In a factory in the district of Daman on the western coast of India, which has an economy largely dependent on agriculture and fishing, one Indian company is manufacturing high-tech electronic products including what it describes as the “world’s smallest PC”, with ambitions to become a household name.
Vardhaman Technology, which is based in Mumbai, this year entered the consumer electronics space with its Air PC product, which comes under its Panache brand. It is a 10cm device with Microsoft Windows 10 installed that can be connected to a screen, such as a television or computer monitor.
For about 15 years before this device’s launch, Vardhaman’s focus had been on providing computer devices to businesses. But its management believes that now is the right time to start targeting the mass market.
“We acquired skills over the period in terms of designing products and manufacturing them in India because India was still not considered a hardware manufacturing location, so it took us a while to gear up and create an ecosystem out here,” says Amit Rambhia, the director of Vardhaman Technology.
While India has excelled in information technology services and has built up a good reputation worldwide in that sector, its role is very limited when it comes to manufacturing electronic goods. India is heavily reliant on exports of electronic products and some analysts say that India’s import bill for electronics could exceed that of oil in the next few years because India is not producing enough goods domestically.
This could change as Indian companies, such as Vardhaman, aim to create home-grown products.
“There is huge potential,” says Mr Rambhia. “The labour costs are low in India compared to China. If I compare, we are in the position that China was probably 15 years ago. For an Indian brand to emerge worldwide, our advantage is that we will be able to quickly put all the software values on top, all the analytics, add more value to the product. That’s our differentiating game from the Chinese brands out there.”
The demand for electronics in India is projected to grow to US$400 billion by 2020 from $125bn last year, according to a study produced for India’s Department of Electronics and Information Technology. This is being driven by the expansion of the middle class and rising incomes.
It says that “electronics exports have the potential to offset the oil import bill”.
“The electronics industry in India is poised for high growth, however there exist multiple challenges that need to be addressed to realise its true potential,” according to the report. “Key among these are inadequate infrastructure, frequently changing tax structure, supply chain and logistics issues, inflexible labour laws, limited research and development focus, non-availability of funding mechanisms, limited focus on value addition and exports. Supply is not keeping pace with demand in India, resulting in ever-increasing imports from China, Taiwan, South Korea.”
In India, electronics manufacturing contributes to just 1.7 per cent of GDP, while it is 15.5 per cent in Taiwan, 15.1 per cent in South Korea and 12.7 per cent for China, show figures published by the consultancy EY.
It says: “The need of the hour is to focus on building technology brands emerging out of India. We must target emerging markets and future technologies to capture market share.”
Mr Rambhia says there is a gap in the market to be filled either by multinational companies or by new Indian companies.
Major Indian names such as Wipro chose to focus on the more lucrative software segment and moved away from the hardware business, he says.
“Earlier if a company did manufacturing, the valuation of the company was considered to be lower because of the compliances and the legal hassles they had to face,” he says. “Now with the marketing from the government and the business-friendliness they are showing, there is an openness for businesses to enter manufacturing. Businesses are attempting manufacturing. I have a lot of friends who were not manufacturing who are now looking at manufacturing hardware in India. Going forwards, what we see is that the government thrust is more on digital India and making products in India.”
One of the prime minister Narendra Modi’s drives is to boost the manufacturing industry under his “Make in India” campaign.
“The Indian electronics system design and manufacturing industry is at a huge inflection point,” according to a report by Frost & Sullivan and the India Electronics and Semiconductor Association. “From being predominantly consumption- driven, the Indian industry has major potential to become a design led manufacturing industry. Concerted efforts from both the government and the industry are required to propel the Indian electronics system design and manufacturing industry into one of the critical GDP contributors in the near future.”
The report highlights that televisions, mobile phones, tablets and desktop and notebook computers are among the “high priority” products for India.
Indian mobile phone companies including Karbonn and Micromax manufacture smartphones in the country. Foreign companies are also increasingly looking to India as a manufacturing base. The Chinese brands Lenovo and Xiaomi this year started manufacturing smartphones in India. Sony makes its Bravia televisions at a Foxconn facility in Chennai. The Taiwanese company Foxconn makes Apple’s iPhone.
“The burgeoning consumer electronics market in India presents an attractive opportunity to manufacturers, says Milan Sheth, a partner and technology industry leader at EY India. “Most of the global corporations are looking at India as regional hub for manufacturing and sales to cater to not only Indian market but SAARC [South Asian Association for Regional Cooperation] and Middle East and African markets as well.”
But there is still more to be done to pave the way for India to excel in homegrown electronic goods.
“Currently, there is low level of component manufacturing activity in our country, which discourages domestic manufacturing of end products,” says Som Mittal, the chairman of the Federation of Indian Chambers of Commerce and Industry electronics and white goods manufacturing committee. “Therefore there is a need to create a component industry to cater to the demand of manufacturers.”
EY highlighted that “there is an immediate and urgent need to boost electronics manufacturing in India”, in a recent report.
“The case for promoting India as a manufacturing destination is also getting stronger with time … with burgeoning local demand, increasing maturity of the Indian market, viable export markets of SAARC, the Middle East and Africa. India can emerge as the future manufacturing hub for the region, provided there is adequate focus and support from the government for this sector.”
EY’s recommendations to push electronics manufacturing include improving the ease of doing business, reducing borrowing costs, lowering duties and giving incentives for component manufacturing and encouraging exports.
Mr Rambhia says that, beyond India, it is targeting other emerging markets including the Middle East and Africa with its products.
“If India is able to get the policy and the government stability rightly, I would say India will be able to take some part of the global market,” he says. “Even if we don’t serve the global demand and focus on the Indian domestic demands [that’s a huge customer base]. India has not yet gone to the maximum consumerism with the consumption of electronic goods.”
‘Make in India’ project given cash injection
India’s government is planning to launch a 100 billion rupee (Dh5.5bn) fund to give a boost to electronics manufacturing and help increase local production and innovation.
“It will be used to encourage innovation and support entrepreneurship,” said J S Deepak, the secretary for India’s department of electronics and information technology. “We need to change the present system of electronics manufacturing. It has to be rich in domestic intellectual property rights.”
He described the fund, which has already been approved by the cabinet, as “a fund of funds”. It would provide those resources to venture capitalists who would in turn inject the money into Indian electronics design and manufacturing companies.
Mr Deepak was speaking at the launch by the US company Qualcomm of a $400,000 fund for the development of electronic products in India by local entrepreneurs. The “design in India” programme is a joint initiative with India’s National Association of Software and Services Companies (Nasscom). This scheme is focused on nurturing the development of hardware design in India for products such as tablet devices and smartphones.
“The company creating a product under the design in India programme will own intellectual property rights for it,” said Sunil Lalvani, the president of Qualcomm India. “We only want to boost the ecosystem for electronics design and commercialisation of innovative products.”
He said that the company has been inspired “by prime minister Narendra Modi’s ‘Make in India’ vision … to support the possibility of making India a hub for product and hardware design in the areas of smartphones, tablets and internet of things”.
Under the programme, 10 shortlisted Indian companies would receive $10,000 each to work on the development and the prototype of their product at a Qualcomm innovation lab in Bangalore. The three that are then selected as the best would receive $100,000 each under the scheme.
“We look forward to seeing the Qualcomm design in India initiative propel more opportunities for innovation, design and development in India, which will energise the domestic hardware manufacturing ecosystem to address both domestic and global market needs,” said Mr Deepak.
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