shotsstudio - stock.adobe.com
Can India become a global manufacturing hub?
India can be a major player in the global manufacturing supply chain by shoring up IP protection and tapping opportunities in contract manufacturing and firmware design
Early this year, the Indian government introduced financial incentives for companies to produce IT hardware, underscoring its ambition to boost domestic manufacturing and turn the country into a global manufacturing hub.
The move, which started some years back, has been gaining momentum in the past two years – thanks to the pandemic-hit supply-chain dynamics, as well as geopolitical turbulence.
Often compared to China in conversations about manufacturing, India, like its Asian rival, has a huge population – albeit a younger workforce with lower wages and multilingual capabilities that could fuel the country’s manufacturing sector.
In recent years, the growing pace of digitisation across the subcontinent has also made production processes more efficient, particularly through the adoption of industry 4.0 and the internet of things (IoT) in areas such as supply chain monitoring and asset maintenance.
At the same time, more multinational companies are looking to diversify their supply chains beyond China, with countries such as India serving as alternative or complementary production locations in their global manufacturing footprint.
However, despite the factors favouring Indian manufacturing, complicated laws, bureaucracy and poor intellectual property (IP) protection could deter companies from setting up manufacturing bases in the country, according to Muzammil Hassan, head of IP licensing and commercialisation at technology research firm GreyB.
“When companies come to India, they are bringing their technology and looking to develop future tech in India,” he said. “Nobody wants to spend billions developing a technology and then waiting in line for years to enforce their patent rights.”
And so, for India to become a manufacturing powerhouse, the country will need an effective IP protection regime to instil confidence in the manufacturing ecosystem. “Companies need to know that their ideas and technology are protected – and if the need arises, they will get the due damages too,” said Hassan.
Besides building up an IP regime, India also needs to find ways to plug into the global manufacturing supply chain.
“Two companies might compete by developing chips in South Korea or the US, and then produce the chips in China or Japan based on wafers purchased from a German or another Japanese firm,” said Jim Handy, a veteran analyst and semiconductor expert at Objective Analysis.
“They might use chip production tools from Japan, the Netherlands, the US or other countries. The chip then might be sent to Malaysia, the Philippines or Mexico for packaging and then be assembled into a phone or PC in Taiwan, Vietnam or Brazil before being consumed anywhere in the world.”
So, almost any country can become a part of the global electronics supply chain if they want, said Handy. But they will require a number of things, including good access to airports and harbours, government support, including tax incentives, reliable utilities – and a ready workforce.
“The skills required of that workforce depend on the task being performed,” said Handy. “If the job involves R&D, then a very high level of skill is required, but other tasks need no more than unskilled labour. Investors, whether local or foreign, will be looking for stability. A developing country should be able to find a comfortable fit.”
Read more about IT in India
- New datacentre campus near Mumbai will deliver 90MW of power to host technology and cloud suppliers as well as large Indian companies in a fast-growing market.
- Reliance Jio, India’s biggest telco, will use Google Cloud to manage its 5G network and grow its commerce business.
- Wipro is partnering a stem cell technology firm on the use of its Holmes artificial intelligence platform to help researchers ascertain the safety and potency of vaccines.
- India is set to be a cradle for IoT deployments thanks to its vibrant economy and its potential to play a bigger role in global manufacturing.
Omer Basith, co-founder of Virtual Forest, a supplier of green energy solutions, noted that the financial carrots offered under India’s production linked incentive (PLI) scheme are timely, with IT hardware accounting for almost 38% of electronics imports.
He pointed out a catch, though. The investment and sales commitments mandated by the PLI scheme will largely exclude smaller companies. The stringent qualification criteria, such as high global turnover, would make it nearly impossible for new entrants to join.
So, unless a small or aspiring manufacturer has a significant design and technology advantage, coupled with a niche high-margin market, Basith believes the challenges might be too big for smaller entrants at the moment.
Himank Joshi, a research analyst at Forrester, noted that the PLI scheme, along with a cluster of schemes rolled out by the Indian government, hold promise for electronics manufacturing, especially in times when companies are looking to de-risk their supply chains.
“The targets set under the PLI scheme are ambitious, but feasible,” he said. “Execution and scale of benefits will be critical to attract investments and to realise the growth targets.”
Another bright spot that could turn India into a major manufacturing player is contract manufacturing. Basith noted that although there is still a long way to go, there are opportunities for contract manufacturers to build long-term relationships with original equipment makers.
Basith was also upbeat about India’s firmware development capability, with many companies in the country already providing support for firmware development and embedded software design.
Nityesh Bhatt, professor and chairman at Nirma University’s Institute of Management, said that in boosting India’s manufacturing sector, the government has repealed archaic laws, paved the way for foreign direct investment, and set up industrial corridors, among other efforts. These have propelled India’s ranking in the World Bank’s Ease of doing business index from 142 in 2014 to 63 in 2020.
But Bhatt also pointed out the numerous challenges that lie ahead for Indian manufacturing. “We need an innovation ecosystem including skill-building initiatives, land and labour reforms, energy security, continuous infrastructure augmentation and access to finance,” he said.
“Covid-19 has further dampened the socio-economic fabric of the country, forcing the government, already lacking resources, to look inward with citizen-centric welfare measures rather than take a forward-looking reform perspective.”