China is the center of the electronics manufacturing supply Chain. However, given its tense relations with the US government and recent shutdowns due to coronavirus, many companies are considering diversifying their manufacturing locations. When Foxconn, a key supplier for Apple’s iPhones, indicated they were shifting some of their operations to India, the industry paid attention. Now Foxconn plans to invest $1billion in facilities in India, and many global OEMs are taking note.
There are a number of reasons companies might consider India as their go-to source for electronics manufacturing. Here are a few to think about:
- Cost. It’s almost always the first factor, particularly for companies that are currently manufacturing in China. For US-based companies, recent tariffs have made production in China far more costly than it once was. While there is no free trade agreement currently in place between the US and India (there had been hopes of a “mini deal” back in March of 2020), there are no high tariffs on exports from India.
Additionally, labour in India is less expensive than labour in China. According to India Briefing, the average minimum wage for contract workers in India was $148 USD per month, compared to $234 USD in China in 2019. For US-based corporations, that savings is compounded by those much lighter (and less punitive) tariffs. It’s also worth considering the value of the Indian rupee against the US or Canadian dollar at any point. Generally, western currencies tend to grow stronger, making India a smart investment.
- Labour. India’s young, English-speaking workforce is a plus. India has a workforce of about 519 million, according World Bank. That’s smaller than China’s 783 million, but much larger than other countries in the region. India currently has more engineers than it can employ, which is good news for companies seeking to manufacture electronics in that country. With the youngest workforce in the world and an industrial revolution on the horizon, India is ready to put its people to work – and, as mentioned, the cost will be far lower than many competitor countries.
- Infrastructure. It’s true that India currently lags in this category, however, planned investments in infrastructure will make India more desirable for trade moving forward –particularly for electronics. In June, 2020, the Indian government announced planned investments of $6.6 billion specifically to ramp up electronics manufacturing in India. In an interview with CNBC, Ravi Shankar Prasad, the country’s minister for communications, electronics and information technology said, “This whole scheme is industry specific, to make India a big hub of electronic manufacturing.”
Further infrastructure investments are planned throughout India. In the past, commerce was hindered by unpaved roads and a less-than-comprehensive rail system. However, the current government has committed to over a trillion dollars in government spending for roads, highways, railways, waterways and airports. This, coupled with investment in India’s social sector, is intended to create jobs, boost domestic demand and create more industries. “These steps will ultimately make India a $5 trillion economy (by 2024-25),” according to the minister of environment and information and broadcasting.
In addition, Google has announced massive investments into India’s digital infrastructure. The planned $10 billion is intended as “a reflection of our confidence in the future of India and its digital economy.” India’s access to high-speed internet and affordable, widespread mobile networks has already dramatically improved.
- Ease of Doing Business. In 2019, the country boosted its World Bank Ease of Doing Business rating dramatically, placing in the top ten most improved economies. What does that mean, exactly? Reforms by the Modi government to bolster India’s slowing economy made it easier to start a business, obtain a construction permit, resolve insolvency issues, and trade across borders. These changes were key to the improved ranking.
The government is now offering incentives to companies that choose to manufacture in India. At the end of the second quarter of 2020, a scheme to provide production-linked cash incentives to companies was announced. The scheme offers 4 to 6 percent of incremental sales over five years on goods manufactured locally. This particular scheme is specifically targeted to smartphone manufacturers and is limited to a small number of OEMs.
Two other schemes also benefit electronics manufacturers who bring their operations to India. One is specifically geared towards promoting the manufacturing of electronics components and semiconductors (SPECS). This will provide a financial incentive of 25 percent on capital expenditure for select electronic goods and Electronics Manufacturing Clusters (EMC) 2.0. The other scheme will be used to create industry–specific infrastructure, like factories and other facilities, and will also provide financial assistance depending on the project cost.
One of the most important factors to consider as you look at shifting manufacturing to India is that the country wants your business. The Make in India initiative makes it clear that electronics manufacturing is a huge priority. The government makes its goals evident in its 2019 National Policy on Electronics:
- To attract an investment of $100 Billion
- To reach a turnover of $400 Billion
- To create employment for 28 million people
- To increase exports from $8 Billion to $80 Billion
- To produce 1 billion mobile handsets by 2025.
- Current foreign investors include Panasonic, GE, Mitsubishi, Qualcomm, according to the site.
With companies from Apple to Google, from Cisco to Volkswagen and so many more investing in India, it might be time to give this country a serious look. Avnan has trusted manufacturing partners in India, so you can feel confident in the quality of any project you move there, as well as the safety and reliability of your supply chain.