Globalization and its Impact on Electronics

Industry in India
Shaili Sinha*

Globalization describes a process by which regional economies, societies, and cultures have become integrated through a
global network of communication; transportation; and trade. The term is sometimes used to refer specifically to economic
globalization, the integration of national economies into the international economy through trade, foreign direct investment,
capital flows, migration, and the spread of technology. In recent years the electronic industry is growing at a brisk pace. It
is currently worth US$ 32 Billion and according to industry estimates it has the potential to reach US$ 150 billion by 2010.
The largest segment is the consumer electronics segment. While is largest export segment is of components. The electronic
industry in India constitutes just 0.7 per cent of the global electronic industry. Hence it is miniscule by international
comparison. However the demand in the Indian market is growing rapidly and investments are flowing in to augment
manufacturing capacity. The output of the Electronic Hardware Industry in India is worth US$11.6 Billion at present. India
is also an exporter of a vast range of electronic components and products.

Key Words: Globalization, Liberalization, Privatization, FDI, New Economic Policy.

Introduction

Globalization describes a process by which regional Privatization and Globalization Policy launched by the then
economies, societies, and cultures have become integrated Prime Minister of India that India saw its development in
through a global network of communication; transportation; various sectors.
and trade. The term is sometimes used to refer specifically
to economic globalization, the integration of national After suffering a huge financial and economic crisis, the
economies into the international economy through trade, then Prime Minister of India brought a new policy which
foreign direct investment, capital flows, migration, and is known as Liberalization, Privatization and Globalization
the spread of technology. Globalization as a spatial Policy which also known as New Economic Policy, 1991 as
integration in the sphere of social relations when it is said it was a measure to come out of the crisis that was going on
that “globalization can be defined as the intensification at that time. The following measures were taken to liberalize
of worldwide social relations which link distant locations and globalize the economy :
in such a way that local happenings are shaped by events
occurring many miles away and vice-versa.” Globalization 1. Devaluation : To solve the balance of payment problem,
generally means integrating economy of our nation with the Indian currency were devaluated by 18% to19%.
world economy. The economic changes initiated have had 2. Disinvestment : To make the New Economic Policy,
a dramatic effect on the overall growth of the economy.1 It 1991 model smooth, many of the public sectors were
also heralded the integration of the Indian economy into the sold to the private sector.
global economy. The Indian economy was in major crisis 3. Allowing Foreign Direct Investment (FDI): FDI was
in 1991 when foreign currency reserves went down to $1 allowed in a wide range of sectors such as Insurance
billion. Globalization had its impact on various sectors (26%), defense industries (26%) etc.
including agricultural, industrial, financial, health sector 4. NRI Scheme : The facilities which were available to
and many others. It was only after the Liberalization, foreign investors were also given to NRIs.

*Research Scholar, Ranchi University, Ranchi, Jharkhand

June 2016 Vol. XIII Issue 1 [ 59 ]
The New Economic Policy (NEP) introduced changes in television in India - the government allowed thousands of
the areas of trade policies, monetary and financial policies, colour TV sets to be imported into the country to coincide
fiscal and budgetary policies, and pricing and institutional with the broadcast of Asian Games in New Delhi, 1985
reforms. The salient features of NEP, 1991 are: saw the advent of Computers and Telephone exchanges,
which were succeeded by Digital Exchanges in 1988. The
(i) liberalization (internal and external); (ii) extending period between 1984 and 1990 was the golden period for
privatization; (iii) redirecting scarce Public Sector Resources electronics during which the industry witnessed continuous
to Areas where the private sector is unlikely to enter; (iv) and rapid growth.
globalization of economy; and (v) market friendly state.
From 1991 onwards, there was first an economic crises
The implications of globalization for a national economy triggered by the Gulf War which was followed by political
are many. Globalization has intensified interdependence and economic uncertainties within the country. Pressure
and competition between economies in the world market. on the electronics industry remained though growth and
This is reflected in inter-dependence in regard to trading developments have continued with digitalization in all
in goods and services and in movement of capital. As a sectors, and more recently the trend towards convergence
result domestic economic developments are not determined of technologies. After the software boom in mid 1990s
entirely by domestic policies and economic conditions. It is India’s focus shifted to software, while the hardware sector
thus clear that a globalizing economy, while formulating and was treated with indifference by successive governments.
evaluating its domestic policy cannot afford to ignore the Moreover the steep fall in custom tariffs made the hardware
possible actions and reactions of policies and developments sector suddenly vulnerable to international competition.
in the rest of the world. This constrained the policy option In 1997 the ITA agreement was signed at the WTO where
available to the government which implies loss of policy India committed itself to total elimination of all customs
autonomy to some extent, in decision-making at the national duties on IT hardware by 2005. In the subsequent years,
level. a number of companies turned sick and had to be closed
down. At the same time companies like Moser Baer, Samtel
The effect of globalization on Indian industry has been very Colour, Celetronix etc. have made a mark globally. In recent
positive, though some industrial firms with the baggage years the electronic industry is growing at a brisk pace. It is
of high cost, inefficient plants and processes inherited currently worth US$ 32 Billion and according to industry
from the past because of closed economy’s government estimates it has the potential to reach US$ 150 billion by
dictated industrial policies and priorities had to face serious 2010. The largest segment is the consumer electronics
problems in the beginning. But soon most of the industries segment. While is largest export segment is of components.
have become more and more efficient, customer friendly The electronic industry in India constitutes just 0.7 per
and improved their international competitiveness in terms cent of the global electronic industry. Hence it is miniscule
of costs, prices, product quality and variety. Industrial by international comparison. However the demand in the
growth has been very high and strong during the past Indian market is growing rapidly and investments are
decade because of globalization. Exports have increased flowing in to augment manufacturing capacity. The output
tremendously. Indian industries are also expanding abroad. of the Electronic Hardware Industry in India is worth
Foreign companies have substantially increased their US$11.6 Billion at present. India is also an exporter of a
investments in Indian industries. Wages of industrial labour vast range of electronic components and products for the
has increased substantially as they have become very following segments:
productive.
• Display technologies
Literature Review • Entertainment electronics

