Cyient LTD EMS Industry in India Report

2p
MARKET ASSESSMENT
FOR INDIA EMS INDUSTRY
SUBMITTED TO
CYIENT DLM LTD.

07 TH JANUARY 2023
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DISCLAIMER
Given below is the content to be provided to you for your internal use by Frost & Sullivan as part of your subscription to
its industry research on the following industry:
“Market Assessment for India EMS Industry” (the “Report”)
The study has been undertaken through extensive primary and secondary research, which involves discussing the status
of the industry with leading market participants and experts, and compiling inputs from publicly available sources,
including official publications and research reports. The estimates provided by Frost & Sullivan (India) Private Limited
(“Frost & Sullivan”), and its assumptions are based on varying levels of quantitative and qualitative analyses, including
industry journals, company reports and information in the public domain.
Frost & Sullivan has prepared the study in an independent and objective manner, and it has taken all reasonable care to
ensure its accuracy and completeness. We believe that the study presents a true and fair view of the industry within the
limitations of, among others, secondary statistics, and primary research, and it does not purport to be exhaustive. The
results that can be or are derived from the findings are based on certain assumptions and parameters/conditions. As
such, a blanket, generic use of the derived results or the methodology has not encouraged forecasts, estimates,
predictions, and other forward-looking statements contained in the report are inherently uncertain because of changes
in factors underlying their assumptions, or events or combinations of events that cannot be reasonably foreseen. Actual
results and future events could differ materially from such forecasts, estimates, predictions, or such statements.
In making any decision, the recipient should conduct its own investigation and analysis of all facts and information and
the recipient must rely on its own examination. The recipients should not construe any of the contents in the report as
advice relating to business, financial, legal, taxation or investment matters and are advised to consult their own business,
financial, legal, taxation, and other advisors.
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ACRONYMS
Title Abbreviations Title Abbreviations
5G Fifth Generation ITAR International Traffic in Arms Regulations
A&D Aerospace and Defence IVD In-Vitro Diagnostics
ADAS Advanced Driver Assistance System LCA Light Combat Aircraft
ATM Air Traffic Management LCD Liquid-crystal Display
ATMP Assembly, Testing, Marking, and Packaging LED Light Emitting Diode
B2B Business to Business LPG Liquefied Petroleum Gas
B2C Business to Consumer LVHM Low Volume High Mix
BIS Bureau of Indian Standards MEIS Merchandise Exports from India Scheme
BOM Bill of Material MEMS Microelectromechanical Systems
CAGR Compound Annual Growth Rate ML Machine Learning
CAPEX Capital Expenditure MNC Multi National Company
CE&A Consumer Electronics and Appliances MSME Micro, Small, and Medium Enterprises
CHIPS Creating Helpful Incentives to Produce Semiconductors NCAP New Car Assessment Program
CM Contract Manufacturing NMZ National Manufacturing Zones
CPI Consumer Price Index NPE National Policy on Electronics
CSR Corporate Social Responsibility NSTC National Semiconductor Technology Centre
DAP Defence Acquisition Policy ODM Original Design Manufacturer
DDTC Directorate of Defence Trade Controls OEM Original Equipment Manufacturer
DGFT Directorate General of Foreign Trade PC Personal Computer
DPSU Defence Public Sector Undertakings PCB Printed Circuit Board
DRDO Defence Research and Development Organisation PCBA Printed Circuit Board Assembly
EDA Electronic Design Automation PLI Production Linked Incentive
EMC Electronics Manufacturing Cluster PMP Phased Manufacturing Plan
EMS Electronics Manufacturing Services POC Proof of Concept
EU European Union PPP Public-private partnerships
FDI Foreign Direct Investment R&D Research and Development
FMS Flight Management System RBI Reserve Bank of India
FTA Free Trade Agreements RF Radio Frequency
GDP Gross Domestic Product RoCE Return on Capital Employed
GST Goods and Services Tax RoE Return on Equity
HDI High Density Interconnect RSBVL Reliance Strategic Business Ventures Ltd
HR Human Resource SEZ Special Economic Zone
HVLM High Volume Low Mix SME Small and Medium Enterprise
IC Integrated Circuit SMT Surface Mount Technology
IED Intelligent Electronic Devices SoC System on Chips
IESA India Electronics & Semiconductor Association TRAI Telecom Regulatory Authority of India
IIP Index of Industrial Production UDAN Ude Desh ka Aam Naagrik
IIPME Industry Innovation Programme on Medical Electronics USA United States of America
IMF International Monetary Fund USML United States Munitions List
IoT Internet of Things VAS Value Added Services
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DEFINITIONS
Title Definition
Also called as systems integration, can range from a simple PCBA housed in a small
Box Build
enclosure to a cabinet comprising an electromechanical system.
