Steps for India to succeed in electronics services design manufacturing (ESDM)
Last updated November 25, 2014
To paint a picture of the large subcontinent of India, I refer to Octavio Paz, the Nobel laureate, poet and onetime Mexican ambassador to the country. In In Light of India, Paz writes: “The first thing that surprised me about India, as it has surprised so many others, was the diversity created by extreme contrast: modernity and antiquity, luxury and poverty, sensuality and asceticism, carelessness and efficiency, gentleness and violence; a multiplicity of castes and languages, gods and rites, customs and ideas, rivers and deserts, plains and mountains, cities and villages, rural and industrial life, centuries apart in time and neighbors in space.”
Another contrast I experienced on a recent trip there presented itself as a question in my mind. It came as I exited the terminal at Indira Ghandi International Airport in New Delhi at 2 a.m., walking with my luggage and searching for my driver, whom, I was told by our client, would be bearing a nameplate.
I stepped outside. The area immediately surrounding the terminal was dirty. Stray cats and dogs roamed freely across the open ground. The smell in the cool, early-morning air was…interesting. Dozens upon dozens of taxis, far more than what seemed necessary at that hour, idled nearby. The drivers, each ventured far from their respective taxis, visiting with one another.
This activity played out more like a recurring nightly get-together than a disciplined, eager-to-earn-a-rupee, business endeavor designed to place food on the table and build wealth.
In 1991, India found itself nearly bankrupt with no more than three weeks of foreign currency left in its reserves. To help address this, the government began deregulating certain enterprises. Enter Aroun Shourie. Although occasionally controversial, Shourie is one of a group of well-known thinkers changing the Indian mindset on deregulation. Shourie is minister of state and executioner of privatization in the recently displaced BJP-led coalition government.
India continues its privatization efforts to this day, inviting NGOs to invest and help manage, or to purchase outright, previously government-run enterprises, while continuing to implement measures to further open its economy to the world.
No one can deny India is the last great emerging market. But unlike China, which has grown tremendously over the past 20 years, India still lacks many basic infrastructures. Phones, electricity, water and roads can challenge even the most veteran traveler. Take, for instance, cellphones. Whereas one can purchase a handset in China and rely on using the phone anywhere in the country, India’s infrastructure can necessitate purchasing a new phone for each of the nation’s states.
Meanwhile, China will soon, if not already, lay claim to having one of the most extensive railroad distribution systems in the world.
India is the world’s largest democracy, and benefits from its standing as the third largest English-speaking nation in the world, after the U.S. and the U.K. That said, less than 4% of India’s population speaks English. Some might say there is also wide corruption in all levels of Indian society. So, in some instances, you could be taken advantage of while doing business in India and not know what is going on. (Get the double meaning?)
In his book, The Corrupt Society, Indian author Chandan Mitra compares that nation’s society today to that of one of Niccolo Machiavelli’s second-category societies mentioned in the 1505 novella, The Prince. In such a society, Mitra points out that India’s citizenry, while actively participating in the political process through elections, is primarily engaged in promoting its own ambition to the detriment of the common good.
Some say that if corruption did not play a significant role in the intricate bureaucracy of Indian government and business, the system would not work at all. The rationale: because of the corruption, plans are drawn and executed and relationships are appreciated by way of greased palms, so as to begin anew another day.
Where NASSCOM (National Association of Software and Service Companies) has been able to move India’s software industry into the world markets, India’s hardware manufacturers are struggling to find footing. Granted, there are some terrific, large companies. However, relative to electronics, seemingly capable contract manufacturers are still finding it difficult to be acknowledged in the global markets . let alone compete.
With more than a billion people, certain reasoning can support India keeping its internal markets closed. However, because the Indian electronics services design manufacturing (ESDM) sector has not yet begun to develop the required concentration of capital and it has yet to prove it can develop and sustain world-class electronics hardware design and manufacturing expertise on a wide scale, the quality of its capabilities is perceived as, and in many instances is, unable to meet expectations beyond its borders. Perhaps a closed market cannot have a true concept of quality.
In spite of this, India’s ESDM sector is making strides. We have worked with a number of truly professional Indian design houses and contract electronics manufacturers. However, without this historical knowledge, any OEM executive would be remiss if they did not perform extra due diligence when evaluating potential Indian partners. (For updates, follow @VentureO, @GoI_DeitY, @Electronics_GoI, @rsprasad)
Since the late 1990s, our firm has worked with European and North American OEMs doing business with Indian ESDM companies, and numerous Indian ESDM companies looking to become more competitive on a global scale. Everyone wanted to know: How can India evolve as a viable EMS destination source and how can India promulgate its own ESDM capabilities to the global market?
The following highlights are what we view as the essential activities and opportunities India must continue to seek to be a successful destination for ESDM. Success is India’s to lose. We propose India focus on four target areas:
- International and regional ESDM industry organizations
- Indian government
- Private sector
- Universities and technology/research centers
Obviously, India’s success depends on far more than this outline. However, we offer this high-level blueprint to help all stakeholders develop a sound grasp for the types of activities India must accomplish to perform successful EMS on a global scale.
International and India-based ESDM companies must act as a clearinghouse, and provide specialized services and advice in helping to launch domestic ESDM enterprises. The SMTA, with global headquarters in North America and a chapter in New Delhi, is a perfect example of this sort of industry guidance. Perhaps it is not too much to expect that such organizations can also assist in developing and executing workable frameworks for revising and reforming legal and regulatory tools to bring India’s ESDM sector in line with the world’s.
