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India's next frontier--electronics?

Although India is more famous for its software and IT services, the country's electronics industry is poised to take off, a research firm says.

Tech Industry
Although India is more famous for its software and information technology services, the country's electronics industry is poised to take off, a research firm said Wednesday.

In a presentation titled "Is India the next China in electronics?" iSuppli analyst Vikram Kothari argued that factors such as low wages, technical skills and government backing make India ripe for new electronics manufacturing operations.

"What's exciting is where India is going to be fairly soon," he said.

For now, India's electronics industry is rather small, especially when it comes to exporting electronics goods. According to iSuppli, domestic production of electronics reached $7.1 billion in the year ended March 2002, while electronics exports totaled just under $1 billion.

Combined with $4.3 billion in imports, India's total domestic market for electronics hit $10.4 billion for the year ended March 2002. Kothari said the total market figure doesn't account for gray-market activity--that is, the sale of products through unauthorized channels.

However, India's domestic electronics market is set to ramp up to more than $35 billion in the year ended March 2010, iSuppli predicted.

Kothari said India will not only be consuming more electronic goods, but it will be making more as well. One of the chief reasons, he said, is an about-face by the government. Kothari said Indian leaders essentially gave Motorola a cold welcome in the 1990s, an example of the old government approach. "They literally drove them to China," he said.

But China's rise in the electronics arena has changed Indian minds, he suggested. "The government has seen what China has achieved, and they're determined to get there."

The Indian government has made tax rates more reasonable and reduced red tape, Kothari said. What's more, he said, foreigners can own 100 percent of export-oriented electronics units.

Another Indian strength is its work force. The country has more than 1 billion people and a work force of 400 million, Kothari said. Due partly to the legacy of British colonialism, many Indians learn English. The work force also is technically skilled and relatively cheap, he said.

Many manufacturers have already placed bets in India. Companies with research and development centers in the country include Emerson Electric, General Electric and Hewlett-Packard.

And companies that provide electronics manufacturing services, such as Flextronics and Jabil Circuit, have set up shop in India, according to iSuppli. Such companies take on electronics manufacturing tasks for other firms.

Already, India has made a name for itself in the software and IT services realm. Companies such as Infosys Technologies and Wipro Technologies have grown quickly and have put pressure on U.S.-based IT service providers to expand operations overseas.

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