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.



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