms.

China has overtaken India in the manufacturing sector. In the EMS industry
India can become the preferred alternative and become a strong contender in the
global market. In order to achieve that, Indian companies need to arm themselves
with technology, be well versed in design, new product innovation, and complex
technology. We need to avoid duplication of products and inculcate better
financial discipline. Trust and transparency in EMS operations will bring
increased confidence in outsourcing relationships. By practicing lean
manufacturing practices and benchmarking ourselves on productivity parameters
against the toughest competitors, we need to continuously improve the process.

India has everything going for it to be a big player in this space.

n India offers
the best engineering talent–100,000 of them a year

n Access to educated
English-speaking workforce

n The most
competitive labor wages in the world

Periodic service and repairs of failed equipment on products are good
opportunities for the Indian industry to capitalize on, for this requires a
technical background. Above all, the industry should leverage on the design
capabilities of our engineers. If these steps are taken then India stands the
chance of becoming a global player in the World trade of Electronics and
Information Technology, which is projected to have an estimated market size of $
10 bn by 2008.

The author is chairman, Celetron India.

mail@dqindia.com