The $3-billion global electronics hardware industry is significant both for its size and the number of people it employs all over the world. Electronics components (including semiconductors, printed circuit boards, etc.) constitute over 44 per cent of the total inputs to this industry. The rest include materials such as metal (copper, aluminium, and steel), wood, paper, plastics, etc.
There is a high level of standardisation, formalisation and computerisation of the entire product development (computer-aided tools) and manufacturing process (enterprise resource planning tools for production planning, inventory and logistics control).
As a result, the entire value chain is modular and spread across the globe, further enabled by the ability to share and monitor end-to- end processes over the Internet.
INDIA’S ADVANTAGE
The Indian software and semiconductor design industry gained predominantly due to this. Initially, multinational captive design centres led its moderate growth.
Since the mid-1990s, Indian local services companies, in addition, have stepped up the sector’s development to reach a size of nearly 20,000 semiconductor design engineers.
Most of these engineers contribute to global products driven from the headquarters located outside India.
The lower cost structure achieved by offshoring or outsourcing continues to be a key driver, akin to the migration of low-cost manufacturing from the West to Taiwan and later to China.
The Indian semiconductor design centres, hence, have specialised in activities not requiring proximity to the market or manufacturing facility. Customers for semiconductor products are companies that make and sell electronic products such as mobile phones, televisions, computers, automotive electronics, smartcards and household appliances, to name a few.
Historically, they have been located in Europe, the US, Taiwan, Korea and more recently in China. Their products are sold worldwide. Hence, roles that translate market requirements into products that meet a range of performance and cost criteria have mainly eluded Indian design teams.
Similarly, capabilities related to testing and validation of manufactured semiconductor products or improvement of sophisticated manufacturing processes are nearly non-existent in India.
LOCAL MANUFACTURING
This may change as the Government recognises the importance of having local electronics manufacturing to address the Indian market. It has recently announced a comprehensive National Policy on Electronics offering a bundle of incentives to promote manufacturing of electronic products, including semiconductors, in India.
It has also offered Preferential Access in Government procurement for “Made in India” products. Electronic Manufacturing Clusters that provide world-class basic amenities for setting up electronic product manufacturing are being announced by various States.
Such clusters will co-locate allied activities such as printed circuit board, plastics moulding, cables and connectors and logistics management.
End-to-end capabilities in electronics and semiconductors are needed for an electronics manufacturing eco-system to be established.
INITIAL BENEFICIARIES
The early beneficiaries of this policy are likely to be multinational electronic product companies, who see an incentive to relocate manufacturing to India from other higher cost countries and then mandate their Indian captive design centre to develop innovative products for the local and similar markets in Asia, Latin America and Africa.
Bosch recently announced setting up of a large manufacturing facility in Bangalore; it also has an engineering team of over 10,000 people. As the local consumption of electronic products increases, semiconductor companies that thrive on global scale in manufacturing are likely to follow.
When the consumption of locally designed and manufactured electronic product reaches a certain scale, the Indian chip design industry should reposition itself to also focus on developing competitive products by leveraging the knowledge of local market and manufacturing eco-system.
The Government is encouraging local development and manufacturing of certain high-volume electronic products, such as set-top-boxes, smart energy meters and tablet PC.
The Indian electronics and semiconductor industry, through rapid product innovation and short product life-cycles, should capitalise on its current role in the electronic hardware segment and the modular structure of the value chain, to keep the opportunities coming for industrial upgradation.
The local electronics and semiconductor design industry should try to develop solutions for the solar and wind farm industries, which are still in the embryonic stages. While solar panels are already manufactured in India, the inverters that link the grid to the power generating panels represent such an opportunity.
Similarly, replacing conventional energy meters, which can be tampered with, with tamper-proof electronic meters also offers an interesting opportunity.
There is potential for installing around 200 million units over the coming decade, hence a potential need for India-specific smart energy meter semiconductor product.
Lastly, the mandate by the Government to replace analogue set-top-boxes with digital ones offers an opportunity of over a 100 million units.
(The author is Managing Director, Infineon Technologies India Pvt Ltd)