In 2001 India’s Prime Minister Atal Bihari Vaypayee’s planning commission released Report of the Working Group on Information Technology for the Formulation of the Tenth Five Year Plan (2002-07). (PDF)

Indian Secretary Rajeeva Ratna Shah, Ministry of Information Technology, was chairman of the Tenth Plan Working Group on Information Technology in which he wrote in the forward, “If Indian manufacturing companies have to compete globally, we need to have a clear and comprehensive national policy for hardware manufacturing industry. The basic philosophy to induce manufacturing of electronics and IT products in India should be to provide world-class environment.” This followed Ninth Plan poor performance by India’s manufacturing sector.

India’s services related to consumer electronics, computer hardware, communications and broadcasting equipment, industrial and strategic electronics and components was again emphasized in the Tenth Plan. (See firms in India offering ESDM services)

Lack of new investment, both domestic as well as foreign direct investment (FDI), was just one of many problems causing manufacturing performance to fall short.

In 2002 Robert Blackwill, U.S. Ambassador to India presented to the Federation of Indian Chambers of Commerce and Industry in New Delhi some reasons for lack of [U.S] foreign investments in India. Particularly, Blackwell talked about uncertainty over India’s economic reforms, high taxes and tariffs, mentioning too much Indian government interference over business decisions saying, “within the US business community there is an erosion of confidence about whether the sanctity of contracts will be honored in India.”

“Foreign investors are not economic historians. They do not care a whit about how far a country’s economic policy has come. Instead, they make their investment decisions on the prospects of the present and likely future policy environment in a given country,” said Blackwill.

Intel CEO Craig Barrett also addressed attendees at the gathering adding, “you [India] still need to make improvements in basic infrastructure, everything from logistics, transportation, power, etc., to be competitive with some of the other Asian countries for manufacturing.”

India’s lack of the number of local vendors and suppliers when compared to nations like China, Singapore, Taiwan also means Indian industry could easily find itself unable to react or respond to the uncertainty that often exists on many electronics manufacturing fronts; customer demand, suppler availability, ability to meet sudden up-ticks and drops in scheduling and demand both domestically and internationally. These manufacturing delays can have costly consequences unable to be reabsorbed to protect margins.

Indian intentions for electronics services design manufacturing (ESDM)

In July 2003 I flew from Silicon Valley to New Delhi to keynote the 7th annual gathering of the Indian chapter of the Surface Mount Technology Association. The SMTA-IC event attracted a range of senior executives across the global electronics supply chain including a large number of decision makers in Indian-domestic and foreign contract electronics design and manufacturing services providers operating in India and several Indian policy makers, including Secretary Rajeeva Ratna Shah who also addressed delegates.

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My keynote focused on contract electronics industry trends with emphasis on ranking competitiveness of electronics solutions offered by Indian firms scattered across India compared to services offered by foreign, competing firms with operations in India from nations like China, Mexico, Philippines, Malaysia, to name a few.

 

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More importantly I discussed challenges India faced then concerning untrustworthy Indian business practices (including experiences my firm witnessed first-hand), lack of electronics supply chain infrastructure and some constraints preventing India from attracting sizable FDI needed to help build infrastructure.

After my talk I was asked to meet with Secretary Shah that week. During our meeting lasting a couple of hours I shared with His Honor some detailed specifics on what I believed it would take for India to create a thriving electronics industry ecosystem able to serve the global contract electronics industry and compete against incumbents.

Fifteen years later

Today, following my keynote and that hopeful meeting with Indian government, India remains a problematic alternative for some foreign OEM decision makers seeking an Asian solution with domestic Indian ESDM solutions providers.

To be fair, some capable Indian ESDM outliers exist depending on OEM outsourcing program requirements and actual ESDM capabilities. But we still hear the same stories from some OEMs today we heard 15 years ago, emphasizing a lack of Indian electronics industry infrastructure, among other concerns.

To put this in perspective one measure of real electronics industry geoeconomic infrastructure is a commercial semiconductor wafer fabrication manufacturing facility and after many false starts over the years India still remains without.

Indian ESDM marketing vs execution

We engage electronics OEM decision makers on a monthly basis seeking discussion and gathering information for their electronics outsourcing solutions strategy. Some concerns from OEMs we have heard over the years regarding Indian ESDM solutions providers center around Indian providers claiming they can do anything an OEM prospect needs.

Former customers of Indian ESDM firms have shared stories about slow responsiveness to customer concerns after the deal is signed, lack of flexibility to program change requests and holding programs and program moldings hostage when an OEM has decided to move their program to an alternate contract electronics solutions provider.

