India's challenges to offering global contract electronics manufacturing services (EMS).

1. India as a Destination
Source for EMS
( Electronics Manufacturing Services )
presented to
Gathering of Indian EMS Executives
New Delhi, India
by
Mark Zetter, President
VentureOutsource.com

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EMS Evolution
v Over the next 10 to 15 years, the electronics HW industry
will evolve into two primary business models
• product solutions companies
• product innovation/development
• customer channel relationships
• operations management companies
• product concept/industrialization
• process development, manufacturing, logistics

3. Fabrication/
Mech Assy
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Traditional
EMS
Product
Design ATO > Distr.
ATO > End-users/
Reverse Logistics
Cisco
Palm
IBM
Nokia
Reptron
Arrow
Avnet
VARs
Component
Suppliers
Flextronics
Foxconn
Solectron
Celestica
Sanmina-SCI
Jabil Circuit
PCB fab.,
Encls.,
Plastics
Back-end
Front-end Services
Backward
Integration
Intel
NEC
Motorola
Customer Direct
Service
Outlets
Internet
Direct Mail
EMS Evolution

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EMS Evolution
v The technology outsource supply chain model is becoming
the dominate model and can never be reversed
v Supply chain purchasing power has swung in favor of the
outsource provider
v The larger outsource providers excel in the ability to rapidly
advance and scale the art of process

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Drivers
v Outsourcing electronics manufacturing can have real
economic benefits even in the absence of product cost
savings

6. Drivers
--- Est. Costs to OEM by Outsourcing --- Savings
Internal OEM
Operating
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Cumulative
(1) (2) (3) (4) (5) (6) (7) Dollars Percent
Costs
Materials $76 $76 $76 $73 $72 $70 $70 $68 $8 11%
Labor $4 $4 $1 $1 $1 $1 $1 $1 $3 75%
SG&A $6 $3 $3 $3 $3 $3 $2 $2 $4 67%
Finance $2 $1 $1 $1 $1 $1 $1 $1 $1 50%
Freight $4 $4 $5 $5 $4 $4 $4 $4 $0 0%
Overhead $8 $6 $5 $4 $4 $4 $4 $4 $4 50%
EMS Profit $0 $4 $4 $4 $4 $4 $4 $4 -$4 n/a
Total OEM Cost $100 $98 $95 $91 $89 $87 $86 $84 $16 16%
(1) Shared resources = greater capacity utilization
(2) Production in less expensive regions
(3) Cost-efficient product redesigns
(4) Optimizing logistics
(5) Co-locating suppliers
(6) Controlling component supply through verticalization
(7) Greater purchasing economies of scale

7. Captive Manufacturing Outsourced Manufacturing
Statement of Operations Statement of Operations
Working Capital Working Capital
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Drivers
Revenue $ 325,000 Revenue $ 325,000
COGS $ 231,000 COGS $ 231,000
Gross Margin $ 94,000 Gross Margin $ 94,000
R&D $ 30,800 R&D $ 30,800
S,G&A $ 38,500 S,G&A $ 38,500
Other Expenses $ 3,082 Other Expenses $ 3,082
E.B.I.T. $ 21,618 E.B.I.T. $ 21,618
Inventories $ 196,000 Inventories $ 39,200
P,P&E Net $ 622,000 P,P&E Net $ 155,500
AR net of AP $ (25,000) AR net of AP $ (25,000)
Net Working Capital $ 793,000 Net Working Capital $ 169,700
ROWC (21,618 x 4) 11% (21,618 x 4) 51%
$ 793,0 00 = $ 169,700 = ROWC

8. Indian EMS Strengths
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v Domestic market potential
v Inexpensive indirect labor
v Large skilled direct labor pool
v Language base

9. Improvement Opportunities
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v Low electronics HW manufacturing capacity
v Lack of infrastructure
v Market responsiveness

10. Improvement Opportunities
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v Changing governmental policies
v Inadequate global marketing of manufacturing technologies
v Lack of cohesive R&D roadmap with little CapEx

11. Singapore
China
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Productive Capacity
Technological infrastructure
India
Japan
USA
Israel
S Korea Taiwan
Malaysia
Mexico Philippines
Indonesia Thailand
Low High
High
Low
Competitiveness
Source: IMF World Economic Outlook

12. Philippines
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Physical Infrastructure
High
Management
Taiwan
Israel
India
Brazil
Mexico
Indonesia
Thailand
USA
Japan
Malaysia
S Korea
China
Low High
Low
Competitiveness
Source: IMF World Economic Outlook

13. Worth a Closer Look
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v Advanced research conceptualization
• regional vs international
v Component design (front-end services)
• fuel component manufacturing
• build EMS infrastructure
v New product introduction (NPI)
• design-to-alpha, beta
• embedded systems

14. Worth a Closer Look
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v New business development
• branding
v Attracting/retaining OEM customers
• manufacturing velocity
• perceptions, quality
v Customer support
• electronics HW reverse logistics

15. What’s Next?
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v Universities and EMS/SMT technology centers
v Make a market (government and NGO)
• international and regional industry organizations
• strategic partnerships, effective media utilization
v Regional and national government
v Private sector (mfg. operations, hi-volume EMS infrastructure)
• facility locations consistent with international logistics
• finance cost buckets, operations metrics/KOIs
• program management (CFT, DRT, S/CAR, transfer protocols)
• operations (DFT, MPI/TPI, GHK, IPA teams, alerts)

16. Accompanying articles
Steps to develop and promote Indian EMS
http://ventureoutsource.com/india-ems
Discussion on Indian EMS
http://ventureoutsource.com/india-ems-challenges
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