India benefits as China begins to lose its manufacturing edge: Sunil Vachani

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Dixon Technologies is the largest Electronics Manufacturing Services provider focused on delivering high quality, Cost Effective end to end solutions for lighting, consumer electronics and home appliances for the India and International markets, truly epitomizing the front runner ‘Make in India’ company.

Sunil Vachani – Chairman & Managing Director, Dixon Technologies, is one of the leading and most respected Industrialists in the country today. As a young entrepreneur, he was included in list of ‘TOP 100 PEOPLE’ influencing the electronics manufacturing services industry. He has also been the Chairman of Electronics Software Export Promotion Council of India apart from being a member of various other Industry associations and the Honorary Counselor General for the Republic of Benin.

He is truly a pride of India in EMS sector and to me a torchbearer for Modi Government’s Make in India program.  In an interview with Devendra Kumar, Editor, ELE Times, Mr. Vachani pore forth his mind on the entire gamut of manufacturing services in India, his company’s plan and is the most vocal proponent of India as a hub of electronics manufacturing. Excerpts from the interview.

ELE Times: What facilities Dixon has and what are the industry segments for which you provide electronics Manufacturing Services.

Sunil Vachani: We, at Dixon, are the largest Indian EMS, ODM Company and are a complete end to end solutions provider across the product line in the segment of consumer electronics, home appliances, lighting and mobile phones. When we talk about complete solutions, we talk about end to end solutions which include design of the product, sourcing of the components, materials, involve SMT, auto insertion, manual insertion of components, the final SMP, box building as well as logistics and reverse logistics. To my mind there is no Indian company or MNC which provide end to end solutions across the products. We are also probably one of the few companies who have huge backward integration into plastic injection molding, sheet metal and manufacturing of the LED TV. So that is what makes us unique in terms of providing end to end solutions with full backward integration and of course on the economic scale. We have created the capacity to service 20 percent of the total market requirement. For example, if we talk about LED televisions, the total market is about 9 million LED televisions of which we do almost 5 million television products. If we talk about lighting, today our production of LED lamps is almost 36 million per annum; CFL is almost 60 million per annum which is again 20-25% of the total market.

ET: What are some of the new technological trends and innovations that have emerged in the past years connected to EMS?

Sunil Vachani: Lighting has moved from the incandescent bulb to CFL and now to LED. Not much has changed as far as manufacturing process is concerned. Of course the materials have totally changed. So when we talk about LED lighting, the key raw materials is the LED chips, again when we talked about the CFL, it used to be the CFL burner or the glass. But if we see the manufacturing technology, it’s basically the same. We just invest in enhancing the capacity in getting the latest equipments to make sure that we are the best in the world.

ET: You are still into CFL?

Sunil Vachani: Yes we also continued into the CFL because CFL even though the market has not grown, but we see that there is a marginal growth in that segment and the consolidation happening in this segment.  Today Dixon is the largest manufacturers of CFL beside the LED bulbs.

ET: How big is your LED business against your CFL business?

Sunil Vachani: LED is a segment which is evolving. Thanks to the government tenders, especially the Ministry of Powers which is distributing LED bulbs in a very subsidized price to all consumers across India and that has resulted to the sudden growth in this segment. Now we do almost 3 million LED bulbs per month, which is the largest production in the country.

ET: There has been a trend towards miniaturization over the past few years in electronic and other devices. Is that trend continuing, and what implications does that have for your industry?

Sunil Vachani: If you see the mobile phones, there is a huge miniaturization happening and due to that we had to invest the latest generation SMT machines and invest in the infrastructures to ensure that we are able to manufacture the ports across the products gallery. So this has definitely resulted in huge investments in this sector and we are ahead of the technology run by investing in the sector.

ET: How fast is the technology changing in EMS sector? Is it viable for the people like you to invest huge amount of money on technology, on the products or on the machines that you buy? So what type of investments do you have on machines?

Sunil Vachani: We have made huge investments in the machines. Dixon has almost eleven SMT lines now in the country which is probably the largest capacity compared to any other manufacturers. So we have been continuously investing into machine and technology in order to increase the capacity to ensure that we are the largest in India.

ET: When we talk about miniaturization, how fast the technology is changing?

Sunil Vachani: Technology is indeed changing very fast. If we talk about the television, first we had CRT televisions. Then you had the plasma TV and then there was the LCD, Led and now there is OLED technology which is coming in very fast. In this segment the investments are huge that have to be made in terms of the display technology. Earlier we used to buy the picture tubes and now we buy the panels and the OLED panels. The component manufacturers have to really keep updated with the technology. We, as manufacturer, have to ensure that we have invested and continuing to invest on the equipments as far as the manufacturing of the final products are concerned. The technology obsolescence did not affect us but yes we have to keep reinvesting to make sure that we are ahead in the technology curve.

ET: The EMS is increasing gradually. India has a target of reaching to $400bn by 2020.How to replace China as the low-cost EMS region?

Sunil Vachani: There is no doubt about the demand as such. We all know that import of electronics will exceed oil import by 2020. The government has already done a lot for this sector. We can do a quick comparison between India and China. Today our labor cost is lower than China. For uninterrupted power supply, our power cost is lesser than China. Chinese manufacturers in the east coast pay something around 1 to 1.5 RMB which is almost 11 rupees in India. In terms of productivity now we are at par with China. So the only issue or puzzle to be solved now is creating a component ecosystem which we do not have right now. We have to import a lot of components and once that changes, we will see that India is going to become the global hub for manufacturers of all these products.

ET: Can you elaborate on the ecosystem further?

