How Electronic Manufacturing Companies Are Coping With Changing Industry Dynamics

Sunil Kumar Patwari is the CEO of Rashmi Rare Earth Limited, an important addition to the 50-year heritage of the Rashmi Group. RREL is an electronic manufacturing company that is focused on revolutionizing the manufacturing of mobile phones and its accessories such as internal circuit boards, chargers, batteries and more in India – using top of the line Japanese technology.

Pivoting the new world order and adapting to the changing socio- economic and political climate has brought about a sense of unity amongst leaders of electronic manufacturing in the country. As an immediate response to the global crises leading to a disrupted access to raw materials required for most production processes, the inclination towards the concept of Vocal for Local caught attention of market leaders, decision makers and consumers across the Indian demography.

For the first time in decades, EMS production was jolted by the need to change operational strategy and evolve into a more self-reliant industry. The supply chain of electronic manufacturing components has been under great duress since the Anything But China movement engulfed electronic manufacturers, nudging them to re-evaluate their relationship with the world leader.

The Indian subcontinent imports over USD 60 billion worth of electronic equipment, assemblies, components, and raw material, with China being a major contributor to the mix (25 to 70 percent). Over the years the domestic electronics, manufacturing industry has re-defined its operations and has developed the bandwidth to assemble and produce good quality final products. However, the industry overall still lacks an ecosystem to produce components making us increasingly dependent on China.

The Government of India has also taken a keen interest in accelerating the growth of the industry by redirecting funds and encouraging innovation. Initiatives like the Phased Manufacturing Program and Production Linked Incentive Scheme are effectively tempting manufacturers to take up the cause of Make in India and augment production capacity at a local level.

The key to building a strong foundation of component manufacturing in India is to invest in a robust culture of Research and Development, alongside re-imagining the functioning of the industry over a long period of time. Self-sufficiency/Atmanirbharta have been key contributors to our nation’s long standing history and thus it is time that one brings it to the forefront in this industry as well, instead of depending on outside sources to fulfil our demands. While the culture of self-reliance has been prevalent across other sectors, a tactical approach towards identifying our own strengths and weaknesses within the EMS industry can help us recognise the areas where we must direct our efforts.

The ESC projected that exports from India are likely to be valued at $180 billion by 2025 from as compared to $11.28 billion in 2019-20. At present MSME’s from across the spectrum are unable to reap benefits of the PLI program as it is only directed at the mobile manufacturing sector and requires minimum incremental investment of over 100 crores. Reports suggest that a charter has been submitted to the Government by the ESC to expand the incentivisation of the Production Linked Incentive Scheme to become more inclusive and go further than the smartphone and mobile phone industry. There is also a need for a more targeted MSME initiative on similar lines if we are looking at a more all-encompassing reach of the program.

At present India’ domestic production simply accounts for 3.3 percent of the global electronics manufacturing market giving us an opportunity to grow significantly. Owing to the availability of skilled human capital and motivation to restructure operations to dissuade dependency on China, calibrating the functioning of the ecosystem and becoming producers instead of merely assemblers is now at an arm’s reach. However, hindrances caused by a high taxation structure, lack of infrastructure and financial backing often come in the way of establishing domestic production in the league of other leading players.

Until a complete shift to Make in India is possible, industry stakeholders are also looking at shifting parts of their component needs to countries like Vietnam, Japan, Taiwan, Korea and etcetera. According to a recent analysis conducted by the World Trade Centre in Mumbai, electronic goods worth over INR. 3.5 lakh crores were imported from China to India between April 2019 and February 2020. Thus, reducing the quantity of imports of electronic goods from the dragon can considerably contribute to lowering the trade deficit with China overall. To conclude the volatile and fragile nature of operations in the EMS industry is highly conducive of bringing about life-altering changes to the future of the electronics manufacturing industry and how others perceive India’s competence in this field.