The Electronics Industry in India took off around 1965 with • Optical Storage devices
an orientation towards space and defense technologies. This • Passive components
was rigidly controlled and initiated by the government. This • Electromechanical components
was followed by developments in consumer electronics
mainly with transistor radios, Black & White TV, • Telecom equipment
Calculators and other audio products. Colour Televisions • Transmission & Signaling equipment
soon followed. In 1982-a significant year in the history of

[ 60 ] Rai Management Journal

• Semiconductor designing Europe. Other equally important benefits from operating in
• Electronic Manufacturing Services (EMS). India include a fast-growing domestic market, an excellent
education system, the nation’s technology parks and the
This growth has attracted global players to India and leaders recent improvements in the country’s transit and utility
like Solectron, Flextronics, Jabil, Nokia and many more infrastructure.
have made large investments to access the Indian market.
In consumer electronics Korean companies such as LG and However, the Indian contract-manufacturing industry is not
Samsung have made commitments by establishing large expected to pose a significant threat to China’s position as
manufacturing facilities and now enjoy a significant share the epicenter of electronics manufacturing in the short term.
in the growing market for products such as Televisions, CD/ India’s contract manufacturing activities primarily serve the
DVD Players, Audio equipment and other entertainment nation’s indigenous demand. OEMs primarily outsource
products. manufacturing to cater to the Indian domestic market,
although export of Indian-assembled electronic goods does
The growth in telecom products demand has been occur. In the longer term, i.e. 2009 onward, it is predicted
breathtaking and India is adding 3 million mobile phone that India may compete with the Chinese providers in select
users every month. With telecom penetration of around 11 products as the nation’s share of the global electronics
per cent, this growth is expected to continue at least over the market increases. For OEMs, using contract manufacturing
next decade. Penetration levels in other high growth products services in India can help them penetrate the local market.
are equally high and growth in demand for Computer/ IT However, OEMs face specific risks associated with using
products, auto electronics, medical, industrial, as well as contract manufacturers in India. Fluid exchange rates
consumer electronics is equally brisk. Combined with combined with volatile oil and component prices lead to
low penetration levels and the Indian economy growing unpredictable costs. Changing government policies along
at an impressive 6.5 per cent per annum, the projection of with shifting government regimes also contribute to an
a US$150 Billion market is quite realistic and offers an unpredictable political environment. Doing business in India
excellent opportunity to electronics players worldwide. is often disjointed, with an inefficient bureaucratic system
that causes frequent delays. However, for OEMs able to
India is well-known for its software prowess. But on the manage these risks, the opportunity in India is significant.
hardware front, the progress is rather slow. However, the
country has been making gains in this sector also. Already,
The semiconductor fabrication segment has a small existing
50 Electronics Manufacturing Services (EMS)/Original
base in India with only two fabrication units, which both
Design Manufacturers (ODMs) providers are operating in
are developing chips for the defense and strategic sectors.
India, ranging from global players including Flextronics
However, semiconductor suppliers are expanding their
and Solectron to indigenous firms including Deltron, TVS
manufacturing activities in India to serve the growing
Electronics and Sahasra. Further moves by international
contract-manufacturing industry in the nation. As evidence
players are expected to add production in India in the
of this trend, ground breaking commenced on a 200 mm
coming years.
fabrication unit in Hyderabad operated by Nano-Tech
India’s contract-manufacturing business is expected to nearly Silicon India Ltd.
triple in revenue over the next five years, a development
that will present both opportunities and potential pitfalls for Recent trends show that an increasing number of engineering
the worldwide electronics supply chain. Revenue generated and design activities are also being outsourced to EMS
by Electronics Manufacturing Services (EMS) providers companies and they are becoming ODMs (Original Design
and Original Design Manufacturers (ODMs) in India will manufacturers) and also provide final system integration and
expand to $2.03 billion in 2009, rising at a CAGR of 21 per logistical support Some electronics products manufacturing
cent from $774 million in 2004. Indian EMS/ODM revenue companies have projected that India can target a share of 1
grew by 20.8 per cent to reach $935 million in 2005. per cent in North America, 2 per cent in Western Europe,
4 per cent of Asia and 5 per cent of Rest of the World of
It is obvious that allure of locating electronics production the Electronics Manufacturing Services market. Thus India
in India is the nation’s low labor costs. Labor costs for can target 2.2 per cent of the world-wide electronics EMS
conducting electronics manufacturing in India are between market of US$497 Billion by 2012 which works out to a
30 to 40 per cent less than in the United States or in Western potential of US$11 Billion.

