What are the pros and cons of India VS ASEAN for outsourced electronics manufacturing?

Are you considering India as an outsourcing destination? What are the pros and cons of working with EMS providers in the subcontinent compared to ASEAN (the Association of Southeast Asian Nations)?

Where to outsource: India Vs ASEAN?

Why India?

With companies like Apple diversifying their supply chain away from China, India is being taken increasingly seriously as an attractive destination for electronics services design and manufacturing. But why?

An internal market is driving demand

According to Fortune magazine, India has emerged as the world's second-fastest-growing market for laptops, tablets, servers, and data centres, trailing closely behind China itself. There are compelling reasons, therefore, for India to develop its internal electronics manufacturing industry - and one off-shoot of this is predicted to be its contract manufacturing sector.

Growing pool of electronics talent

There are fast-growing electronics capabilities and facilities in the subcontinent, served by a reservoir of skilled labour. Don’t forget, over 99% of mobile phones sold and used in India are now built in India. Compare that to an almost complete reliance on foreign imports just nine years ago. Capabilities and skills are rising to meet demand.

Younger talent on the rise

Commentators also note the similarity between the position of China before it began its economic rise and the present-day situation in India. A young workforce, hungry for change is set to transform the nation with a new attitude to quality and efficiency:

With a median age of 28, India shares a parallel with China's position in 2008 when it was on the cusp of rapid industrial and economic growth. This similarity accentuates India's potential to emulate China's trajectory and evolve into a powerhouse within the electronics manufacturing domain. Source: Fortune India

Government focus on electronics manufacturing

India's EMS industry is set for substantial expansion, driven by two pivotal elements: the benefit of low labour costs and robust government backing. The Indian government is vigorously fostering this sector (and its supply chain) with strategies like the Production Linked Incentive (PLI) scheme and the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS).

Why not India?

Quality consistency

While quality standards are improving, ensuring consistent quality across different suppliers can be challenging. As this Op-Ed in the Indian publication, Deccan Herald puts it, non-conformance has been endemic in the country’s manufacturing industry for years - as cost cutting often trumped ‘quality culture’. 

Imposition of quality standards raises manufacturing costs. Rigorous quality control requires frequent checking of ‘in-process quality’ and timely rejection of deficient items, increasing both personnel and material costs. So, firms take shortcuts to save costs. They are not fastidious about quality control as our regulatory approach is different.

To compete internationally, many in the subcontinent agree that a culture of quality needs to be created that permeates every part of the supply chain.

Infrastructure variability

Despite improvements, some regions still lag in terms of infrastructure, which can affect logistics and supply chain efficiency.

There are challenges with building new infrastructure needed to support manufacturing investments, including expansions of ports and ensuring that pick-up points line up with existing trade routes. Source: Manufacturing Dive

Semiconductor supply

Despite the best efforts of the Indian government, semiconductor supply is still a serious impediment to those seeking turnkey design and manufacturing solutions to be delivered at the right cost in the Indian subcontinent.  

As reported in Venture Outsource:

The industry still requires significant investments in research and development, advanced fabrication facilities, and specialised expertise. Without a thriving private sector, India may face limitations in terms of technological advancements and the ability to meet evolving market demands in her electronics and design manufacturing (ESDM) and ‘Make in India’ initiatives.

Regulatory and business environment 

Navigating India's bureaucratic landscape can also be notoriously complex and time-consuming. Many companies will be wary of this reputation.

Why ASEAN?

Although the electronics sector in the Indian subcontinent holds vast potential for OEMs looking to outsource, much of this promise appears yet to be unleashed. 

In contrast, many ASEAN countries have already become efficient manufacturing hubs, benefiting from focused investment, strategic locations, and diverse trade agreements.

1. Established manufacturing base

Countries like Malaysia, Vietnam and Thailand have well-established electronics manufacturing sectors. They have a recent history of producing high-quality electronics for global brands in various sectors, including medical devices.

2. Strategic location

ASEAN countries, with their proximity to China and other major Asian markets, offer a strategic location for logistics and supply chain management. This can support reduced shipping times and costs.

3. Favourable trade agreements

ASEAN's numerous free trade agreements, including the Regional Comprehensive Economic Partnership (RCEP), provide access to a larger market with reduced tariffs, greatly benefiting OEMS that partner with EMS in these countries.

4. Political stability

Many ASEAN countries offer a more stable political environment compared to other regions, which can be a significant factor for companies looking for long-term investment.

5. Diverse supplier base

The region has a diverse supplier base, which can be advantageous for companies looking to diversify their supply chain and reduce dependency on a single country or supplier.

Why Not ASEAN?

1. Rising labor costs

In some ASEAN countries, labour costs have been rising, which may reduce the cost advantage compared to other low-cost manufacturing destinations.

2. Environmental concerns

Some ASEAN countries face severe environmental challenges, including pollution and natural disasters, which can impact manufacturing and supply chains. There are others with a more focused drive towards net zero.

3. Infrastructure challenges

Although improving, the infrastructure in some parts of ASEAN is still developing, which can pose challenges in terms of logistics and efficiency. But the rate of change in the most advanced economies in the region is breathtaking.

Conclusion

Compared to India, countries such as Malaysia are significantly further down the road when it comes to the range and quality of their electronics manufacturing capabilities. That’s not to say India isn’t becoming a compelling force in the global story of outsourced manufacturing. After all, many big brands are choosing the subcontinent as a focus of their investment.

But for now, the roaring ASEAN EMS markets still seem ahead of India’s on the road to global recognition and respect for their electronics manufacturing expertise.

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