Other stories include Indian ESDM senior executives who show up late for scheduled meetings – or not at all, trying to reverse engineer or obtain competitive intelligence, unreliable communications channels leading to poor dialogue quality and dropped connections, to name a few.

OEM decision makers seeking electronics solutions face many risks: work stress, time and budget constraints, worry about reputation among colleagues. What if the electronics solutions provider(s) selected cannot deliver on their promises? Moving OEM programs to alternate providers is costly both in terms of money and lost opportunity costs and can lead to declining market share for an OEM product.

OEMs want to know Indian ESDM providers will manage their business the way they do. But as failed efforts continue to remind OEMs the desire for India to become a global ESDM player is approaching a critical decision point because uncertainty, delays and increased costs that impact the ability for a companies to be profitable cannot be tolerated indefinitely.

Success is India’s to lose

James Wolfensohn, former president of The World Bank and CEO of Wolfensohn and Co., addressed Stanford Graduate School of Business students in 2010 with details about how the equation between developed and developing countries is changing in the next 40 years. A global power shift will see today’s leading economic countries drop from having 80% of the world’s income to 35% and China and India will contribute 50 percent of the global GDP. (See firms in India offering electronics services design manufacturing (ESDM) )

Despite India being home to the last great emerging market as her middle class and purchasing power grow in the coming years, India cannot rely on OEM importance to locate electronics manufacturing nearby their base of product consumption if word-of-mouth reputation of Indian ESDM industry continues to spread among OEM decision makers.

Alternative Asian ESDM destinations we hear OEMs asking about include nations like Indonesia, Philippines, Vietnam, Malaysia plus, China remains attractive with its mature supply chain infrastructure in place despite growing labor rates. Wages are a small portion of the materials cost of goods sold for most electronics items being manufactured across Asia and therefore India’s wages are typically not suitable to offset the negative impact or cost of running lower manufacturing volumes.

 

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India differentiation 

The Philippines and other destinations already compete with India on labor rates, intellectual property protection, various engineering capabilities and pricing of services plus some of these nations have considerably more competitive import duties for bringing in expensive capital equipment.

Add to this, few Indian ESDM factories have the upside capacity relative to many other Asian contract electronics regions, partially driven by low volumes of electronics items demanded domestically but this could change as the wealth GDP redistribution Wolfensohn defines takes hold.

It remains to be seen whether vital infrastructure development and economic support will enable India to emerge as a strong player in the growing, global electronics solutions industry.

Meanwhile, in March of this year we witnessed election results for the most populous Indian state of Uttar Pradesh. The positive outcome is perhaps an indication of Prime Minister Narendra Modi’s policy progress halfway through his term and could likely make it easier to move government forward in boosting India’s economic growth.

There is no doubt things are different this time around with a chorus of electronics industry trade bodies, organizations, and policy-making institutions regularly reviewing both individual and cohesive strategy to enhance and promote electronics hardware design and manufacturing capability and services like the newly formed Ministry of Electronics and Information Technology (MeITY), previously deemed Department of Information Technology (DeITY) under the Ministry of Communications and Information Technology, the Manufacturers’ Association for Information Technology (MAIT), the Electronic Industry Association of India (ELCINA), Confederation of Indian Industry (CII) plus other long-time and new initiatives like Digital India, Make in India, and Invest India.

Add to this many of India’s national policy changes have included changes to Preferential Market Access (PMA) policies, schemes for Modified Special Incentive Packages (M-SIPS) and Electronics Manufacturing Clusters (EMC) plus, various taxation and electronics product segment-specific initiatives included in the 2014-2015 budget 8 each designed to foster both foreign and domestic investments while reducing constraints related to internal economic growth.

But Indian ESDM challenges still remain before India can secure a higher degree of confidence among electronics OEM decision makers within and outside India’s borders.

ESDM manager and executive development

Its understood manufacturing companies operating in the electronics industry require sustainable supply chain ecosystems and reliable, uninterrupted power or energy regardless of geography. There is no doubt India is making some progress. But what about ESDM leadership development?

Based on interactions with hundreds of Indian managers and executives across dozens of Indian ESDM firms over the years a broader base of qualified, Indian ESDM decision-making managers in all functional groups needs to be cultivated further.

The Indian Ministry of Electronics & Information Technology website had 400+ courses listed on its website for training and jobs in India’s ESDM industry. However, coursework focused only on activity-based technical capabilities. See sampling in Figure 1, below.

Figure 1

 

In addition to courses presented by government of India National Institute of Electronics & Information Technology (NELIT) above, other organizations offering courses include Noida Productivity Council, NIT India and, Enize Infotech, to name a few.

