India- A hub of opportunities for electronic subcontracting in global markets

Electronics manufacturing has emerged as one of the highest-growth sectors, attracting global markets, and making India an unparalleled hub for sub-contract manufacturing. The demand for electronics and pharmaceutical products, which witnessed a surge during the onset of the Covid-19 pandemic, has only accelerated since.In the next 5 years, the Indian contract manufacturing industry is expected to grow by a CAGR of 13.3% from 2023 through 2028. (source- the mordor intelligence on contract manufacturing organization market)The electronic manufacturing sector in India is estimated to grow over 6-fold from USD 23.5 Bn in 2019-20 to USD 152 Bn by 2025. (source – report by elcina – electronic industries association of india)EMS – Electronic Manufacturing Service – is the key link between components and finished equipment, and major OEMs are keen to develop alternative sources to prevent uncertainty and supply chain disruptions.Sub-Contracting trends over the past few yearsGlobal players have explored multiple options and tested the viability of sub-contract manufacturers worldwide. Below are some trends observed through the yearsThe U.S. to Japan sub-contractingJapan has always maintained its stronghold in the electronic manufacturing space. It has been the preferred choice for semiconductor manufacturing equipment, with giant players like Sony and Toshiba based in Japan.Even within the aerospace segment, Japan is known for the veracity and quality of its products and has been a trusted supplier for the United States. However, Japanese sub-contractors in the aerospace segment seem to be caught in a catch-22 situation due to their own aerospace development. The Japanese government has placed more interest in their aerospace development, thus becoming a conflict of interest. This has opened a window of opportunity for other Asian countries such as India, which have the bandwidth, competency, and skill to be an efficient sub-contractor for large firms. Reduced reliance on China due to geo-political predispositionsA recent survey by Gartner states that almost 33% of supply chain leaders have already moved their businesses out of China, or are planning to. The reasons behind this migration are several. First, this can be attributed to increased tariffs imposed by the Chinese and the U.S. government resulting in rising business costs.Second, the narrative that subcontracting to China is easy and cost-effective is no longer valid. Also, recurring issues with intellectual property violations bordering on unethical business practices and competitive manufacturing capabilities in other South Asian countries have been one of the prime reasons behind this paradigm shift.Finally, growing geo-political tensions further strain the world’s sub-contracting relationship with China.Maquiladoras are factories in Mexico that have been crucial in helping firms in the United States with their manufacturing needs. The Maquiladoras offered a range of benefits to foreign and U.S. investors, including duty-free benefits, exemptions on tariffs and more. Additionally, factors such as inexpensive labour costs, geographical benefits and ease of doing business are why U.S. companies preferred having their units in Mexico. However, Maquiladoras have hit a roadblock due to several challenges they faced, in recent years. These include unsafe and unethical working conditions, weak labour laws, environmental factors, health risks and much more. However, recently, countries such as India offer a better sub-contracting proposition. US-India: The new era of electronic subcontractingIndia is emerging as the go-to destination for electronic subcontracting. With schemes such as PLI (production-linked incentive) done to promote the production of high-end smartphone components and IT hardware in India, more OEMs are choosing India for their manufacturing needs. India has become the second-largest mobile phone manufacturer. Based on the article published in a leading news channel, Apple is set to triple its production in India in the next three years.Even within the aerospace sector, emerging news reiterates that India expects to hold a significant subcontracting market share. With more aerospace firms looking to optimize costs, and outsource designing and managing of entire manufacturing systems, India emerges as a lucrative option for aerospace firms worldwide. As a means of streamlining processes, aerospace firms are looking for cost-effective yet precision-driven sub-contractors.Companies like Boeing have already entered the Indian market to explore manufacturing in India. Boeing has stated that over 300 suppliers are manufacturing critical systems and components in India for some of its most advanced commercial and defence aircraft.Why is India lucrative as a subcontractor globally?India offers more than just economic benefits to OEM players. Besides being advantageous from a manpower and production viewpoint, India offers various benefits. This includes bringing to the table a host of competent resources, i.e., engineering skills, design proficiency, and cheaper labour costs. India also offers affordable, skilled, English-speaking labour, making it a more lucrative choice for OEMs.Additionally, with newer government-based initiatives, the ease of doing business in India has improved. International aerospace firms can profit from the professional capabilities India offers, along with the cost-benefit that Indian sub-contractors offer.Improved sourcing capabilitiesIndia has become a well-reputed destination for the effective sourcing of raw materials. This can be attributed to various factors such as the easy availability of raw materials, cheaper manufacturing costs, a skilled workforce, and robust export systems. As a result, it has become rewarding for foreign bodies to rely on India for its critical sourcing requirements, owing to lower costs and thus guaranteeing an attractive return on investment. Moreover, given the rich natural resources, India is bestowed with, more and more countries are turning towards India as the go-to destination for sourcing materials.Within the Indian electronic segment, more sources have developed for manufacturing components with high tolerance; also the development and innovation of new raw materials have become prevalent (these materials are critical components to various segments like aerospace and healthcare and others). Thus empowering businesses to combat the global supply chain crisis by enabling easy sourcing.India is geared up to become a leading powerhouse within the electronic subcontracting domain. Favourable factors such as incentivised government initiatives and greater financial advantage due to inflation-affected developed countries have helped global OEMs to prefer India over other nations. Additionally, the local development of new sourcing capabilities gives India the upper hand it deserves. Thus, making India a lucrative destination for enabling global OEMs to scale, grow and succeed.Written by: Bijoy Mishra, Founder & Chairman of Globatronix (Bombay).Disclaimer – The above content is non-editorial, and TIL hereby disclaims any and all warranties, expressed or implied, relating to it, and does not guarantee, vouch for or necessarily endorse any of the content.