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Company : MAIT 
Wednesday, January 30, 2002 4:30PM IST (11:00AM GMT)
MAIT's survey indicates Indian electronics hardware to be USD 62 billion by 2010
New Delhi, Delhi, India

-- domestic market to touch USD 37 billion; exports to cross USD 25 billion

-- contract manufacturing a USD 11 billion opportunity and design exports another USD 7 billion

-- domestic PC sales to touch 22 million in 2010 with PC penetration of over 69 per 1,000 people in 2010

Mr Pramod Mahajan, Union Minister of Parliamentary Affairs, Communications and Information Technology, Government of India today released the study titled "India: The Hardware Opportunity". The study has been conducted by M/s. Ernst & Young under the aegis of MAIT, the apex body representing the hardware, training and services sectors of the IT industry in India. The Ministry of Communications and Information Technology has sponsored this study.

Releasing the study today, Union Minister for Communications and Information Technology Pramod Mahajan said, "The electronics hardware industry is characterised by innovation, making it possible for creative new entrepreneurs to gain a significant market share and forge ahead despite the presence of established players. Globally too, the market demand is growing. For all these reasons, it is an important industry segment for India, and a focus area for growth. It will be our endeavour to ensure that the sector flourishes."

The MAIT-E&Y study focuses on the electronics hardware industry with the objective of reviewing the current state of the industry, identifying the issues relevant to its growth, opportunities available and initiatives that need to be taken by the industry and the Government to realise these opportunities. It covers the entire gamut of the hardware industry, from components and intermediate products to finished products, and spans the relevant issues of the telecom, consumer electronics, industrial electronics and the IT hardware sectors.

The study reveals that the Indian hardware industry can attain a turnover of USD 62 billion by 2010, twelve times its existing size, with the domestic market accounting for USD 37 billion, with exports accounting for another USD 25 billion. The major export opportunities are in the area of innovative new products, contract manufacturing (OEM and ODM) and design services. Export of components offers an opportunity of USD 5 billion while that of designs and related services in embedded systems and wireless telecommunication systems of USD 7 billion by 2010.

In the area of contract manufacturing, India can aim to corner a share of 2.2 per cent of the global electronics contract manufacturing market by 2010 - a USD 11 billion opportunity with the size of the global contract manufacturing market crossing USD 500 billion. India can target a share of one per cent of the north American market, two per cent of the western Europe market, four per cent of the Asian market and five per cent of the rest of the global market. Potential areas for contract manufacturing are PCB assembly, cable harness assembly, product assembly and testing, power supplies and semiconductor assembly.

However, to be globally competitive in contact manufacturing, the manufacturing environment must enable:
-- Increased flexibility in production;
-- Substantial reduction in time-to-market, as product life cycles shorten;
-- Sharp reduction in manufacturing costs;
-- Significantly reduced need for capital resulting in higher returns on invested capital;
-- Ability to focus capital and intellectual property on core competencies; and
-- Ability to start a new product company without competencies or investment in manufacturing.

The MAIT-E&Y study has estimated the world market for electronics in the range of USD 900 billion to USD 1,000 billion for the year 2000. With a growth projection of at least seven per cent per annum, it is expected to be of the order of USD 2,100 billion by the year 2010.

Key structural trends of the international industry are resulting in increased outsourcing of parts of the manufacturing value-chain. The size of the contract manufacturing industry is expected to be over USD 500 billion by 2010 from USD 103 billion in 2000. Design services are also beginning to be outsourced.

Technology evolution is resulting in rapid convergence, giving rise to products that have a host of technologies - computing, video, audio, communications, among others - contributing to that convergence. Increasing computing power and advances in communications and Internet technologies have paved the way for a new market for embedded system products with specific or multiple applications. The increasing popularity of mobile applications also presents a great opportunity for developing innovative products.

The high-end processors for PCs account for only six per cent of all processors produced worldwide, the remaining 94 per cent being used in entertainment electronics, non-PC devices, communication products, control electronics equipment, strategic electronics and embedded applications.

In the liberalised environment, India is fast catching up with the world in terms of penetration of IT, telecommunications and consumer electronics products. The growth in domestic demand for these products provides the necessary critical mass for making manufacturers globally competitive. Such a base will also be a stabilizing factor for companies targeting the international market.

Under the existing growth pattern, the domestic PC market, in terms of units sold, is expected to touch 14.3 million by 2010 with PC penetration being 45 per 1,000 people. Given the right initiatives from the government in the form of tax and duty rebates, coupled with increased government spending on IT, PC sales could be of the order of 8.9 million in 2005 and 22 million in 2010 with PC penetration of over 69 per 1000 people in 2010, thereby tremendously increasing economies of scale. Telephone penetration is also projected to increase dramatically with the deregulation of telecommunication networks. In 2010, it is expected that over 39 million new lines would be installed, so that telephone penetration would be 217 per 1000 people. Alongside, the sales projection for colour television sets is over 18 million units in 2010. The domestic demand for electronic hardware products in 2010 would, therefore, be in the range of USD 41 billion to USD 47 billion.