It includes active, passive, wound, electro-mechanical, bare PCB, and other components
Components
that go into electronics products manufacturing.
EMS (Electronic Companies that provide various manufacturing services to Electronics OEMs such as
Manufacturing Services) design, sourcing, manufacturing, assembly, testing, distribution, and after-sales services.
OEM (Original Equipment OEMs are manufacturers that provide the resources required to bring an original,
Manufacturer) branded product to market.
ODM (Original Design EMS companies that have the capability to design, develop, and manufacture products as
Manufacturer) per their own specifications or as per the specifications provided by the OEMs.
CM (Contract EMS companies that only provide contract manufacturing services to the OEMs. They do
Manufacturer) not have capability of designing any product.
This is typically a contract manufacturing setup where only a few types of assemblies are
HVLM (High Volume Low
produced in large quantities. Such a production arrangement may last for weeks or even
Mix)
months using the same set-up.
LVHM (Low Volume High This type of contract manufacturing puts a high focus on complex solutions customized as
Mix) per customer requirements.
Businesses that are carried out between the two enterprises. In this case, products that
B2B (Business to Business) are sold to segments such as telecom, industrial, automotive, medical, aerospace and
defence.
B2C (Business to Businesses that are carried out primarily between an enterprise and consumers. These
Consumer) are products such as consumer electronics, mobiles, lighting products etc.
It is a type of contract manufacturing that refers to the process of manufacturing

B2P (Build to Print) products as per client’s instructions, who in turn provides the specifications and other
required needs for the final product to be manufactured.
It refers to the process of manufacturing products from scratch, as per clients need and
B2S (Build to
specifications. The EMS company develops design and specifications and manufacture the
Specification)
product as per client’s specific requirements.
The calendar year is defined from January to December. For instance, CY21 refers to 1st
CY (Calendar Year)
January 2021 to 31st December 2021
The financial year in India is defined from April to March. For instance, FY20 refers to 1st
FY (Financial Year)
April 2019 to 31st March 2020
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TABLE OF CONTENTS
DISCLAIMER............................................................................................................................................ 2
ACRONYMS ............................................................................................................................................ 3
DEFINITIONS ........................................................................................................................................... 4
CHAPTER 1 – GLOBAL MACROECONOMIC OVERVIEW .............................................................................. 8
Global macroeconomic overview ................................................................................................................ 8
Global real GDP ........................................................................................................................................... 8
Real GDP for key regions ............................................................................................................................. 8
Impact of Covid 19 pandemic on different economies ............................................................................. 10
Geopolitical situation and their impact..................................................................................................... 11
CHAPTER 2 – GLOBAL ELECTRONICS INDUSTRY OVERVIEW..................................................................... 16
Global Electronics Industry........................................................................................................................ 16
Overview of the global electronics industry ............................................................................................. 16
Per capita consumption of electronics in major economies..................................................................... 16
Global electronics manufacturing market split between in-house and EMS ........................................... 17
Key parameters considered for in-house vs EMS ..................................................................................... 17
Global Electronics Manufacturing Services (EMS) Industry and Outlook ................................................. 18
Evolution of the global EMS industry ........................................................................................................ 18
Overview of the global EMS industry ........................................................................................................ 19
Range of services offered by EMS companies globally ............................................................................. 19
EMS market segmentation by services ..................................................................................................... 20
EMS market segmentation by ODM vs CM ............................................................................................... 21
EMS market segmentation by HVLM vs LVHM ......................................................................................... 22
EMS market segmentation by B2B and B2C ............................................................................................. 23
Size of the Box-build split by cost components ........................................................................................ 23
EMS market segmentation by the manufacturing locations .................................................................... 24
EMS market segmentation by outsourcing geographies .......................................................................... 25
EMS market segmentation by end-user industries................................................................................... 25
Trends, challenges, and entry barriers in Global Electronics Manufacturing ........................................... 27
Mega Trends in the Market Driving the Growth of the Global EMS Market ............................................ 27
Challenges/market restraints hindering the growth of Global EMS industry........................................... 28