June 2016 Vol. XIII Issue 1 [ 61 ]

Behind the impressive growth of the electronics industry Control, Instrumentation and Industrial Sector
is the robust and consistent growth in Electronic Hardware
market of approximately 25 per cent due to a stable This is now a matured industry sector in the country at least
economy & large middle class of 350 million people. The as far as various application segments is concerned. State-
fastest growing segments are demand for telecom services of-art and reliable SCADA, PLC/Data Acquisition systems
particularly cell phones, internet subscribers & growth are being applied across various sections of the process
in demand for it products with increasing penetration of industry. Latest AC drive systems from smaller to very
computers, falling prices & Government support to rapidly high power levels also find application in large engineering
encourage usage of IT in all sectors. Within next 5 years industries like steel plants and/or metal industries. World
penetration of telephone users (both landline & mobile) is class UPS systems are being manufactured in the country
projected to increase from 100 to 500 per thousand while to cater to the need of the emerging digital economy.
PC’s increase from 10 to 30 plus per thousand. Some of the However, it appears there is really no manufacturing base
other factors are: in the country for the whole range of the latest test and
• Highly talented workforce, especially for design and measuring instruments which are invariably procured from
outside. A good number of Indian companies in the control
engineering services with good communication skills. and instrumentation sector are able to acquire orders for
• Rising labor costs in China. export systems through international competitive bidding.
However, the creation of knowledge base in the country
• Presence of global Electronics Manufacturing Services
through industrial R&D in this critical sector has not been
(EMS) majors in India and their plans for increased improving as desired. There is still lack of needed R&D
investments in India. activities by the industry looking at the global market. On
the part of Department of Information Technology some of
• More outsourcing of manufacturing by both Indian and the latest technology development and applications in this
global Original Equipment Manufacturers. area include Intelligent SCADA Systems for monitoring
and control of Mini Hydel plants, Advanced Traffic
The production trend of different segments mentioned Control System for urban transportation, Intelligent Power
above are briefly discussed below: Controllers for improvement of quality of electric power,
etc. These systems have been successfully developed and
Computer Industry applied in real field conditions.

With sound macroeconomic condition and buying Consumer Electronics

sentiment in the market, PC sales touched 7.3 million units
during 2009-10. The high growth in PC sales is attributed Consumer electronics (durables) sector continues to be the
to increased consumption by Industry verticals such as main stay of the Indian electronic industry contributing
Telecom, Banking and Financial Services, Manufacturing, about 32 per cent of the total electronic hardware production.
Education, Retail and BPO/IT-enabled services as well as By the end of 2009-10, the market for consumer durables
major e-Governance initiatives of the Central and State (including entertainment electronics, communitarian and
Governments. Significant consumption in the small and IT products) was Rs 190 billion (US $4.7 billion). The
medium enterprises and increased PC purchase in smaller market is expected to grow at 11 to 13 per cent annually
towns and cities was witnessed during the year. It is expected and is expected to reach Rs 65 billion (US$13.6 billion) by
that increased Government focus on pan-India deployment 2010. The urban consumer durables market is growing at an
of broadband at one of the lowest costs in the world will annual rate of seven to 10 per cent, the rural durables market
soon lead to accelerated PC consumption in the home is growing at 25 per cent annually. Some high-growth
market. The growing domestic IT market has now given categories within this segment include mobile phones, TVs
impetus to manufacturing in India. The year witnessed not and music systems.
only capacity expansion by the existing players, but also
newer investments in hardware manufacturing. India is also Communication & Broadcasting Sector
high on the agenda of electronics manufacturing services
companies. The telecommunication industry has gained tremendous
recognition as the key driver for all round development and
growth. With about 256 million telephone subscribers (as

