The Hindu Business Line : Another precious drop...

Making for good reading is this spate of investments in the hardware sector in the country. Here are some areas to focus on if one wants to build this drop into a flood.

THERE has been a flurry of activity in the near dormant electronic hardware market scene in India in recent times.

Nokia's decision to invest in a new manufacturing facility for mobile handsets, involving an investment of $100-150 million over four years, has created quite a flutter.

Although it is not the first investment being made in mobile manufacturing, considering Elcoteq's and LG's commitment to mobile manufacturing from India, it is a fairly significant one.

Similarly, the Government of Andhra Pradesh recently inked a pact with Intellect Inc, a South Korean company, to set up the first private mega semiconductor manufacturing facility.

The investment is to be made in two phases, with Phase I of the project involving an investment of $600 million. Intel's CEO, Craig Barrett, too has said that he is evaluating India as a possible location for a new chip manufacturing facility, without making any firm commitments.

No wonder, for the electronic hardware industry, these investments are coming in as a second wind of growth and the prospects appear promising at this stage.

In a sense, however, this is only a proverbial drop in the ocean of investments already made in electronic hardware manufacturing by China or Taiwan or South Korea by players from the developed countries.

If India has to leverage on these developments, it will have to focus on probably three key areas in the future:

Promoting India as an alternate location: Just as China is slowly enhancing its potential for emerging as an attractive software destination, India will have to focus its energies on increasing investments in the hardware sector.

This logic is compelling, since global electronic hardware giants and contract manufacturing outfits are already diversifying their investments outside China (or other Asian locations).

And if India can play its cards right, it can step in and fill the manufacturing opportunity.

As far as the strategy blueprint goes, an Ernst and Young (E&Y) study titled "India: The Hardware Opportunity" continues to be a good starting point.

Since infrastructure and import/domestic tariff structure remain critical factors, the government-industry collaboration is an imperative for the growth of this sector.

Unlike software, given the capital-intensive nature of projects, a similar hands-off approach of the Government can turn out to be counter-productive to the interests of this sector.

Select niche areas of growth: If India is to be successful in the contract manufacturing space for hardware components, it has to identify and select niche components for growth. This becomes relevant as the global component manufacturing capacities of outfits in Taiwan or China are already 20 times bigger than that of India, and consolidation has taken place in this space in the last couple of years.

Given the advantages of `economies of scale' enjoyed by the Taiwanese or Chinese players in a highly commoditised market, the Indian manufacturers will have to be very selective in the components that they can afford to play in and scale-up rapidly.

In the E&Y report, the potential areas identified for contract manufacturing are PCB assembly, cable harness assembly, product assembly and testing, power supplies and semiconductor assembly.

Since its over two years since the report was presented, it may make sense to rigorously re-evaluate the manufacturing options available to Indian manufacturers. After all, the growing convergence of telecom, consumer electronics and entertainment sectors is already reshaping the landscape of component development manufacturing in a big way.

Focus on original design: Finally, India will be in a position to capitalise on its strength in software by undertaking Original Design Manufacture (ODM) and services, which are increasingly sought in the burgeoning field of embedded systems, entertainment, smart cards and wireless.

Focussing on this promising field, MAIT (Manufacturers Association of Information Technology), the hardware association, had in mid-2003 released a publication titled "Designed to Excel — a collation of Successful IT design companies in India."

At that point, it contained a database of 150 companies that are engaged in the high-end activity of R&D, design and product development.

This is obviously an idea that can be leveraged suitably.

Take, for instance, Flextronics, the Singapore-headquartered contract manufacturing company, which has recently acquired the Bangalore-based Deccannet Design, which provides design services in telecom infrastructure and mobile handhelds.

Given the strong linkages that design has with software development, our traditional strength, it can help India emerge as an electronic design hub for the world.

With the right confluence of government, industry and academia, electronic product design has the potential to establish the `India Brand' across the globe.

Picture by Bijoy Ghosh

maverick@thehindu.co.in

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