Entry barriers in the EMS industry ............................................................................................................ 28
Government incentives and programs ..................................................................................................... 29
Trends on alternative locations for manufacturing to China .................................................................... 31
Comparative Analysis of industry in India, China, Vietnam, and Mexico ................................................. 31
CHAPTER 3 – INDIAN ELECTRONICS INDUSTRY OVERVIEW ..................................................................... 34
India Macroeconomic Outlook .................................................................................................................. 34
Real GDP.................................................................................................................................................... 34
Consumer Price Index (CPI) and Inflation ................................................................................................. 34
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Index of Industrial Production .................................................................................................................. 35
Per Capita Income ..................................................................................................................................... 35
Indian Electronics Industry ........................................................................................................................ 36
Overview of the Indian electronics industry - Total market and domestic consumption ........................ 36
Indian domestic electronics production vs. exports vs. imports .............................................................. 37
Comparison of Indian domestic electronics production vs consumption vs exports ............................... 38
Indian Electronics production as a % of GDP ............................................................................................ 39
Indian domestic electronics production - Split between in-house manufacturing and EMS ................... 39
Key growth drivers for the electronics industry in India ........................................................................... 40
Indian Government policy/incentives driving domestic production and push for exports ...................... 40
India for India and India for Global ........................................................................................................... 42
Key challenges for the electronics industry in India.................................................................................. 43
CHAPTER 4 – INDIAN ELECTRONICS MANUFACTURING SERVICES (EMS) INDUSTRY OVERVIEW ................ 44
India EMS Industry Outlook....................................................................................................................... 44
Introduction to the EMS industry in India................................................................................................. 44
Indian EMS Industry Value Chain Analysis ................................................................................................ 45
Indian EMS Industry Size and Growth Outlook ......................................................................................... 45
Indian EMS market segmentation by ODM vs CM .................................................................................... 46
Indian EMS market segmentation by HVLM vs LVHM .............................................................................. 46
Indian EMS market segmentation by B2B vs B2C ..................................................................................... 47
Indian EMS market segmentation by B2P Vs B2S ..................................................................................... 47
Size of the Box-build split by cost components ........................................................................................ 48
Indian EMS market segmentation by end-user industries........................................................................ 48
Electronics outsourcing – comparison between India and other key economies .................................... 49
Indian Defence Electronics Market ........................................................................................................... 50
Advantage India: A favourable destination for Electronic Manufacturing ............................................... 51
Increasing contribution of India to the global EMS industry .................................................................... 51
Key growth drivers for the industry .......................................................................................................... 51
Investment by Global and Domestic EMS players in India ....................................................................... 51
Key restraints for the industry .................................................................................................................. 52
CHAPTER 5 – GLOBAL AND INDIA EMS - DEEP DIVE INTO FOCUS INDUSTRIES AND PRODUCTS ................ 53
A. Aerospace and Defence Electronics ...................................................................................................... 55
Aerospace & Defence Industry Overview ................................................................................................. 55
Aerospace and Defence Electronics Production Market landscape ......................................................... 55
Snapshot on Cyient DLM’s key offerings in the A&D segment ................................................................. 56
Outlook of A&D EMS business in India ..................................................................................................... 56
Growth drivers and key trends in the sub-segments of focus: ................................................................. 57
B. Medical Electronics ............................................................................................................................... 61
Medical Equipment Industry Overview..................................................................................................... 61
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Medical Electronics Production Market landscape .................................................................................. 62
Snapshot on Cyient DLM’s key offerings in the Medical Electronics segment ......................................... 63
