(Continued from last week)
Also, 1980s was the time when several private-manufacturing companies also came into being. Bharti Telecom, ARM, Surana Telecom, Aksh Optifibre Ltd, Enkay Telecom, and Bhagyanagar Metals are to name just a few.
And then, in 1994, the government invited private players to operate services such as basic, cellular, paging, and radio trunking. Also, with the economic liberalization, there began an influx of global vendors in the country, who were competing for the same market that Indian companies had been addressing. With pressures from WTO to implement a tariff-barrierless regime, customs duties came down steadily, thereby making imports cheaper as well as accessible. The equipment market became crowded and highly competitive, pushing many local-manufacturing companies to shift their focus to services instead.
Given the number of new licenses being awarded, the length of fiber ducts being laid out and the rapidly accelerating mobiles market, things should have looked quite rosy for the overall telecom sector.
Unfortunately, while development on the service front has been phenomenal, little appears to be in store for the manufacturing sector, which is faced with two major challenges today. One, India is being steadily opened up to the global market, as trade restrictions are done away with. Import duties on telecom products have crashed across the board, thus allowing companies to easily move goods from overseas. Two, in their attempt to cut down on operational costs, US, European and East Asian multinationals are outsourcing manufacturing to cheaper destinations in Taiwan or China.
Looking at numbers too, the picture doesn't appear promising. For the last five fiscals, the sector has been tottering around the Rs 10,000-crore production levels. This, at a time when telecom services have marched ahead rapidly. On the exports front, things have been even worse annual figures of Rs 250-500 crore are peanuts given the size of the industry.
To Be or not to Be?
That really is the question. And going back to the hardware-versus-software debate, can we really afford to focus on one and ignore the other? The pro-manufacturing camp argues that it will be tough for the software industry to sustain its growth if there isn't a healthy hardware-manufacturing base. Plus, it points out the fact that India cannot depend on imports for long.
One, what India needs is equipment that are made for the Indian market-equipment that won't burden service providers trying to roll out services in villages and handsets that are affordable for rural subscribers. Two, one cannot depend on imports for designing and making communication equipment that go into our defense/secured networks and other strategic projects.
There are pockets of hope nevertheless. Companies like Tyco and D-Link have shown the way by building plants that are cost-effective even by Chinese standards. Tyco is a major exporter of connectors while D-Link is known to be contract manufacturing both computer and networking equipment for companies in the West as well as in Asia. Then there are companies like HFCL, ARM, Fibcom, and MRO-Tek that have taken the JV or technical collaboration route to manufacturing the latest communications equipment and yet compete quite successfully against imports from the US and Europe.
So what lies ahead for companies still interested in the manufacturing business? One way is to come out with innovative products and designs. Except for one or two RAXs and corDECTs, the R&D community here has not been able to produce enough product ideas and designs. And that is quite sad, especially when IITians and engineers from other reputed engineering institutes are doing pathbreaking work in labs of large US and European companies like Lucent, Nortel, IBM, Ericsson and
As shown by a group of IITians at Chennai, headed by Prof Ashok Jhunjhunwala, India can design world-class products locally as well-the only requirements being hard work and dedication. To develop corDECT, an affordable wireless communications technology designed for countries like India that is currently being tested by BSNL and other service providers in India, the team worked without much funds and state-of-the-art labs. The group is already busy chasing another big dream. Professor Jhunjhunwala was heard saying in a recent academic function that his real aim was to make a product company that was the best in the world. Research and development work is already in full swing.
Bangalore, Hyderabad and Gurgaon are bustling with several startups, funded by tech evangelists and VCs in the US, who are working on developing prototypes of the next-generation communication equipment. But the sad thing is that most of these startups do not have plans set up plants in India.
Another approach that companies can undertake is contract manufacturing. For this, they need to build efficient manufacturing plants housing the best machines and employing the best practices. They can not only manufacture products designed by Indian startups but also obtain bigger contracts from large outsourcers like Cisco, Nortel, Juniper and Ericsson. With improved infrastructure and a pro-active government, the country can still give other outsourcing destinations of the world a run for their money.