[ 62 ] Rai Management Journal

on February, 2010) India has emerged as one of the largest size flat colour picture tubes and the second for small size.
in the world and second largest in Asia. The share of private Two more lines are likely to come up next year. Keeping
sector in telecom industry has increased to more than 67 per pace with the downward trend in prices of color TVs, the
cent and the contribution of mobile telephony has gone up to prices of CPTs also fell.
66 per cent on December, 2010. Buoyed by the better-than-
expected tele-density in 2005 (11.4 per cent against 8.6 per
cent in 2008) due to the mobile boom in India, Department Exports of Electronic Products
of Telecommunications has revised the upwards the target
of 22 percent tele-density by 2009. Broadband connectivity During the year 2009-10, electronics and IT exports are
is holding tremendous potential in the country. It is expected estimated to be Rs. 1,231 billion, as compared to Rs. 981.80
that the number of broadband subscribers would reach 20 billion in 2008-09, showing a phenomenal growth of 27 per
million by 2012. India has emerged as the second largest cent. The software and services industry continues to show
market for mobile handsets. Following the unprecedented a robust growth and the total value of software and services
growth in the mobile market, a number of companies are export are estimated at Rs. 1038 billion (US$ 24.3 billion)
planning to set up production base for mobile hand sets in in the year 2009-10, as compared to Rs. 808.70 billion (US$
the country for meeting local as well as export markets. 18.9 billion) in the year 2008-09, an increase of 32 per
Direct to Home (DTH) broadcast service has gained more cent in dollar terms and 29 per cent in rupee terms. Major
and more popularity during 2005. DTH service is available challenges facing the Indian electronic manufacturing
through National Broadcaster and private DTH service market are an infrastructure that needs to be improved at the
provider. Better quality digital broadcast reception is now earliest possibility, easing of foreign investment procedures,
available almost everywhere in the country to the common which is underway, and a restructured government tariff
people on their TV sets through the use of small dish antenna that now makes domestically manufactured goods more
and a Set-Top Box (STB). expensive than imported goods with zero tariff. There are
also other problems, which are hampering the growth of the
Strategic Electronics Indian electronics industry. Some of them are:

Though the government has started the process of getting • Lack of World-class infrastructure.
private sector involved in the production of strategic • Lack of clear-cut government policy for the industry.
electronics equipments, the private involvement is at its
nascent stage. The estimated market for strategic electronics • Very little expenditure in Research and Development area.
in India during 2007-08 was Rs.36 billion and 95 per cent • Power of Marketing not harnessed to the maximum
of this was done by the public sector unit Bharat Electronics
Limited (BEL). While the Electronics sector in India is currently small,
there are several advantages that India offers that can be
Electronic Components effectively leveraged to achieve higher growth. These can
be categorized under three heads:
The total production of components was estimated at Rs. 88
billion during 2007-08. The colour picture tube production (a) Manpower;
is likely to be around 11 million, a decline from 11.5 million (b) Market Demand; and
in the last year. The production of B&W picture tubes
(c) Policy and Regulatory Support
declined further due to decreased market for B&W TVs.
The components with major share in the export are CD-R,
CPTs, PCBs, DVD-R, connectors, semiconductor devices, Abundant Availability of Man Power
ferrites, resistors, etc. Significant developments took place
during the year in the area of colour picture tubes and India produces over 600 PhDs, 220,000 engineers, 350,000
colour glass parts. Another CPT manufacturer successfully non-engineering postgraduates and 3,100,000 other
launched manufacture of pure flat tubes, leading to graduates each year. The Indian Institute of Technology
availability of flat tubes from three indigenous sources. The (IITs) and The Indian Institute of Management (IIMs)
CPT units continued expansion of capacities to improve produce graduates and post graduates with best-in class
further their global competitiveness. Two more lines were skills and capabilities in technical and management fields.
commissioned during the year, one for manufacture of large India’s capabilities in IT and engineering make it an