Outlook of Medical Electronics EMS production in India ......................................................................... 63
C. Industrial Electronics ............................................................................................................................. 67
Industrial Equipment Industry Overview .................................................................................................. 67
Industrial Electronics Production Market landscape ................................................................................ 68
Snapshot on Cyient DLM’s key offerings in the Industrial segment ......................................................... 68
Outlook of Industrial EMS business in India ............................................................................................. 69
D. Telecom Electronics .............................................................................................................................. 72
Telecom Equipment Industry Overview.................................................................................................... 72
Telecom Electronics Production Market landscape.................................................................................. 72
Outlook of Telecom EMS business in India ............................................................................................... 73
E. Automotive Electronics ......................................................................................................................... 76
Automotive Industry overview ................................................................................................................. 76
Automotive Electronics Production Market Landscape ........................................................................... 77
Outlook of Automotive EMS business in India.......................................................................................... 78
CHAPTER 6 – COMPETITION OVERVIEW................................................................................................. 81
Global EMS Industry .................................................................................................................................. 81
Industry structure ..................................................................................................................................... 81
Business analysis of key Global companies............................................................................................... 81
Financial benchmarking of key Global companies .................................................................................... 82
Indian EMS Industry .................................................................................................................................. 83
Industry structure ..................................................................................................................................... 83
Business analysis of key Indian companies ............................................................................................... 84
Financial benchmarking of key Indian companies .................................................................................... 85
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CHAPTER 1 - GLOBAL MACROECONOMIC OVERVIEW
Global macroeconomic overview
The Global economy (real GDP), which is now well on the path of recovery, has undergone stress in the last few years
due to extended trade conflicts, slowdown in investments across the world and then a novel virus. Global economy was
showing signs of slowdown since CY2018 and then entered a recession in CY2020 owing to the unprecedented crisis
caused by COVID-19 pandemic. The pandemic brought economic activity to a near standstill in CY2020 and to an extent
in CY2021, as many countries had to impose strict restrictions to curb the spread of the virus. While in CY2022 the
economy was affected due to Russia-Ukraine war; slowdown in US, Europe; supply chain issues and other factors.
Russia's war against Ukraine continues to affect the EU economy, setting it on a path of lower growth and higher inflation.
Global real GDP
Chart 1.1: Global real GDP and real GDP growth (annual percentage change), value in USD trillion, growth
in %, CY2016-CY2026E
Real GDP for key regions

Chart 1.2: Real GDP growth (annual percentage change) in key economies (USA, Europe, China, India,
Middle East, South East Asia), growth in %, CY2016-CY2026E
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In CY2021, the global economy grew by 5.9% (by real GDP), owing largely to the inherent strength of major economies
such as the United States of America (USA), China, Japan, Germany, United Kingdom, and India. However, the beginning
of CY2022, saw the global economy grow to a reasonably strong position, and the major economies like—the USA, China,
and India, had managed to regain their pre-pandemic levels, while countries in Europe and South East Asia were on the
trajectory of reaching their pre-pandemic levels. After gaining significant experience from the pandemic, governments
across the world took steps they need to deal with similar black swan events in the future.
However, global economic activity is experiencing a sharper-than-expected slowdown in the second half of CY2022, with
inflation levels higher than ever before. Cost-of-living, tightening financial conditions in most regions, and Russia’s
invasion of Ukraine, are all weighing heavily on the outlook. One of the most important effects of this war is seen on
commodity prices and expected to see further fluctuations in the global fuel prices. Global growth is forecast to
slowdown from 5.9% in CY2021 to 3.2% in CY2022 and 2.7% in CY2023.
A) United States of America (USA)
The USA economy was progressing well with more than 2% growth between 2017 and 2019 before it experienced the
biggest decline in 2020 when the economy contracted by over 3.5%. In CY2021, the real GDP in USA witnessed a positive
recovery of 6.2% after a slow period of growth. However, the economic impact of Russia's invasion of Ukraine has
contributed to a slowdown in US activity in CY2022. Supply disruptions although improved may take some more time to
fully ease. Inflation is still quite high along with an increase in unemployment. As of mid-November, more than 73,000
workers in the U.S. tech sector have been laid off in mass job cuts so far in CY2022. The reason, broadly, is twofold:
Business growth is slowing, while labour costs are increasing, because of which, the US economy is anticipated to grow
at the rate of 1.6% in CY2022 and 2.1% in CY2026.
