Atmanirbhar Bharat and its impact on Executive Hiring - Part 3 - Electronics Manufacturing

1. Atmanirbhar Bharat and its impact on Executive Hiring - Part 3 - Electronics Manufacturing By Rahul Shah, Co-founder & Director, Walkwater Talent Advisors At WalkWater, we have been tracking the Atmanirbhar Bharat campaign through a series of articles since October, about those sectors which could see a lot of action in executive hiring in the coming few years in India. The first two articles in this series covered the Defence Manufacturing and Pharmaceuticals sectors. This article tries to understand the potential of the Electronics Manufacturing sector in India - a sector which has many more facets than just mobile telephony (which has understandably caught everyone’s attention in the last few years). In our view this sector looks to have the brightest prospects for helping India take centre stage in the world economy. This paper tries to understand the reasons for the same.

2. Electronics With the recent announcement of Performance Linked Incentive (PLI) scheme for India’s electronics manufacturing sector, the country has already received fresh investment proposals worth INR 12 lakh crores from some of the the largest Indian and global OEM and EMS players including Samsung, Micromax, WInstron, Foxconn, Dixon etc. In a more recent development, the Tata group of companies is seeking overseas loans of up to $1B to set up a phone plant in Tamil Nadu. Also, there was news in December that the Korean giant Samsung seems to be firming up plans to shift one of their units out from China to India. The rapid growth and scale up of the mobile phone manufacturing industry in India clearly illustrate the massive investment potential of this industry. Till 6 years back, there were only two companies that manufactured mobile phones in India. Today, India has become the

3. second largest mobile phone manufacturer in the world. In recent exciting developments, the country has seen Apple mobile phones being manufactured in India and several of Apple’s EMS partners are ramping up their operations in India - Foxconn, WInstron and Pegatron. Then we have the other two giants Samsung and Nokia. But that is not all. There is a long list of around a dozen Indian companies including Micromax, Intex, Lava etc. which are manufacturing their phones in India. In fact, Indian mobile phone manufacturers are not catering only to domestic demand. The number of mobile handsets exported from India jumped to 36 million in FY20, an increase of more than 100% from the FY19 export figures. The emerging geopolitical realignment is another factor that could work in India’s favor. The relentless standoff between the UK and USA on one side, and Chinese company Huawei on the other, make it clear that mobile telephony is today an important part of espionage and national security, and not limited to only communication. The general feeling of antipathy of the world towards China following the outbreak of the pandemic has been another strong factor in many electronics giants rethinking their manufacturing dependence on China and considering alternative locations like India. Around the world, governments and companies have been actively considering ‘reshoring’ some parts of their global value chains to their own countries or to alternative low cost manufacturing destinations, and the pandemic has acted as a shot in the arm for these efforts. There are several countries which are actively soliciting for such manufacturing or supply activities which might move out of China, and India looks to be strongly placed to be one of them.

4. Apart from these external factors, India itself provides a very strong reason for global electronics manufacturers to have some part of their manufacturing or assembly operations in India. India is the second largest user of mobile phones, fourth largest user of televisions, third largest producer of solar energy, just to name a few. The sheer volume of aspirational consumers with impressive spending power makes India a very attractive destination for electronics manufacturers. As per Statista, there were almost 450 million mobile phone internet users in India in 2020, and this number is expected to go up to 500 million in the next three years. Given India is such a vast market for mobile phones and many white goods, most companies around the world are keen to have a slice of the pie. But all these good news come with a caveat. Our manufacturing expertise in mobile phones is actually limited to manual semi knocked down (SKD) level assembly of mobile phones and their accessories. A large number of the spare parts of these semi knocked down kits comes from different countries like the USA, Taiwan, South Korea, and even China. There are several reasons for this. Let us take chips, for instance, which are at the core of all the circuit boards used in every electronic gadget. The Extreme Ultraviolet (EUV) Lithography machines that are used in the Chip Manufacturing process are not yet manufactured in India. In fact, we do not even have enough wafer fabrication units, which are needed before lithography. This is true even for simpler components like the display panels. In India we are not yet able to manufacture panels that can match the quality of those that Samsung and other manufacturers use in their smartphones. There are many other such stumbling blocks