In contrast to many newly industrialised economies, the Indian electronics hardware industry derives most of its revenues from the domestic market. The Indian industry's domestic market orientation led to low capacities, low levels of operation and hence lack of exposure to truly global competition. In recent years, export growth in the consumer electronics and information technology hardware segments has been poor. Historically, Indian industry has grown under protection (from foreign competition) through high customs duties. Liberalisation has benefited the Indian consumer, but the presence of several debilitating factors has weakened the local hardware manufacturing industry. Hence, it is not able to capitalise on the increased domestic market size as well as export opportunities.

Despite a large potential domestic market, and despite the availability of skilled manpower, the industry has been constrained by many factors. Lack of local availability of input material, changing government policies, high interest rates, customs duty on capital goods, poor infrastructure, longer and variable transit times - all add to uncertainty, delays and increased costs. These, in turn, have a significant impact on the profitability of companies. Lack of innovation is another factor that has led to the current state of low global competitiveness. These need to be redressed in order to achieve the vision of a thriving electronics hardware industry in India.

Studies on indicators of technology-based competitiveness indicate that India has a high standing in terms of the institutions and resources that contribute to a nation's capacity to develop, produce and market new technology. This also indicates that India has a high potential in productive capacity (the physical and human resources devoted to manufacturing products and the efficiency with which those resources are used). However, India lags in emphasis on technological development, as evidenced by low R&D spending and the low share of electronics in Indian exports. Further, while India ranks higher than some of the southeast Asian countries in quality of management, infrastructure improvement needs immediate attention.

Government has to very actively undertake the role of a facilitator. Getting the policy framework right is of crucial importance as also the infrastructure and technology position. Besides focusing on technology, the industry also needs to look beyond the short term and think global.

A convergence of actions, by industry, and by Government, at the Union and state levels, is necessary to address the issues before the sector, including the:
-- Rapid change in technology coupled with lack of innovation
-- Low Global market penetration
-- Velocity of business
-- Non-value added costs

Actions on three broad fronts - technology, marketing, and manufacturing - are necessary for achieving the goal of a well-established and thriving Indian electronics hardware industry.

Technology: India has the technology infrastructure to develop knowledge assets. However, availability of appropriate skills in areas such as RF design and VLSI design is crucial for realising the design opportunity. Therefore, this must be reinforced through centres of excellence in hardware training - especially in the emerging technology areas such as next generation wireless communications and microelectronics. Industry must take up the challenge of developing innovative products for local markets and investing aggressively in technology development. The Government must channel the energies of all the players - industry, academia, and technology laboratories - into identified thrust areas to take up joint research initiatives and support both private sector and public sector R&D initiatives.
Marketing: On the marketing front, economies of scale are available to globally focused players. Indian industry must, therefore, shed its domestic market orientation by laying greater emphasis on high technology exports. At the national level, the Government of India must actively market India as a hardware development and manufacturing location. It should invite global companies that can act as catalysts of growth to invest. The Government's efforts to quickly expand the size of the domestic market, through income tax rebates in the form of 100 per cent depreciation and reduced local levies and taxes, would help greatly. The Government must also increase its spending on IT and e-governance. While most State Governments in India have allocated between one and three per cent of their budgetary expenditure on IT, this needs to be implemented.

Manufacturing: On the manufacturing front, Indian industry can ill afford the waste and cost penalty imposed by the lack of scale economies, poor physical infrastructure, and indifferent disposition. The Government must facilitate industry through infrastructure development schemes such as Free Trade Zones (FTZs) or Special Economic Zones (SEZs), and institute simpler procedures to speed up the processes related to logistics. This, coupled with a rationalised duty structure, would alleviate the cost penalty faced by industries in India.

The hardware Industry, on its part, needs to re-engineer itself to operate at the level of global volumes and locate at places that facilitate international logistics. Benchmarking, continuous improvement and adoption of best practices are the means for performance improvement. Application of lean manufacturing principles would remove the slack in the system, thereby reducing cost. These would also improve delivery performance and flexibility.

Commenting on the outcome of the MAIT-E&Y study, MAIT President Vinay Deshpande said, "To harness the true potential of the Indian market, one needs to come up with cost effective solutions that are uniquely Indian for the unique Indian needs. Costs and risks associated with research being high, the IT industry in India may look at inter-firm R&D collaborative efforts as have flourished in the US, Japan, Europe and Taiwan. The common feature shared by all such collaborative partnerships is that they influence the dynamics of innovation in such a way that the future competitive position of at least one - and potentially all - of the partners is significantly improved. The Government has played a key role in the success of R&D consortia in all the advanced countries by creating easy access funds and venture capital for R&D projects. We need to emulate this in India."

Set up in 1982 for purposes of scientific, educational and IT industry promotion, MAIT has emerged as an effective, influential and dynamic organisation. Representing hardware, training and the services sectors of the Indian IT Industry, MAIT's charter is to develop a global competitive Indian IT Industry, promote the usage of IT in India, strengthen the role of IT in national econ

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