B) Europe
The European Union (EU) economy shrunk by 5.6 % in 2020 and had a recovery of 5.2% in 2021. Spain, UK, Italy, Greece,
and France were the worst affected economies, experiencing a GDP decline of 10.8 %, 9.1 %, 8.9 %, 8.2 % and 8.1 %
respectively in 2020. In order to curb the issue of low production, European companies started redesigning production
to revive the economy from a crisis situation to continue doing business. However, disruptions caused by the ongoing
war in Ukraine, surging energy prices, persistently high inflation, and the looming risk of Russia cutting off gas supplies
in the winter months have put the Eurozone economy under an unprecedented level of stress. This persistent uncertainty
has also shaped economic sentiment in the region. Another key reason for the decline is the drop in consumer confidence
growth, which reached its record low of -23.9% point in September 2022 from an all-time high of 15% point in May 2021
(source: CEIC data). As a result, Frost and Sullivan expects the European economy to grow to grow at a rate of 1.9% in
CY 2022.
C) China
China was the only large economy to register a positive GDP growth of 2.3% in CY2020 and showed its resilience during
the pandemic and registering 8.0% GDP growth in CY2021. China’s economy recovered well with the government
focusing on supporting Small and Medium Enterprise (SME’s) and allowing delay of loan repayments. As the recovery
gained traction in CY2021, the composition of aggregate demand shifted toward private domestic consumption. In
CY2022, the lockdown caused both life and economic activity in China to grind to a halt, as it had due to the pandemic
two years earlier. The achievement of the 5.5% economic growth target pledged by the Chinese government is now
looking increasingly difficult. While new policy initiatives are expected to produce results, there are also fears it will only
further increase the issues. As a result of these factors, the GDP is expected to grow at 3.2% in CY2022.
D) India
The Indian economy continued to grow between 2017 and 2019, and there was a moderation in the growth rate during
these years. As the Government was taking various measures to improve the economy, Covid-19 created havoc in 2020
which resulted in 7.3% contraction of the country’s economy. India has demonstrated rapid and sustainable growth post-
COVID-19, driven by strong manufacturing-led industrial expansion and consumption demands from the private sector.
Indian GDP grew by 9.5% in CY2021. One of the key reasons for the growth of Indian economy is the country’s focus on
the manufacturing sector.
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However, disruption to two major trade routes, Russia, and Ukraine, along with subsequent sanctions imposed on Russia
by various economies has had a major impact on global supply chains. As a result, oil prices surged to record highs, which
in turn pushed up inflation. This effect was felt by India as well. The price of domestic LPG, pipeline gas, jet fuel also
soared. However, India was not impacted as much as some of the other major economies. Despite volatility, the Indian
economy has shown resilience and the economic pain seems to be easing. The Indian GDP is expected to grow by 6.8%
in CY2022, owing to strong macroeconomic fundamentals such as the implementation of key structural reforms, and
improved fiscal and monetary policies.
E) South East Asia
South East Asia went through a socioeconomic crisis during the pandemic, with GDP falling by 4.2 % in CY2020. Declining
tourism and businesses have caused a sharp downturn in the overall economy of the region. Low material movements
and lockdowns affected countries dependent on trade and tourism. While the South East Asian countries recovered
marginally with a GDP growth of 2.6% in CY2021, Russia’s unprecedented invasion of Ukraine was not good news for
South East Asia’s post-COVID economic recovery. The biggest economic impact overall on people’s lives in South East
Asia is inflation caused by the rapid rise in the price of oil and gas in the wake of the war, which has increased the costs
of production and transport. Russia and Ukraine are also major exporters of agricultural inputs, food grains, and critical
minerals needed for semiconductors, which could cause further shortages in South East Asia. The commodity price hikes
have had different effects across the region. The overall South East Asian GDP is expected to grow at 5% in CY2022.
Impact of Covid 19 pandemic on different economies

The outbreak of the COVID-19 pandemic threw the entire world into an unforeseen crisis in terms of both public health
and the economy. The global economy plunged into a deep depression in 2020 causing a severe impact on spending and
employment. most of the economies had to enforce desperate measures such as lockdowns, travel restrictions, social
distancing etc. Various containment measures including the closure of offices and factories, slowdown of public services,
etc. were taken which resulted in a significant drop in investments during 2020.