5. which have ensured that we are still assemblers of smartphones, and not manufacturers. In the context of the assembling versus manufacturing debate, it is also important to discuss Electronics Manufacturing Services (EMS). Till the end of 2018, the EMS market in India was close to $7 billion, as per a 2019 report by Frost & Sullivan, while the total market for the electronics sector in India was around $60 billion. As we come to the end of 2020, the positive sentiment about EMS in India continues. In November, Dixon Technologies stock zoomed 290% up from its March levels. This 26 year old homegrown Indian giant began by manufacturing televisions, then moved on to color televisions, metal sheets and mouldings, washing machines, before beginning mobile phone manufacturing in 2016. Dixon also added CCTVs and DVRs to its portfolio recently. On the other hand, Sanmina is a US company whose Chennai factory has EMS capabilities outside the mobile handsets, and manufactures medical equipment, storage & computing, avionics, industrial and multimedia solutions. Flextronics is a global major in automotive and healthcare EMS and has manufacturing facilities in 3 locations in India - Pune, Bengaluru, and Chennai. These are part of its 7 locations in India which employ a total of 25000 employees. These are just 3 examples from the exciting roster of companies that make up the EMS landscape for India, who are expected to take advantage of the PLI announcement along with new players. To give a further filip to the electronics sector, The government has also approved proposals to set up electronics manufacturing clusters in as many as 20 locations across the country. As an example, the cluster at Naihati, Bengal will be focussed on consumer electronics,

6. health and medical electronics, industrial electronics, LED lighting, solar panels, photovoltaic cells etc., while the cluster at Bhiwadi, Rajasthan will have electronics components. Here is an indicative list of the other facets of the umbrella term ‘Electronics’ that would be covered through these 20 clusters 1.IT hardware 2.Set top boxes 3.Televisions 4.Electronics manufacturing 5.Automotive electronics 6.IoT and network products 7.Power electronics 8.Electronics consumables, components, and accessories 9.Point of Sale (POS) systems So what impact do all these developments have on hiring? At the outset, all manufacturing companies in general, and the electronics manufacturing sector in particular, have learnt many lessons in 2020 the hard way. As the bullwhip effect in India’s automobile sector has shown us since 2019, small disruptions at any one end of the supply chain can cause progressively larger disruptions in the other components of the supply chain. So retail demand fell continuously, as a result of which many car dealerships and component manufacturing units folded up. Similar horror stories have played out all year in all sectors, including electronics. The year 2020 has stressed every element of the supply chain of every industry in the country, and no amount of demand forecasting could have predicted the carnage that this year has unleashed. What this tells us is that from 2021 onwards, all manufacturers (including electronics manufacturers and EMS companies) will have to put in a lot of effort

7. and expertise in efficient forecasting models. Apart from the engineering and technical hiring, electronics manufacturers will have to seriously invest in putting robust forecasting models in place, preferably with artificial intelligence capabilities which can trawl through humongous amounts of data and come up with useful insights. This will need them to plan for hiring AI and ML experts who can help those machines and tools do that forecasting efficiently. After this, of course, are the engineering and marketing requirements that any established or newly formed electronics or EMS company would surely need. The caveat in the engineering side is that, as discussed above, we are still some way off from having the technological capability to manufacture wafers, lithographs, chips, display panels etc. If India needs to take the next quantum jump for assuming the mantle of global leadership, then all companies would need to attract talent that is familiar with and has a minimum degree of expertise in these areas. As we said at the start, the potential for the electronics sector in India goes way beyond the assembling or manufacture of smartphones. If all the areas of the electronics industry that we have covered above perform to their potential, this sector can easily be one of the frontrunners in providing economic generation, import substitution and so much more. activity, employment About WalkWater Talent Advisors WalkWater Talent Advisors is one of India's fastest growing Executive Search and Talent Advisory firms. Started in 2011 by search industry leaders, we are today a 30 member team across five

8. offices and an enviable track record across industry sectors, both in India as well as globally. The WalkWater team brings a unique mix of strengths – Intensive Client Partnering, Deep Domain Knowledge and Global Coverage, among others. This, coupled with a start-up drive to excel, and a constant focus on values, provides an unparalleled experience to our clients. WalkWater has an impressive track record across sectors – Technology, Consumer and Retail, Industrial, Pharmaceuticals, Healthcare & Lifesciences, and BFSI. Apart from assisting 350+ companies hire 700+ leaders, WalkWater has also completed 40+ bespoke Talent Advisory engagements for established organizations and startups. For more Information: https://www.walkwatertalent.com/