Sunil Vachani: Today, for most of our products, we struggle to source even the bare PCB and basic passive components forget about the microprocessors to find. That is why not many entrepreneurs have come to set up such huge capacity in this particular sector. The reason why it has not happened in India is due to the fact that the cost of acquisition of land is too high and the component sector is very capital intensive. That is the reason we do not see too many investments coming. We have recommended the government that we need to follow a plug and play model that China offers – wherein the new entrepreneur can go and get a pre constructed shade. This is what we need to do, we really have to attract entrepreneurs into the component sector and once the component ecosystem is build, nothing can really stop us.

ET: Are you going to propose plug and play model to Indian government or has it already been proposed?

Sunil Vachani: We have already proposed for plug and play model from various associations and I think the government is also taking note of this issue for the government has realized that this change has to happen. I think the various clusters which are being formed now, you will see a lot of facilities are pre constructed, which we tend to offer to new entrepreneurs.

ET: Do you see that China’s labor dilemma, currency valuation, tightening of China’s business laws and territorial disputes in the South China Sea forcing the American and European companies to march towards India?

Sunil Vachani: More than the European companies, I see a huge interest from the Taiwanese and the Japanese companies to invest in India. Off late we have seen many companies and delegations coming from Taiwan and Japan who really wanted to know about the policies and as to how the manufacturing system is evolving. We see a lot of companies who relocate their investments from China to India and once these companies do that we will see a lot of American companies also coming into India for investing.

ET: As you said, as of for now Dixon has a huge market share, so what is the market scenario that is going to happen after few years?

Sunil Vachani: Dixon has grown in a very short period of time. Starting with a turnover of only 3 crore, today we have a turnover of around 1500 crore, which we are again targeting to reach about 2500 crore by this year end. This is happening only because a lot of the companies had undertaken immense interest in the Indian markets and thereby they are interested to source for the local market in India.

ET: What key steps Government has taken to boost manufacturing?

Sunil Vachani: There are a few reasons as to why people are taking interest in the Indian market. One is the duty structure. Taking the example of Mobile phones, government has made it more expensive for the companies to import the finished mobile phones as compared to the manufacturing in India. Consequently this encourages the companies to invest in manufacturing. Second is the cost factor itself. Today if you import from China the cost of assembling and cost of transporting is more expensive. Hence, why not invest in India. Lot of things are happening in India for encouraging manufacturing.

ET: For electronics, the logistic part is very minimal.

Sunil Vachani: I do not think that is true. If you are importing a finished product from China it takes at least 21-25 days to port to India and then comes the local transport. Companies want to save on that, they want to save the turnaround time of one month and thereby want to manufacture locally. This is also another reason for manufacturing locally in India.

ET: You said setting up factory in India is a big advantage. What other advantages do we have in India to attract investors?

Sunil Vachani: Besides the low labor cost, the biggest advantage India has is R & D, innovation, design led manufacturing. Bangalore is the emerging center for design and innovation now. Lot of innovation is happening in IOT and embedded design. You will see design led manufacturing will make India a global player in manufacturing. If we talk about lighting, it is estimated that the IOT in lighting is going to be huge. India will be unique point in terms of cost advantages.

ET: EMS companies have high revenue generation possibilities in the telecom, consumer goods and industrial segments. Increasing budgetary allocation in the defense, space and IT sectors will present added growth avenues for Indian EMS enterprises. How do you see that market?

Sunil Vachani: We are the largest manufacturers of mobile phones in the country now. We have recently set up our plant in Noida with the capacity of one million mobile phones. We have further plans for expansion in the next few months with the capacity of 1.5 million mobile phones which will indeed make us the largest manufacturers in India. Other areas that we are trying to look after are the medical devices and probably even auto electronics. Defense is one sector in which there is huge production. As of now there is no concrete plan as such but yes we know that this is one area in which we definitely need to grow.

ET: The lack of fabrication plants and raw materials has forced EMS companies to import a majority of the materials and components from global suppliers. How is it affecting the profit margins?

Sunil Vachani: No it is not a disadvantage. We definitely need to create a component ecosystem. It is recommended to the government of India that any incentive that they give in for manufacturing should have value add to the market. We suggested the government to link all incentives to the value added system. A lot of investment has already gone in manufacturing and definitely a lot of investment will further go into manufacturing in future.

ET: Growth-focused policies and government investments to upgrade existing infrastructure will drive the domestic manufacturing market. How far the Government has been successful in these areas?

Sunil Vachani: The government has been very successful. In order to give you a comparison, two years back all the mobile phones that were consumed in India, 40 % of it were manufactured in India. But in the upcoming years we will manufacture almost 100% phones in India. So this gives us a clear picture as to what kind of investors has come to India in the recent years.

ET: What is Dixon’s state of affair right now?

Sunil Vachani: Well it depends from sector to sector. If we talk about Led televisions almost 70% of the total production has been done by us. If you talk about LED lighting, almost 85% of our production is now in India. If you talk about mobile phones, it’s a small percentage of 20-25%. Each industry is in a different stage of production.

ET: What has been your biggest challenge while at Dixon and how have you been able to overcome it?

Sunil Vachani: I constantly tell my team that we never set a target in terms of numbers. Our target is in terms of customer service. Any company that thinks about sourcing in India, the first company that should come to their mind – should be Dixon. In our sector what is challenging for us is, we have to constantly grow. We have to ensure that we grow in terms of numbers as well as production and also volumes. So growth is very important for us. And of course backward integration is a key feature of Dixon on which Dixon is constantly focusing.

 

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