Such organizations must be encouraged to coordinate and cooperate more effectively with national and regional Indian ESDM businesses. Hidden agendas and selfish motives, as weeds that inhibit a garden from thriving, must be removed so that the beginnings of a solid foundation can take hold. Objectives for improved coordination and cooperation must include:
- Combining of electronics hardware sector-related expertise and resources
- Improving public knowledge of ESDM
- Understanding the role of ESDM as it relates to India’s potential
- Understanding the rewards of participating on a global level
These organizations must help Indian government in producing well-planned feasibility studies and project proposals for further penetration into the Indian domestic and global ESDM markets.
Awards and prizes, motivators we learned young, must be made available to promote ESDM sophistication and for setting higher standards within India. These can be initiated by regional organizations.
As mentioned, focus on India has been primarily on its prowess in software with recent attention directed at business process outsourcing (BPO). What NASSCOM has accomplished, the Indian ESDM sector must emulate. An increased awareness of ESDM must occur at several levels. As with any proud parent announcing, with great fanfare, a noteworthy accomplishment by a child, Indian media must act as a surrogate parent, playing a crucial role in this area.
Meanwhile, the Indian ESDM community must support the media by holding regular news briefings that identify new objectives, outline progress and contain practical industry content on how objectives play into improved Indian socioeconomics. Talk has circulated recently of a domestic task force within the Indian electronics hardware industry to actively pursue this. This would be a welcome addition.
Indian governments must continue to devise and implement national and international policy and strategy initiatives that specifically target ESDM development. Government must continue to remove the protectionist platforms that otherwise subsidize many of the country’s smaller or mediocre ESDM providers. The performance bar must be raised. Policies that create favorable environments for a robust Indian ESDM industry must be emphasized.
1. Government must lead in developing initiatives (technology parks/incubators and high-tech industry clusters) that increase productivity and competitiveness at the local, national and international levels.
2. Government must share, with other stakeholders, the risks involved in launching and running ESDM-related initiatives.
3. Greater attention must be paid to devising coherent policy directives to coordinate efforts made by different ministries, the private sector, institutions, research labs and academic circles.
4. Increase core spending on sector related R&D and understanding future global EMS needs, demand and trends. (Point of evidence: We continue to see an increase in the number of organizations and companies in India interested in our ESDM industry research and trends analysis.)
5. Provide financial backing for initiatives, including human resource development, and actively seek support from private enterprises and MNCs as well as from international industry/agencies and donor groups/individuals. To move forward in this area, this type of support must be viewed as an investment, not as an expense.
6. Government must promote and encourage:
- Partnerships and foreign technology-based venture capital investments in ESDM industry start-up and incubation ventures
- Corporate rewards for the private sector to play an active role in producing a continuous stream of innovative ESDM business ideas and models conducive to the dynamic Indian environment and socioeconomic development and beyond its borders
- Effective communication of the relative laws and enforcement measures that ensure strict implementation of IP rights to continue to promote innovation
- Understanding the rewards of participating on a global level
- Adequate attention to upgrading basic ESDM-related technical infrastructures and better access for links to knowledge sources and international industry networks
- A system of awards and prizes at the national level to encourage regional and international EMS-market entry, performance and innovation
The private sector must get better at collaborating with universities and research centers in new technology initiatives, and invest more in startups. Businesses must host specially designed training programs and applied research programs for students to include:
- Collaborating with local universities with a focus on ESDM sector vocational training and the continuing education of technical
and upper-level ESDM decision-makers
- Entering into strategic alliances and partnerships with internationally renowned MNCs, international business leaders and industry experts to enhance access to global markets
- Taking an active part in advisory boards designed to guide the operations of ESDM ventures and other capacity-building ESDM emerging markets sector initiatives. This outside knowledge is crucial as long as advisory and fiduciary board members are selected carefully and board chairmen clearly understand the need for separating the chairman and CEO role
Relationships between all stakeholders are necessary for the survival of ESDM-related emerging businesses. These enterprises must maintain close contact with potential investors, institutions and other sources of capital to obtain necessary financing. Groups must work together and trust between entities must not be an issue.
Private sector stakeholders and investors must form a common, long-term vision and adopt clear objectives and key indicators to measure and manage the development of ESDM initiatives. This is best done by benchmarking certain successful ESDM experiences of other companies across the globe and soliciting help from individuals familiar with the global industry.
Meanwhile, India’s private sector must continue its overhaul of research/manufacturing initiatives focusing on the collaborative efforts of organizations from industry, academia, research centers and government whereby:
- Project programs within these initiatives address regional, but more importantly, international concerns, focused on the continuing trend toward EMS globalization Improving public knowledge of ESDM
- Interested private sector enterprises support and adopt collaborative research approaches
This latter point includes establishing international alliances to introduce cooperative projects essential for developing sustainable ESDM business practices in, and beyond, India’s borders. It also means ensuring project scopes are continuously defined within a global context to facilitate integration with global initiatives and enhance the probability of success. (See, also: Economic drivers, challenges creating regional electronics industry)
Education and industry skill development play a critical role in the success of India’s ESDM initiatives. Attention must be applied to all phases of the education system. This must include:
- Active participation of universities and research centers in supplying expertise and experienced man hours in ESDM industry-building initiatives
- Formation of university, research centers and industry partnerships emphasizing the needs of certain potential ESDM transnational JVs
- Collaboration with the private sector on vocational training and the continuing education of ESDM industry decision-makers and technical managers in critical thinking
- Active involvement by Indian ESDM businesses and associations in helping define industry skill sets for future researchers, engineers and management leaders
This article was originally published in 2005. Today, India has renewed her interest to pursue a sustainable electronics system design and manufacturing (ESDM) industry capable of competing against other global electronics design and manufacturing destinations. The outcome of this effort remains to be seen. Comments on India’s current progress are welcomed below, and here.