When Foxconn, the world’s biggest electronic manufacturing services (EMS) group, had to shut its facilities in Chennai in 2014, it was a short-lived setback. Foxconn had set up the business to supply components and supplement Nokia’s own units in the state. But it had to close down the facilities after Microsoft scrapped its handset manufacturing contract with Nokia’s units down south.
However, the Taiwanese manufacturing goliath was quick to return. It set up a new entity on Labour Day, May 1, 2015, and has gone ahead and swiftly built the largest EMS company in the country.
This facility is powered by over 28,500 employees, including contractual workers, most of whom are women, as of September 2021.
Its other peers haven’t been able to match the gazelle-like acceleration, but they too have been rapidly expanding their workforce given the demand velocity.
Take Dixon Technologies, for instance. As on March 31, 2017, it had 629 permanent employees and also employed around 4,030 people on contract. For the year ended March 31, 2022, it had grown to 19,580, growing it fourfold in a span of five years, including the two years of the pandemic.
Amber Enterprises, another large Indian player, has also tripled its workforce, inclusive of those on contract, to over 9,000 in the last five years.
And we are not only talking about relatively lower-skilled assembly line workers either. In the same period, Dixon has tripled its R&D staff.
As companies in India—both local units of multinationals and homegrown firms—enhance their capabilities, the opportunity is not restricted to contract manufacturing but also more value-added work including designing.
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The EMS market opportunity in India
The Indian EMS industry took its early steps around three decades ago, but it has gained weight only in the last five years. There are nearly 700 EMS companies in the market, ranging from large and medium-sized to small players.
Larger global companies include Flexconn’s India unit Bharat FIH, Flex (earlier Flextronics), Wistron, Pegatron and Jabil, while the bigger homegrown firms are Dixon, Amber, SFO, Syrma, Elin and Centum among others.
In FY22, domestic electronics production was estimated to be $86 billion. This includes domestically manufactured electronics components worth $12 billion and imported components worth $18 billion, according to a report by Frost & Sullivan.
The remaining market, after separating the cost of the components and other ancillary expenses such as logistics, packaging etc., represents the addressable business opportunities for EMS companies in the country.
This addressable market is worth $45 billion and consists of three sub-segments: contribution of Indian EMS companies or Indian EMS market, which is worth $20 billion; in-house electronics assembly by original equipment manufacturers, or OEMs, worth $9 billion; and imported EMS, which is worth $16 billion, as per Frost & Sullivan.
The total addressable EMS market in India is projected to grow at an annualised pace of 22.1% to more than double to around $95 billion (adjusted for latest forex rate) in FY26. The contribution of Indian EMS companies was around 43.5% last year and is expected to grow at a faster clip than the overall industry to comprise around 60% of the total in four years.
This is partly due to some EMS providers evolving to offer complete design services apart from contract manufacturing. This also brings higher margins and creates another set of job opportunities beyond those on the factory floor.
What’s driving the EMS market in India?
There are multiple factors at play, some external and some internal.
One of these is the need for global electronics companies to diversify their base. The need to reduce dependence on China as the base of most such contract manufacturing has been building up. This need accelerated after the pandemic, which disrupted supply chains as entire cities were put under hard lockdowns in the factory of the world.
Another factor is the enabling environment. The Indian government has placed a major thrust on boosting local manufacturing with the ‘Make in India’ and ‘Atmanirbhar Bharat’ policy programs. These included schemes such as the Phased Manufacturing Plan (PMP) and Production Linked Incentive (PLI) that help boost the confidence of manufacturers and incentivise them to set up a factory or expand with new facilities.
Thirdly, the size of the local market is another driver of the business. As home to the second largest population in the world with growing incomes, India is a vast consumer market for several electronics makers and marketers.
Earlier, only the low-priced and heavy box electronics items were assembled in the country and the higher valued products were imported. This made sense as the market for premium products was not mature enough to absorb a local manufacturing plant. However, things have changed dramatically over the last two decades, especially with the growth of the local market for mobile products. This has created the right building block for global and local players to set up domestic manufacturing.
However, the most important factor perhaps that is driving the EMS industry in India is the labour force.
Many people associate this with China’s growth and how it is losing its price competitiveness with rising wage cost. Indeed, that is partly true. The average cost of manufacturing labour per day is $6.2 in India as compared to $28.2 in China, which is making many manufacturers move out of China.
To be sure, other countries in South and Southeast Asia have a similar advantage. The additional factor that is playing out is the way the industry is moving towards an integrated offering of original design manufacturer (ODM) where a company does not just limit itself to EMS but brings design services and also after-sales market support as additional nuances to the mix.
This is where the Indian workforce is coming out trumps and underpinning the growth of the industry as consumers across the world buy more gadgets. Couple it with the three other reasons, and there’s a winning combination.
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The EMS sector already employs millions of people. And it is poised for a big leap in a short period of time. Revenue projections for the industry show it will more than double in size in the next four years. Part of this would be due to the movement towards a more comprehensive service offering with ODM thrown in the mix and thereby a higher value.
The increased scope for growth, coupled with enabling environment, is expected to increase the demand for talent and hiring – both skilled and blue-collared workforce. As highlighted previously, some companies have already grown their workforce by four-fold in a five-year period, which includes two-year of Covid-led lockdown.
As industries continue to return to pre-pandemic growth rates, this anticipated growth would require more hands to manage the assembly line. The high wage arbitrage and other complementary factors boosting the growth of the industry would require millions more on the factory floors to cater to the demand as more product manufacturing is on-shored. All this spells a big boom in the job market for the blue-collared workforce.
– Concept by Bruhadeeswaran R