Taiwanese hardware makers eye
India By Indrajit Basu
KOLKATA - Suggest the idea of making India
an alternative manufacturing hub for Taiwan's
famed hardware industry and the first reaction one
is likely to get is an involuntary sneer.
After all, despite being an
information-technology (IT) superpower in terms of
software services, India's hardware-manufacturing
capabilities, compared with those of mainland
China and Taiwan, are hardly worth writing home
about. Yet, going by the surge of
business delegations from the
Taiwanese electronics-manufacturing industry
visiting India over the past 12 months, it appears
that India may have finally appeared on the radar
screen of the Taiwanese electronics-manufacturing
companies (EMCs).
Over the past 12 months,
at least six business delegations from the
Taiwanese electronics industry have visited India
to study the country, but two months back India
saw Taiwanese EMCs express keen interest when
company chiefs from 30 firms, as well as
representatives from the Taiwan Semiconductor
Industry Association (TSIA), toured all the Indian
IT hotspots for seven days to explore
manufacturing opportunities.
"We went
there to get acquainted with the Indian
regulations and infrastructure," said TSIA
president Wu Tao-yuan. "Since Taiwan is an
established manufacturing hub in the semiconductor
industry, we see a great potential to outsource a
host of requirements from India."
Having
poured billions of US dollars into Chinese and
Taiwanese EMCs, the firms say that they must now
reduce their dependence on mainland China. Over
the years, Taiwan's hardware makers have been
putting their eggs in one basket - mainland China,
investing about US$200 billion there. More than 6%
of Chinese hardware exports are either owned or
controlled by Taiwanese hardware entrepreneurs,
while more than 70% of the hardware and components
manufactured in the mainland are based on
Taiwanese investments. Yet, owing to the political
tensions between the mainland and Taiwan,
Taiwanese investors and the island's hardware
sector do not get credit for their contributions
to the mainland's hardware industry.
"I
think they have realized that it is time now that
they start looking at India as a risk-mitigating
destination," said Vinnie Mehta, executive
director of the Manufacturers' Association for
Information Technology (MAIT), the
hardware-industry lobby in India.
The
Taiwanese electronics-manufacturing industry in
fact has already started moving in. In February,
for instance, Foxconn, the biggest original
electronics manufacturer, announced that it would
invest $110 million to set up a manufacturing base
in Chennai. Soon afterward, Taiwan's Institute for
Information Industry (III) established an offshore
development center in Chennai.
These
announcements have made other Taiwanese companies
sit up and take notice. According to the Taipei
World Trade Center, about 60 Taiwanese companies
(from all sectors) have already set up bases in
large Indian cities - Mumbai, Delhi, Chennai and
Bangalore - of which as many as 30 are EMCs, not
all of which have started manufacturing yet but
which are seriously weighing various options.
There are several reasons for this
interest. But it is important to understand why
mainland China has been Taiwanese EMCs' favorite
destination until now. According to Stanley Wang
of III, the biggest driver behind the Taiwanese IT
companies setting up operations in the mainland is
to improve the cost structure through the much
lower costs of labor and land that China offers,
as well as to scale up production through the huge
manufacturing facilities that the country can
provide.
As a result, "There has been the
establishment of huge manufacturing bases in the
region by Taiwanese [IT] companies," said Wang.
"Some of those bases have actually moved from
Southeast Asian countries such as Malaysia,
Thailand, and [the] Philippines. Taiwanese
companies have also linked up their Chinese
operation to their global supply-chain and
logistics network. From Chinese ports, finished
products and components are shipped to different
parts of the world."
Wang said the
Taiwanese hardware industry's biggest market is
mainland China, and that's yet another reason the
Taiwanese hardware sector did not like to look
beyond China. "Most Taiwanese companies thrive on
the original-equipment business models," said
Wang, "and Chinese customers [also] request that
hardware is manufactured in China."
But
now, according to the Indian hardware industry,
even if India's markets are not as big as China's,
in terms of characteristics they are catching up.
"India is waking up to a very real
hardware boom and can now boast of a large and
rapidly growing domestic market," said Vinnie
Mehta of MAIT. "India's growing import of
information-technology and telecom hardware,
electronics and machinery thus offers Taiwanese
enterprises a huge new market opportunity."
According to the Indian Semiconductor
Association, the country's consumption of
semi-conductors, currently at $3.3 billion, is
expected to reach $43 billion by 2015, when
consumption of finished electronic products is
expected to reach $155 billion (currently $25
billion).
"The growth in the Indian market
is attractive," said TSIA president Wu, while a
comparative study by Taiwan's personal-computer
brand Acer reveals that the total addressable
market in India has overtaken those of Australia
and South Korea. And barring Japan and China,
India has emerged as the fastest-growing market in
the Asia-Pacific region.
Moreover, India
also offers a geographical advantage, according to
MAIT.
"The country's proximity to the
European, [Southeast Asian], African, Central
Asian and Persian countries makes it a natural
site for exports to these countries," said Mehta,
adding that as a result of the terrorist attacks
of recent years, the cost of freight, shipping and
insurance has gone up considerably for Taiwanese
exporters, and India's close geographical
proximity to these countries could also reduce
shipping costs significantly.
But even if
these virtues are not enough, there is potential
merely in the fact that the Indo-Taiwan trade base
is so small. Mainland China accounts for more than
30% of Taiwan's external trade, while India
accounts for only 0.67%. Taiwan accounts for 0.87%
of India's external trade (total Indo-China trade
in 2005-06 has been $17.6 billion).
Investment-wise, compared with Taiwan's $200
billion investments in mainland China, the
island's investment in India is a puny $116
million (as of 2004).
"This wide gap shows
there is a huge opportunity for Taiwan to explore
investment options in India," said G J Huang,
executive vice president at III. "India is an
important partner of Taiwan for industrial
development."
Yet not everything is
hunky-dory. For one, Taiwanese investors who
followed their government's instruction to invest
in Southeast Asia suffered huge losses when the
1997 financial crisis swept that region. That is
why even as many Taiwanese businesses are
interested in investing in India, an equally large
number of skeptics are stymied by differences in
language and culture. Also, the Indian government
does not yet offer enough incentives to attract
Taiwanese hardware makers, say others.
According to TSIA's Wu, most Taiwanese
interest is in the areas of design and software
development. "There is not enough manufacturing
activity," he said, adding that for this to
happen, "India needs to create a full ecosystem
like [was] created in Taiwan."
Nevertheless, according Shih Yen-shiang,
Taiwan's vice minister of economic affairs, "India
and Taiwan are natural partners" in dominating the
information and communication technology sector
and Taiwanese hardware makers have realized that
as a risk-lowering strategy and for facilitating
geographic expansion of the market, partnering
with Indian is a "win-win" situation.
"I
expect many more Taiwanese ventures to come to
India," Shih said.
Indrajit Basu
is a Kolkata-based journalist.
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