United States of America - USA became the epicentre of the pandemic with the highest number of reported
casualties in the world with a devastating impact on the country’s economy. As per the U.S. Bureau of Labour
Statistics, the unemployment rate almost tripled between Q4 CY2019 to Q2 CY2020, from 3.6% to 13%. Over
thirty million Americans had filed for unemployment benefits due to job losses during this period. However, the
unemployment rate fell to 6.7% by Q4 CY2020 due to a slew of economic measures taken by the Government. The U.S.
economy was strengthened by massive fiscal support and widespread vaccination and the economy grew by 6.2% in
CY2021, the fastest pace since 1984.
Europe - The situation was no different in Europe. Post China, Italy was the second country to experience
massive casualties in the initial months of the pandemic outbreak. While the pandemic triggered sharp declines
in job opportunities and millions of job cuts, the region was also at the forefront in easing down economic
lockdowns and opening economic activities. Compared to the global economy, the euro area suffered a bigger hit in
2020. Manufacturing industries were impacted by short-term supply shortages, but most of them recovered relatively
quickly during Q3 CY2020. Sectors that thrive on human contact and interactions, such as the cultural and creative
industries and the aerospace industry, were substantially hit by the crisis, and are likely to have longer recovery paths.
Pharmaceuticals and Digital sectors were the least impacted sectors.
South East Asia - Even though the health, economic and political impact of COVID-19 has been significant across
South East Asian nations, the virus has not spread as rapidly in this region as compared to other parts of the
world. Although the region could not match the fiscal incentives of many of the western world countries, fiscal
policy in Southeast Asia has still been more generous and this has played a crucial role in limiting the economic and social
fallout from the pandemic. Southeast Asia plays a major role in the global manufacturing supply chain. Lockdowns and
social-distancing measures in the region, primarily in Taiwan, have prolonged a global shortage of semiconductors and
constrained the supplies of goods such as coffee and clothing.
China - Covid-19 outbreak started in China and then rapidly spread into other parts of the world. Before the
pandemic, China was already grappling with slower growth and rising unemployment along with trade conflicts
with economic giants like the USA. The impact of the Pandemic was severe on the country’s economy in Q1
CY2020. The Govt. had to adopt strict containment measures and as China is the biggest exporter to many countries in
the world, there were supply chain disruptions in the first few months of 2020 which impacted the manufacturing sector
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globally. However, the country could restore its operations within the next few months and was one of the leading
suppliers of medical consumables and equipment globally in CY2020. China’s economy, which did not contract in CY2020,
grew at 8% in CY2021 as the country’s focus shifted to reducing financial stability risks.
India - India, one of the potential superpowers in the world and one of the emerging manufacturing
destinations, could not decouple itself from this global disaster. Indian manufacturers had to face supply-side
bottlenecks as there was no supply from China in Q1 2020.The Indian Govt. had to impose a strict country-wide
lockdown much faster than most of its western counterparts. Indian manufacturing sector could not withstand this
double blow – first from the supply side and then from the demand side. However, the country has shown strong
resilience since then. India has not only become self-reliant on medical supplies, but it is also now one of the largest
producers of Covid-19 vaccines globally as manufacturing emerges as one of the focus areas for the government. India
has also emerged as the second most sought-after manufacturing destination across the world indicating the growing
interest shown by manufacturers in India as a preferred manufacturing hub over other countries.
India and other South East Asian Countries are gaining share from China in terms of manufacturing, due the fact that
global players started relocating their supply chain to alternative locations.
Other countries - The economic impact of the COVID-19 pandemic has been different across different countries. Iran
had the highest number of corona cases in Middle East, followed by Iraq and UAE. Countries such as Saudi Arabia and
UAE where tourism is the biggest revenue generator, were now conservative in allowing tourists, which has badly
affected the region’s tourism revenue as governments have taken swift measures to reduce the impact of the virus in
the region. Africa is one of the most affected regions globally due to COVID-19 pandemic. It is one of the most susceptible
regions in terms of controlling the pandemic due to lack of proper health care services and basic infrastructural
amenities. For many countries, the Small & Medium Enterprises are expected to play a key role in economic and
employment recovery in these countries. Digitalization is also playing a key role in economic rebound across Africa as
healthcare apps, payment platforms, e-commerce portals and micro-insurance systems are witnessing positive traction
across end users.
