Will Sino-US Trade War Precipitate Manufacturing Spin-Off in India?

Article By : Sufia Tippu

The trade war between the US and China seems to have set off a series of small manufacturing ripples across India.

Bengaluru: Global electronics contract manufacturers are planning substantial investment in India with a total of around $1 billion over the next five years to expand their production facilities in India.

Taiwan-based Wistron and Foxconn have applied to the government to invest around $700 million and $350 million respectively. This comes under an incentive package that can give these companies benefits of $140 million and $70 million respectively, according to a report in the Economic Times. Wistron is likely to begin manufacturing iPhone 8 in the country while Foxconn plans to support higher levels of manufacturing for existing clients such as Xiaomi and Nokia phones.

And, these are just big ticket investments. There are several, particularly in the mobile space right from Samsung and Xiaomi to smaller and lesser known brands which have started on the investment road to manufacturing.

Interestingly, there are currently 240 companies in India which are making electronic products and about half of them (127 companies) are manufacturing mobile phones with Noida and Greater Noida in northern India emerging as a mobile phone manufacturing hub, having 57 factories alone.

According to a recent UN Conference on Trade and Development (UNCTAD) report, India will emerge as one of the largest beneficiaries of the trade war between the US and China, with a potential increase in exports up to $10 billion or 3.5% of its exports.

And when exports are likely to go up, manufacturing has to step up to keep in tune with the exports momentum.

The central government has given a nod to as many as 193 of the 421 applications received under the modified incentive package scheme (M-SIPS), of which 144 have started making investments totalling $1.32 billion. The scheme provides a capital subsidy of up to 25% for units engaged in electronic manufacturing and reimburses countervailing duties/excise duty to attract investments.

Wistron may shift some of its PC, Internet of Things (IoT), medical and cloud service businesses to India, according to the report. Currently, it has two plants near Bengaluru that assemble Apple’s iPhone SE and iPhone 6S devices for sale in India.

Apple, on the other hand, has said it will begin assembling its top-end iPhones in India through the Indian local unit of Foxconn in 2019, according to a Reuters report in the last week of December.

This would be the first time this Taiwanese contract manufacturer would be making the product in the country.

Importantly, Foxconn will be assembling the most expensive models, such as devices in the flagship iPhone X family, the report said, potentially taking Apple’s business in India to a new level.

China-US trade conflict poses new challenges

Foxconn has previously admitted the China-U.S. trade conflict was its biggest challenge and that its senior executives were making plans to counter the impact.

Apart from its investment and expansion plans in India, Foxconn was considering setting up a factory in Vietnam according to earlier reports in Vietnam media. If that were to come up, then it would be a major step to secure yet another additional production base outside China.

This was re-iterated by an IDC spokesperson. “Widening iPhone manufacturing in India through Foxconn will allow Apple to hedge the risk of any new U.S. trade policies,” said Navkendar Singh, an associate research director at International Data Corporation had said in an earlier report.

In the past few decades, US companies had taken advantage of the low costs of manufacturing in China and shifted base to various cities in China. Today, more than 50 per cent of the products from HP, IBM, Dell, Cisco, Microsoft and Intel or their suppliers are sourced from China. It is the second largest exporter of auto parts to the US auto giants (after Mexico).

The number of industries dependent on China is comprehensive and today US companies are realising the need to de-risk their supply chain as well as their manufacturing operations. Most of the large US companies are looking at not only India but Vietnam, Cambodia and other South-east Asian countries to set up world-class manufacturing units and reduce their dependence on China.

Could new CEO be Flex’s talisman?

Flex, another leader in global the EMS space having a significant presence in India, had a week ago announced a new CEO, Revathi Advaithi. She was previously the president and CEO of the electrical sector business for Eaton, a US-based power management company.

“This is a time of tremendous opportunity in manufacturing, as trends such as regionalisation, artificial intelligence, 5G and advanced manufacturing all combine to improve the way we live and work. With locations in 30 countries and expertise in a dozen industry verticals, Flex has the necessary breadth and depth to help companies develop and launch innovative products at global scale and intelligently manage a shifting business landscape. I look forward to building upon Flex’s 50-year history and strength in manufacturing,” Advaithi said in a press release on her appointment as CEO.

The plant located near the south Indian city of Chennai manufactures products not only for India's domestic market but also for global markets. It had partnered with Lenovo (which owns Motorola Mobility) to manufacture their smartphones in India and last year, it received the Diamond Award, the highest recognition Lenovo presents to select global suppliers and partners, for the delivery of high quality, on time, innovative support and outstanding services.

Flex also manufactures millions of set top boxes for a global brand in India, a Flex spokesperson had said in an earlier report.

Now, with a new India-origin CEO in place and with India becoming more attractive as an electronics manufacturing destination due to its burgeoning domestic market and availability of design talent and design services, there are bound to be new announcements coming up from Flex.

Slow, steady and silent : Jabil India’s mantra

Jabil Circuits India, on the other hand, maintains a low profile in India.

Established in 2005, the company manufactures various products ranging from energy meters, power supply unit circuit breakers and PV modules to imaging devices and consumer electronics products at its Indian manufacturing unit located in Pune. It serves customers in clean technology, digital home and office requirements, energy management companies, industrial applications and networking and telecommunications.

"There is tremendous increase in manufacturing activities due to Government of India's MSIP and PMA (Preference for Domestically Manufactured Electronic Goods) policies and all OEMs are looking for 'Make in India', which is to the advantage of companies such as Jabil," said a spokesperson for Jabil India in an earlier report.

"Jabil has near term plans to continue our investments, which will likely increase our overall investment to near $100 million since entering the market," the report said.

Anoop Mehrotra, country manager and director, Jabil Circuit India, had said In an earlier report in a trade journal, that they were buoyed by a growing demand for their services worldwide “Our plant in Maharashtra reflects the quality standards present in all our international locations. Jabil India has recently bagged new manufacturing contracts for set-top boxes, telecom equipment and point-of-sale terminals for the domestic market and home automation products for exports,” he had said in the report.

An Uphill Task Looms Ahead

This presents a whole new world of opportunity for Indian companies.

Interestingly, there are currently 240 companies in India which are making electronics products and about half of them (127 companies) are manufacturing mobile phones with Noida and Greater Noida in northern India emerging as a mobile phone manufacturing hub, having 57 factories alone.

Although a few announcements have been made and some more could come in the near future, it is still a very long way to go for India to mark a dent in the EMS domain.

The consensus is that these are just baby steps by EMS companies operating in India. It is an uphill task to garner a significant share of China’s manufacturing and supply chain business that is generously supported by that country’s incomparable infrastructure and eye-popping government grants and subsidies.

Now, with the China-US trade conflict on one hand and the India general elections coming up in April, the EMS space is fraught with exciting challenges – enthusiasm and push from EMS companies juxtaposed with the uncertainty and new changes that could up post the election verdict.

— Sufia Tippu is a freelance tech journalist based in India contributing to EE Times India.

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