As the world’s electronics manufacturing community looks beyond China because of the country’s “semi-floating” currency, rising labor costs, chronic power shortages, and different language, India is making a strong case to attract foreign investment. Already, major contract manufacturers have rushed to establish a presence here. Finland’s Elcoteq Network opened a 60,000 square-foot facility in Bangalore this year. Meanwhile, Jabil Circuit is building a 175,000 square-foot plant, its second in India. Perhaps the biggest investment is being made by Flextronics. It currently employs 5,000 people in India at manufacturing facilities in Bangalore and Pondicherry, and at software development and hardware design centers in Bangalore, Chennai and Gurgaon. The Singapore-based company intends to invest $70 million to $100 million in its Chennai location over the next three to five years, according to Peter Tan, president and managing director of Flextronics’ Asian operations. The facility will support the manufacturing needs of local as well as global customers, focusing on plastic injection molding, PCB assembly, distribution, logistics and repair. Not to be outdone, Cisco Systems, the world’s largest Internet equipment manufacturer, plans to invest $1.1 billion in India during the next three years, marking its largest investment outside the U.S.

The presence of these large OEMs and contract manufacturers has many of India’s PCB fabricators salivating. And for good reason: Contract manufacturing of electronics will nearly triple in India over five years, market researcher iSuppli Corp. predicts. Combined revenue for electronics manufacturing services (EMS) and original design manufacturing (ODM) will rise from $774 million in 2004 to $2 billion by 2009. Will India’s PCB community be ready?

Embracing Change

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In the past few years, Indian companies have grown by exporting product, increasing market share, enhancing manufacturing capabilities, improving customer service, and reducing operating costs. These changes have forced most domestic PCB manufacturers in India to adopt western business strategies. Because of foreign investment, these manufacturers are now less dependent on government orders, mainly from state-controlled telecom companies. Instead, they compete for value-added products in international markets.

India reformed its economic policies in the early 1990s, integrating its markets with the world economy--but it took more than a decade for its PCB industry to reap the benefits. During the last ten years the industry suffered mainly because of infrastructure problems, bureaucratic delays combined with the high rate of import duties on equipment and raw materials. In addition, the government neglected this industry because of its small size and negligible export revenues, causing it to post a combined output of only $200 million annually.

But no longer. The government now recognizes the importance of manufacturing electronics, and has created many incentives to boost India’s PCB industry. For example, one may now import raw materials and capital equipment duty-free. Thus, multi-spindle CNC drilling machines, electrical testers, and other machines are pouring into the country’s PCB manufacturing facilities. Unfortunately, the peak customs duty still remains at 25% for some raw material and equipment, but these duties will be eliminated per India’s WTO agreement in 2006.

Happy Days Are Here Again

India’s highly cyclical industry has never had it so good. Since its last peak almost a decade ago, the sector has been riding a roller coaster of demand and decline. But that changed between 2003 and 2004. Since then, the industry has been racing at a growth rate of close to 30%. Making Indian manufacturers even more upbeat is the serious government initiatives to boost the country’s hardware industry coupled with bullish projections for the domestic hardware market for consumer goods: PCs and telecom equipment, including hand phones. From September 30th, most of India’s PCB companies said they are fully booked for the rest of the financial year, and are gearing up for expanding their facilities.

What’s Next?

All is not roses, however. The current growth rate among PCB manufacturers in India will not be easily sustained due to stiff competition from China during the next few years. To compete, leading PCB manufacturers seem to be focusing on their core competencies, enhancing capacity through acquisitions, attending equipment auctions, building a strong presence in India and international markets through aggressive marketing, working closely with customers on product innovation, and most importantly remaining financially sound in the face of Chinese competitors. Not everyone has succeeded in implementing these strategies. However, many leading PCB facilities are building an international customer base. Other volume facilities are focusing on quickturn orders to meet the demands of European and U.S. customers.

While big players are trying to raise capital to meet growing domestic and international market needs, small- and medium-sized enterprises (SME) are still struggling to grow. However, these SMEs are the backbone of India’s PCB industry. Like many North American fabricators, these SMEs have successfully navigated the highly cyclic PCB industry during last two decades. Yet, these SMEs are not well represented in international markets; many have failed to achieve high growth rates because of aggressive competition, and their limited ability to procure capital and expand capacity.

Corporate lending activity, which saw flat growth over the past few years, is expected to grow in the near future. One executive from a leading public sector bank, State Bank of India, confirmed that banks have enough money to finance the hardware projects. They would not consider the past performance of India’s PCB industry as a barometer for deciding the financial viability of the project. As in China, smaller Indian enterprises are looking to form strategic alliances with counterparts in other developed countries for technical and financial collaborations. There is a tremendous opportunity waiting to be exploited. To wit, the European PCB maker Aspocomp is scouting a partner in India to start operations there. Meanwhile, Nokia and Motorola have already announced their plans to start hand-phone manufacturing facilities here. It is a high time for global PCB manufacturers to establish subsidiaries here.