Several months ago I emailed several of these organizations asking if they could explain how someone paying for their course(s) might further enhance their managerial capabilities in India’s ESDM industry. I received only one response from NIT thanking me for my inquiry informing me someone would follow up but no one did.

Surprisingly, no ESDM soft skill or managerial leadership development courses could be found like program management and line of business management and ESMD functional group management decision-making. (View full Indian Ministry of Electronics & Information Technology website ESDM courses list retrieved from Google cache April 15, 2017)

Perhaps instead, tomorrow’s ESDM leaders in India should be learning how to quote new customer opportunities while understanding ESDM business unit finances, balance sheets, profit and loss and cash flow statements to run profitable ESDM businesses.

A Google search (Figure 2) for the ESDM courses available when I first began researching this paper now return a message server DNS address could not be found when clicking through: https://esdm-skill.deity.gov.in/courses.aspx/

Figure 2

 

Leading India by example

Protectionist policies that concerned EU leaders in 2009, still plague the nation as “preferential market access [policies are] certain to further jeopardize investment in India’s ICT sector.” After the 2002 comments by Blackwill and Intel’s Barrett, nine years later a Nomura report found that, in 2011, multinational companies still pulled $10.7 billion out of India – 48.6% more than they withdrew in 2010. The reasons: high cost of doing business and regulatory uncertainty.

And while Modi is slowly improving India in these areas the Confederation of Indian Industry (CII) has stated that skill gaps remain one of the major constraints to continued growth of the Indian economy 12 and specifically to ESDM industry I could not agree more.

To fund India’s growth one cannot turn a blind eye to the fact banks in India had record stressed loans of $133 billion, or 12.34% of total loans, as of September 2016. About two-dozen state-owned lenders have an even higher stressed-loan ratio of 15.88%, according to data compiled by India’s central bank.

Regardless of the long startup phase India has been undergoing toward building ESDM prominence, opportunity for India as a hotspot for sourcing electronics solutions remains promising when attracting foreign OEM decision makers in light of recent changes in government personnel.

In June of last year World Bank president Jim Yong Kim said to reporters in New Delhi, “I am a big fan of Prime Minister Modi and the reason I’m such a big fan is because he does something that all great leaders should do, that is set ambitious targets, set deadlines for those targets and then hold your staff accountable for those targets. That is tried and proved method of getting results.”

Arun Shourie, one of Modi’s most outspoken critics, has praised the Prime Minister’s ability to curtail government corruption. In a 2016 interview on India TV, Shourie credited Modi with “drastically reduced corruption, [and] that there hasn’t been a single case of corruption in the government and that nobody in the Modi Cabinet can be accused of corruption”.

India Electronics and Semiconductor Association (IESA), which recently hosted a vision summit, including government and industry representatives along with venture capitalists and technology leaders on fully depleted silicon on insulator (FD-SOI) technology, manufacturing, and skills development, using university product innovation hubs. 16 Ernst & Young (EY) also reported India’s ESDM sector was poised to reach $228 billion by 2020 from $100 billion in 2016-17, growing at 16-23% annually, citing forecasts based on the India’s GDP, currency movement, inflation, trade pacts, consumer sentiments, policies, investments, manufacturing entities and value addition.

Forging Indian ESDM Industry

This is all good, but there is a continued need for coordination and cooperation with national and regional Indian ESDM businesses. As I shared with Secretary Shah during our meeting India still must continue on many levels to promote:

• “Partnerships and foreign technology-based venture capital investments in ESDM industry start-up and incubation ventures
• Corporate rewards for the private sector to play an active role in producing a continuous stream of innovative ESDM business ideas and models conducive to the dynamic Indian environment and socioeconomic development
• Effective communication of the relative laws and enforcement measures that ensure strict implementation of IP rights to fuel innovation
• Adequate attention to upgrading basic ESDM-related technical infrastructures and better access for links to knowledge sources and international industry networks”

ESDM education and training continue to be among India’s weakest areas, and these are critical to success in its initiatives. Attention must be applied to all phases of the education system and must include at the very least:

• “Collaboration with the private sector on vocational training and the continuing education of ESDM industry decision-makers and technical managers in critical thinking
• Active involvement by Indian ESDM businesses and associations in helping define industry skill sets for future researchers, engineers and management leaders”

If new government initiatives are neglected, more effective ESDM industry leadership training and professional development are ignored and, dishonorable business practices are allowed an environment to thrive in, the best efforts in the world’s last great emerging opportunity for contract electronics solutions placing a stamp on Indian ESDM industry could be wasted.

Read edited version on Gateway House website (includes reference links)

 

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