In today's fast-paced electronics industry, Original Equipment Manufacturers (OEMs) face critical decisions when it comes to outsourcing the production of electronic devices. As global supply chains evolve, and geopolitical risks continue to play out, the choice between India and the Association of Southeast Asian Nations (ASEAN) has become a compelling debate. Both regions offer unique advantages but of course there are also challenges, making it essential for OEMs to carefully weigh up their options.
In this blog post, we'll look further into India and ASEAN as potential destinations for outsourcing electronic device production.
India: The Land of Innovation and Opportunity
Pros:
1. Skilled Workforce
India boasts a robust talent pool of engineers, technicians, and skilled labour, particularly in electronics and IT-related fields. This skilled workforce is well-versed in hardware and software development, making it easier to execute complex electronic manufacturing projects. Partnering with Electronics Manufacturing Services (EMS) providers in India could lead to quicker product development and enhanced innovation.
2. Growing Domestic Market
India's rapidly growing domestic consumer market, coupled with its robust industrial sector, presents a significant opportunity for OEMs to access a vast consumer base. India's attractiveness to multinationals across various sectors highlights its versatility as an investment destination, making it a compelling choice for OEMs aiming to diversify their operations, mitigate risks, and explore new global markets.
3. Cost-Effective Labour
Labour costs in India are highly competitive, making it an attractive option for labour-intensive production processes. OEMs partnering with Indian EMS providers can benefit from cost-effective manufacturing to remain price competitive.
Cons:
1. Infrastructure Challenges
While India's infrastructure has improved significantly there are still issues. Railways constitute a crucial component of India's broader infrastructure advancement efforts. The Ministry of Railways is actively engaged in the creation of two dedicated freight corridors: the Eastern Dedicated Freight Corridor (EDFC) and the Western Dedicated Freight Corridor (WDFC). These dedicated corridors will establish connections between significant cities like Ludhiana and Mumbai with vital ports.
2. Bureaucracy and Red Tape
Navigating regulatory and bureaucratic hurdles in India can be a complex and time-consuming process for foreign companies. Indian bureaucracy is characterised by a multitude of rules, regulations, and government agencies at various levels, which can often lead to a complicated experience for newcomers. To successfully navigate this landscape, it's crucial for foreign companies to engage in thorough research and seek expert legal and advisory services that specialise in Indian business laws and regulations.
3. Varying Regional Quality Standards
Quality expectations and regulatory requirements can differ significantly between states and even within regions of the country. This variation necessitates a meticulous approach to supplier selection and robust quality control measures. To tackle this issue effectively, it’s vital to partner with an experienced EMS provider with a demonstrable track record of delivering quality products on a consistent basis.
ASEAN: The Gateway to Southeast Asia
Pros:
1. Manufacturing Hub
ASEAN is home to a well-established electronics manufacturing hub with countries like Malaysia, Thailand, and Vietnam at the forefront. Nestled along the northwest coast of Peninsular Malaysia, the state of Penang is a well-known name in the global electronics manufacturing sector. Referred to as the ‘Silicon Valley of the East’ and home to a significant number of Multinational Corporations including Intel, Agilent Technologies, Robert Bosch, and National Semiconductor these pioneering investors played a pivotal role in nurturing a thriving ecosystem of related industries, laying the groundwork for Penang's ascent as a prominent manufacturing hub.
2. Supply Chain Integration
ASEAN has integrated supply chains that enable smooth material procurement and production processes, reducing lead times. The six original members of ASEAN, namely Brunei, Indonesia, Malaysia, the Philippines, Thailand, and Singapore, initially came together in 1992 to establish a regional trade alliance. Subsequently, this bloc expanded to encompass Vietnam, Cambodia, Myanmar, and Laos. This expansion has opened avenues for businesses to establish interconnected supply chains and access markets spanning the entire region.
3. Favourable Investment Climate
Many ASEAN countries provide tax incentives, relaxed regulations, and a welcoming investment climate for foreign OEMs. Officially announced on 1st September 2023, the New Industrial Master Plan 2030 (NIMP2030) lays out a clear course for Malaysia between 2023 and 2030 to keep the country’s manufacturing industry and its related services competitive on a global level. Key to this is continued foreign direct investment which, according to MIDA, accounted for 61.7% of total investments in 2022. Recent announcements that Tesla will establish a regional headquarters and service centre in Selangor and Amazon Web Services has plans to invest $6B in the region by 2037 in Cloud Computing Infrastructure is testament to its political stability and institutional strengths.
Cons:
1. Labour Costs
Labour costs in some ASEAN countries are rising. This may affect the cost advantage compared to other low-cost regions. OEMs should carefully evaluate cost implications, including total cost of ownership and landed cost, to determine the real levels of cost advantages they stand to achieve by outsourcing to an EMS provider in the region.
2. Competition for Talent
The demand for skilled labour in the ASEAN region remains high which can lead to talent shortages in some areas, increasing labour costs and recruitment challenges. These challenges sit with the EMS provider to solve but it’s worth understanding how they approach learning and development programs and attracting and retaining talent.
3. Regulatory Variability
Although the investment climate in the region is typically favourable, the regulatory landscape can be subject to alterations, which may pose risks to foreign investors. Seasoned EMS providers possess a deep understanding of the regional regulatory complexities and can offer valuable guidance to OEMs in adapting to changing requirements. By tapping into their expertise, businesses can effectively manage evolving regulatory landscapes, ensuring compliance while maintaining a competitive edge in the dynamic ASEAN market.
The choice between India and ASEAN depends on the unique needs and priorities of each OEM. India offers a skilled workforce, a growing domestic market and cost-effective labour, while ASEAN, with Malaysia as a standout, offers an established electronics manufacturing ecosystem, supply chain integration, and favourable investment. OEMs should weigh these pros and cons carefully to make an informed decision that aligns with their long-term business goals and production requirements.
Working with local experts and conducting thorough due diligence is key to successful outsourcing in either region. It's also important to stay updated on changing regulations and market dynamics, as these factors can significantly impact the outsourcing landscape in both India and ASEAN.