Keys to Growth

Looking ahead, India’s PCB industry has a significant role to play in the country’s economy, especially considering its huge domestic market. To succeed here, one must manage capital, assess growth risks, reduce turn-time, and improve technological capabilities. Many PCB projects established in the1980s and 1990s failed because of delays in implementing promises on time. It is extremely important not to repeat the same mistakes. Properly managing one’s supply chain in India not only lowers transaction costs and turn-time for end-customers, but also increases one’s profit margins. The key elements on which Indian PCB companies should focus are capital, consolidation, technology improvements, quality, and a global delivery model.

A Drive-By Assessment of Indian PCB Fabricators

To move beyond an abstract discussion of India’s PCB industry, I visited a number of manufacturers to get a better idea of their success--and present challenges--in this rapidly growing environment. While this list is by no means comprehensive, it should provide you with a glimpse into many of India’s better-known companies.

AT&S India Pvt. Ltd. (Nanjangud, Mysore District): Located in southern India, AT&S Nanjangud is by far the largest PCB maker in the country. The Austrian-based PCB maker acquired the facility from a subsidiary of Indian Aluminum Company (INDAL Electronics) in 1999 for $13 million. Since the acquisition, AT&S has more than tripled its capacity in Nanjangud to 200,000 square meters.

The main gate of AT&S Nanjangud. Could there be a second plant in the near future?

Known for its good quality practices and well-trained labor, AT&S Nanjangud exports multilayer boards for the telecom, industrial, medical and automotive segments in the U.S. and Europe. It grosses $45 million in annual sales.

AT&S has already acquired sufficient land to double existing capacity. The company’s CEO Harald Sommerer said it is currently considering building a second plant in the country, which would cost about $35.9 million if similar to the existing one. Nanjangud’s managing director Pradeep Mehta is confident that his facility will continue to flourish. It has received governmental awards for its commitment to quality and environment protection.

Circuits Systems India Ltd. (CISL) (Gandhinagar): Founded and managed by Paresh Vasani, a young and dynamic CEO, this company has already acquired three other PCB companies. Originally formed by acquiring the ailing PCB facility owned by Stovec Screens, it then acquired two more, the latest being state-run GNFC. CISL addresses different market segments such as quickturn boards, domestic and export markets--about forty percent of their boards are exported to Europe, China or the U.S. Under the name of Euro Prints they produce high quality quickturn multilayer boards. The company’s vice president, Sharad Shah, is an industry veteran. He said the facility’s strength is process knowledge and a good labor force. Located in Gandhinagar (Gujarat), the area is known for its good infrastructure, and has good access by road as well as by air. Gandinagar is just one hour by air from Mumbai, India’s financial capital.

Shogini Technoarts Pvt. Ltd. (Pune): Known as the king of India’s domestic market, Shogini is truly living up to its reputation. Located near Pune, which is about two and half hours drive from Mumbai, the region is also accessible by air and train. A family owned and operated business, Shogini is not afraid of Chinese competition. It is successfully harnessing the abundant labor and resources available in the region to cater to domestic market.

The new facility under construction will double Shogini’s capacity to 20,000 sq. meters.

Under the leadership of technical director Abhijeet Tamhankar, Shogini has created a major technology improvement plant to enhance its capacities and capabilities through automation and state-of-the-art equipment. With an installed capacity of 10,000 sq. meters of double-sided and multilayer PCBs, it is already on the verge of completing its expansion program, which will double its capacity by June 2006. Vijay Athavle, the company’s chairman, wants to export about 50% of Shogini’s total capacity in the near future.

Rao Insulating Company Ltd. (Bangalore): A pioneer in India’s PCB industry, Rao is once again growing after experiencing cyclic periods a few years earlier. After manufacturing single- and double-sided PCBs for years, they decided to focus only on double-sided and multilayer boards for domestic and international markets. Rao has gained a reputation as one of the reliable and consistent suppliers to public sector companies for more than two decades.

Now under the control of second-generation leader GVS Pavan, Rao plans to expand and take advantage of international markets. Currently, the company is focusing on building its second plant with the help of a European partner. Rao exports about 60% of its total capacity to Europe; that number is sure to rise once the expansion program is complete.

HI-Q Electronics (Hosur): True to its name, HI-Q is known for its quality and on-time delivery in domestic and international markets. Founded by the PCB veteran Dr. Venkatachalam, HI-Q is a family-run business. His son Sedhyl is in charge of marketing and expansion programs. Once a volume player, HI-Q is now focused on manufacturing quick-turn, multilayer PCBs. It can manufacture boards up to 16 layers with impedance-controlled boards. Located very close to Bangalore, the company enjoys a close proximity to high-tech MNCs and a large number of defense and public sector establishments. Perhaps it his “high time” for HI-Q to start manufacturing HDI boards to maintain its leadership position.