June 2016 Vol. XIII Issue 1 [ 63 ]

attractive location for sourcing engineering services such as (v) Electrolux : Electrolux has set up its R&D centre with
Research & Development (R&D) and design. an investment of US$ 8.6 million. It is the headquarters
of its South Asian Association for Regional Cooperation
Competitive Labour Costs (SAARC) countries, excluding Sri Lanka. This centre will
be the regional hub for developing new technologies and
India’s cost of skilled labour is among the lowest in the products.
world. For example, average labour rate per employee
in the electronics sector is about $3,000 per year. Labour Conclusion :
cost as a percentage of value added is only 21 per cent in
India as compared to 23 per cent in China and 30 per cent India has been experiencing a strong growth in the demand
in Taiwan. Taking advantage of this many MNCs have set of consumer products and durables in recent years, driven
up manufacturing bases in India for domestic consumption by consumer demographic trends. This has facilitated
as well as exports. Many multinational companies in growth in the electronics sector both directly and indirectly.
the electronics sector have leveraged India’s manpower Some of the key trends that have a positive impact on the
advantage to grow in the domestic market, as well as source sector are:
products and services from India. Some of the products
manufactured in India are listed below: (a) Growing consuming class (defined as people having
annual income of US$ 980 (Rs. 45000 or above) that has
(i) Motorola : Motorola’s Global Telecom Solutions Sector greater disposable income and propensity to spend. It has
(GTSS) designs, develops, manufactures and supplies been estimated by NCAER that this group will constitute
infrastructure equipment for wireless communications over 80 per cent of the population of India by 2009-10;
systems worldwide. GTSS. India operates a “Centre of
Excellence” for providing network services for customers in (b) Lifestyle changes such as greater exposure to global
India as well as in the Asia Pacific Region. Motorola India trends and increasing affinity for convenience and lifestyle
Electronics Ltd. develops software for Motorola’s worldwide products;
businesses. Motorola Global Software Group (GSG), the
R&D arm is involved in all the major developments of (c) Increasing urbanization, emergence of nuclear double
the company. Motorola India’s operations are established income families;
as a source of software and chip design and as a source of
excellent capital for Motorola globally. Motorola’s two chip (d) Low penetration levels of most consumer durables.
designing units around Delhi and a third one in Hyderabad For example, in 2002, only 66 per cent of middle-income
are 100 per cent export units meeting the company’s global households had a TV set, only 28 per cent of the urban
requirements. households possessed a refrigerator, while just a little over
15 percent owned an air cooler. Despite a population of
(ii) Siemens : Production cost arbitrage has prompted the more than 1 billion people, only 16 million computers were
company to increase production and hence exports from the used in India in March 2006;
Goa factory. Siemens Goa plant is used as a manufacturing
hub for catering to the international market. The Goa factory (e) Increased government and private industry spending on
will become the hub for manufacturing X-ray tubes as it can sectors such as defense and aerospace. The Indian aviation
save 30 per cent of the cost. sector, for example, has placed orders for more than 350
aircrafts with a list price of about US$ 26 billion;
(iii) Kodak : Kodak has a camera manufacturing and
assembly plant near Bangalore, which produces over four (f) In recognition of India’s domestic market potential,
million units per year. Around 60 -70 per cent of this centre’s Samsung has selected India as one of the top six strategic
products are exported to the US, Europe, West Asia and the markets in the world along with the US, China, Russia,
Far East in 2009. Germany and Thailand.

(iv) Samsung : Samsung invested US$ 11 million in setting Growth in demand of consumer durables such as CTVs,
up an R&D centre in India. Samsung R&D Centre at Noida VCD / MP3 players and PCs directly benefits the sector.
helps the company customize its CTV range as per the Also the demand for products such as automobiles, white
preference of Indian customers. goods, air-conditioners, textiles, etc, leads to growth in the

[ 64 ] Rai Management Journal

electronics sector as these products contain a significant
number of electronic components. At the same time,
consumer demand has boosted growth in India’s overall
manufacturing sector as well, which, in turn, has a positive
impact on industrial electronics.

On the whole the domestic market in India is very attractive

from the point of view of the electronics sector, and current
trends indicate high growth potential for the sector in the
future.

References :

1. R., Heeks, “India’s Software Industry: State Policy,

Liberalization and Industrial Development”, Sage
Publications, New Delhi, Thousand Oaks, London,
1996.
2. Tadaro, M.P. , Economic Development, 5th Edition,
Longman Publishing, New York, 2004.
3. Czinkota, M.R. and Ronkainen, I.A. (2007):
International Marketing, 8th Edition, United States of
America, South Weston, pp.379-394.
4. Human Development Report (2007), Vol.II,
No.1, pp.279-301.

June 2016 Vol. XIII Issue 1 [ 65 ]