Editor's Note

Looking for a silver lining All hell seems to have broken loose since the financial meltdown and the slow global economy in 2008, but India may still benefit from increased outsourcing, as well as by turning its focus inward. By Vivek Nanda

With two fabless companies and 28 design service/IP providers against Asia's 510, India's IC design industry is at the foot of a curve. Analysts like the IDC announced in 2008 that the curve is one of astounding growth. IDC said nearly a year ago that India's electronics design revenue, including that from IC, board and embedded systems, would reach Rs.36,876.82 crore ($7.37 billion) in 2008, Rs.44,882.64 crore ($8.97 billion) this year and continue growing to Rs.54,839.88 crore ($10.96 billion) next year. ISA President, Poornima Shenoy, announcing the report last year, had declared that India's growth was nearly 22 per cent and that was three times the global growth rate of about seven per cent.

Between then and now, all hell seems to have broken loose. The slow global economy in 2008 and the financial meltdown have curtailed consumer spending. In the United States, 26 lakh (2.6 million) jobs were lost—the most since the second world war. Their president-elect Obama reiterated his promise in January that he will invest heavily in infrastructure, included public transport, and development of more efficient cars and greener energy initiatives.

Export-led economy China has also been suffering. About 26 per cent of PCB and copper-clad laminate companies in South China, for instance, have closed and that trend is expected to continue this year taking the shutdown rate to 40 per cent. More recently, Lenovo announced plans to lay off 2,500. And, in an unusual move, a report in the state-run Liaowang Magazine said faltering growth could spark anger among millions of migrant workers and university graduates left jobless. The reporter said China was entering a peak period for “mass incidents”—an official euphemism for riots and protests.

William Hutton, chief executive of The Work Foundation, recently told the BBC that China had been too dependent on exports. According to him, about 10 per cent of China's GDP is currently due to fake goods. The government, he said, is promoting domestic consumption and realises that establishing “soft infrastructure” through reform to promote innovation is the only way out of this mess.

In India, the audacious moves to acquire and expand seen earlier by the likes of Tatas, Wipro and MindTree have cooled. The country, which has been planning to its debut fabs, suddenly finds funds and demand hard to find. Nanotech Silicon India, a consortium to set up a fab in India shelved its plan. The consortium led by South Korean professional Jun Min decided to set up a Rs.1,200-crore solar cell manufacturing facility along with Jusung Engineering. The government allocated land to Nanotech in the proposed Fab city near Hyderabad.

Another fab plan, by SemIndia and envisioned as an integrated semiconductor company, has never found the sailing smooth. Last month, they finally decided to shelve the plan for a Rs.15,010.92 crore ($3 billion) facility. The company's proposed plant on assembly, testing, marking and packing however is likely to start production in Q2 of this year after being delayed from last December.

There have been other delays in investment, including the announcement by Honda Motors that they will delay opening their Rajasthan plant by about a year.

The news that Satyam Chairman Ramalinga Raju cooked the books to the tune of Rs.5,040 crore ($1 billion) must be like a tooth extraction without anaesthesia for the Indian industry. NASSCOM was quick to issue a statement to the effect that this was an isolated incident. The incident will put pressure on salaries, which may go down by 10 per cent due to the surplus of about 20,000 in the job market, a PTI report quotes Headhunters India CEO Kris Lakshmikanth.

There's agreement however that India will benefit from increased outsourcing as companies elsewhere look to reduce costs to survive. Tesco, the world's third biggest retailer, said after news on the Satyam disaster that it would continue to outsource more work to India, including vendors like TCS and Infosys. Tesco saves around Rs.300.22 crore ($60 million) every year by outsourcing to India, according to Mike McNamara, director of operations and IT for Tesco Global.

In yet another vote of confidence, Toyota, which has suspended expansion plans in China, Brazil and the United States, plans to go ahead with its Rs.3,200-crore India investment plans, part of which will help it debut a compact in the country by December 2010. That's good news for the automotive components industry.

And the Indian industry has also started looking inward. The IC design industry, focused on the global market, realises that India is an important market for many sectors that it has traditionally served worldwide, and that there is growing opportunity for India-specific innovation. The VLSI Conference in January organised a “Made for India” forum to goad companies into an India-driven innovation.

Send your feedback to vnanda@eetindia.com.

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