CAN INDIAN ELECTRONICS MANUFACTURERS DO LOCAL SOURCING?

A key buzzword in the manufacturing business circles during this pandemic era is ‘Local Sourcing’, where manufacturers have been forced to manage border closures, lockdowns, supplier bankruptcies, reduced workforces, production shutdowns, shipping delays, and uneven demands.

The dictionary definition of Local Sourcing is “The process of obtaining personal, services, supplies, and equipment from local or indigenous sources”. Despite some industries adopting local sourcing, it may not be feasible for the majority, particularly the electronic industry. Even companies with headquarters in manufacturing centres like China may have difficulties obtaining everything domestically. For this reason, sourcing even a portion of raw material locally is unthinkable for manufacturers in developing countries. Consider the case of India, one of the world's largest consumer of electronics in the world, fulfils more than 70% of its electronic component demand through imports, a figure that increases to 90% in case of active components and total worth of component imports is more than ₹1Trillion.The reason being, India does not have a single fab facility, and very few (if any) component manufacturers who can compete with global suppliers on quality and price. Moreover, the future does not appear bright either, because despite the government's concerted effort over the past few years, it has yet to establish a fab plant. Recent reports released by the Ministry of Electronics and Information Technology (MeitY) outlines many issue confronting the Indian electronic component industry faces, including the fierce competition from foreign nations who are better equipped compared to India which has many local hindrances such as inadequate infrastructure, high financing costs, logistics problems and inverted customs duties.

Although, the government is trying to resolve these issues and recent announcement of $10 billion incentive to attract companies to start component manufacturing in India, as well as the intention of TATA group to foray into the component manufacturing market with $300 million semiconductor plant in the south of India are encouraging. However, in reality these things take time and there are many problems that need to be fixed, so it is possible we may need to wait decades before we see Indian electronics industry purchasing components from native companies. Due to this, companies in the electronic manufacturing and assembling sectors are left with no choice but to source components from overseas, but in these difficult times, where the shortage of components are making even well-established companies suffer and are facing difficulties to source, for example BMW had to remove touchscreens from their cars because of shortages. The dilemma then arises: if big companies based in developed countries are facing difficulties, how can manufacturers in developing countries, who import most of their components from overseas, even consider of conducting their business’s effectively. The components are in short supply, the freight rates have been hiked by 300% because of the scarcity of containers, overseas factories are experiencing sudden shutdowns due to lockdowns. It begs the question as to how they can avoid this chaos and instead concentrate on their final product?

In order to avoid these hassles, a manufacturer can outsource their purchasing department to a local component distributor like Alcoby who enjoy strong relationships with top suppliers globally, stocks components, manages inventory and most importantly, offers low prices with prompt delivery and thus, ensuring that their customers can free themselves from the pressure of procuring components and rather focus on building better products.

This is one way to enjoy some benefits associated with local sourcing and yet use the top-notch components of leading international suppliers.