The following companies export all of their PCBs:

Fine Line Circuits (Mumbai). The only publicly traded company in India which is performing well, Fine Line Circuits is also the first company in India to export all of its boards to take advantage of the export benefits of a liberalized economy. Having located in the SEEPZ export zone of Mumbai, this company enjoys some of the country’s best infrastructure and labor. Under the able guidance of PCB veteran G. Sudarsanam, Fine Line Circuits has performed well during the last five years, and its stock has appreciated more than 100% during the past few months. Managing Director Abhay Doshi is cautiously moving ahead with expansion plans.

Sonic Technology/National Technology (Gandhinagar/Gandhidham). Owned by non-resident Indian (NRI) Roger Patel of the U.S., both companies are completely export-oriented factories. While Sonic produces double-sided and multilayer PCBs, National focuses only on double-sided boards. Sonic continues to run its operations from Gandhinagar, the state capital of Gujarat. National, however, is moving to Gandhidham to take advantage of a tax-free holiday in that region to compete in the low margin double-sided boards. These two companies have tremendous potential for growth because of the American parent-company, and the financial assets it has to invest.

Fine Line Circuits Company (Baroda). Not to be mistaken for Fine Line Circuits in Mumbai, this company is led by another NRI from America: Harshad Patel. Having established itself only recently, this company continues to add capacity, partially filling the void left by the closure of GNFC. It has successfully managed to reap the benefits of export-duty exemptions offered by the government, and enjoys abundant labor in the region. Baroda is just a 45 minute flight from Mumbai or a three-hour drive from Ahmedabad.

The following companies are “up and coming” establishments that the Indian electronics industry would do well to watch:

BLG Electronics (Gandhinagar). Located in a vibrant Gujarat state, BLG is racing ahead of other companies of similar size after a change in management. Twenty-four year old CEO Rohit Rai Surana is enthusiastic about the future of his company.

BLG's main gate. The company is looking for a strategic partner.

Though he is currently looking for a strategic partner for growth, the company already has a blueprint for expansion. While consolidating its position in the domestic market, BLG is eyeing the export market in a big way. Because of its focused efforts and management policies, I think this company has a bright future.

Ascent Electronics (Hosur). Located close to Bangalore, this company started as a single-sided board manufacturer. However, later in 2004 they decided to pursue double-sided and multilayer PCB manufacturing, and its new plant is already functional. With a strong commitment from the management, and conscientious of quality and price, this company should contribute to the industry for years to come. Managing Director Manjunath wants to build a sophisticated plant to cater to a high-end customers in international markets.

Genus Electrotech (Gandhidham). Genus is the first PCB company in India to provide total EMS solutions in addition to PCBs. Genus, promoted by the Kailash Group, created its PCB manufacturing facility to supply OEM supplier to LG Electronics in India. Currently, they produce single- and double-sided boards for in-house use. However, they also sell excess capacity--up to 50% of the total capacity--to the outside market. With a strong financial portfolio and a commitment to growth , this company could be a strong competitor for major EMS providers in the domestic market.

Meena Circuits (Baroda). This start-up company is being led by yet another NRI: Baghu Patel of Amitron Corp. (USA). Still under construction, Indians have high hopes for this company because of its size, as well as the buzz it has already created in the industry. With Patel’s experience, once he gets the company off the ground, he could pose a major challenge to India’s established players.

Sulakshana Circuits (Hyderabad). Located in central India this company has survived bad times in the past and has come on strong during the last two years. The managing director, Mrs. Durga Rao, has successfully led the company after she took control a few years ago. Sulakshana makes double-sided and multilayer boards, and has created its own niche markets in Canada and the U.S. It is also one of the leading suppliers to India’s public sector. Though the company is doing well now, it could face a leadership crisis in the future. It would probably consider a strategic partner for growth in the near future.

A Long, Winding Road

India is clearly evolving into another manufacturing powerhouse, but the main question is whether or not it will remain in China’s shadow. According to Research and Markets, India’s electronics market was estimated to be $11.5 billion in 2004. The market is expected to grow at a CAGR of 23% by 2010, reaching $40 billion. By way of comparison, China’s electronics market was worth $ 272 billion in 2004. “China’s market is expected to grow at a CAGR of 19% over the next five years, contributing a major share to the world market, 30%, by 2010. While China will be a significant market in electronics manufacturing in terms of market size, India is an important market with an expected growth rate that is higher than that of China,” stated Research and Markets in a report.

With India expected to pass China as the world’s most populous nation by 2035, the two nations remain fertile environments for low-cost labor. If India can continue to attract foreign investment and also consume the products it produces, it won’t have to worry about Chinese competition; it will generate enough jobs to become one of the world’s strongest economies.