Geopolitical situation and their impact

The economic recovery post Covid, caused supply chain challenges and sparked the beginning of inflationary spikes. The
Russia-Ukraine crisis has exacerbated the growing cost-of-living crisis and its inflationary impact is already being felt
across the world in a variety of sectors. Impacts are flowing through three main channels. One, higher prices for
commodities like food and energy will push up inflation further, in turn eroding the value of incomes and weighing on
demand. Two, neighbouring economies in particular will grapple with disrupted trade, and supply chains, as well as a
historic surge in refugee flows. And three, reduced business confidence and higher investor uncertainty are adding to
tightening financial conditions and potentially spurring capital outflows from emerging market
The trade war, accompanied by a slowdown in China's economy and the impact of the COVID-19 pandemic, has resulted
in the World Bank predicting a significant slowdown in the global economy as well as a lower prediction for the economic
growth in the United States and China. The increasing geo-political tensions and the growing chip shortage has enhanced
the need for moving the semiconductor ecosystem to other regions across the world and this has created a unique
opportunity for India as an alternative location to focus on and invest in.
A) Russia-Ukraine war
The ongoing war in Ukraine has dimmed prospects of a post-pandemic economic recovery for emerging and developing
economies in the Europe and Central Asia region. The global economy continues to be weakened by the war through
significant disruptions in trade, food, and fuel price shocks, all of which are contributing to high inflation and subsequent
tightening in global financing conditions. The Ukraine-Russia conflict is expected to further impact the already stressed
global semiconductor supply as raw materials exported from the two countries such as neon gas, chemical C4F6 and
palladium are critical for semiconductor manufacturing. This has also put the Indian electronics and automobile
manufacturing industry in a wait-and-watch mode. While the consumer appliances sector in India is more likely to be
impacted by the increase in prices of other raw materials such as steel, semiconductor shortage is expected to put
pressure on the supply of smartphones, laptops, and automobiles
Activity in the euro area, the largest economic partner for emerging and developing economies of Europe and Central
Asia, has deteriorated markedly in the second half of CY2022, due to distressing supply chains, increased financial strains,
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and declines in consumer and business confidence. The most damaging effects of the invasion, however, are surging
energy prices amid large reductions in the Russian energy supply. The hardest hit will be countries with medium to high
reliance on natural gas imports for heating, industry, or electricity, as well as countries closely connected with EU energy
markets. Both Russia and Ukraine are major commodity producers, and disruptions have resulted in soaring global prices,
especially that of oil and natural gas. Supply chains for high-value goods and critical components, including those of
automotive and electronics, particularly bore the brunt of interruptions in the trade corridor between Europe and Asia.
The Russian invasion of Ukraine has been met with unprecedented trade and other economic sanctions. The war and
resulting sanctions have also had adverse effects on the key transportation links between Russia and Ukraine. Russia’s
connections to European ports have been cut, and commodity exports to other destinations have been constrained.
Ukraine’s Black Sea ports have been blocked, leaving the country with few routes for its commodity exports. Air freight
between Europe and Asia is now rerouted to avoid Russian airspace. Rail transit through Russia is slowing due to checks
for sanctions compliance, and further rounds of sanctions could risk halting rail transit entirely.
B) Supply chain disruptions
Supply chains are being tested, due to the extraordinary events in Russia and Ukraine. Organizations are scrambling to
mitigate the disruption to their business and to keep goods, funds, and information flow across the supply chain. The
conflict in Ukraine reinforces the imperative for organizations to have in place more resilient supply chains. Companies
that survived the volatility of CY2021 likely did so by getting lean, selling through inventory, and focusing on their working
capital. At times, the supply chain crisis has no doubt felt unwieldy. Suppliers and manufacturers from all over the world
have largely been put to the test, encountering massive stock shortages, fulfilment delays, and lengthy backorders on
popular inventory items. The following are 2022’s biggest supply chain challenges faced by product-based businesses
from all over the globe.
COVID-19-driven disruption in the supply chain: The COVID-19 pandemic has disrupted the manufacturing supply chain
and curtailed the commodity demand. Although manufacturing of mobile phones is boosted through the ‘Make in India’
initiative, India is heavily dependent on China for the supply of raw materials, components, and accessories. Such high
dependency on imports with some critical components being produced in China is expected to have a significant impact
in the future if there is a reoccurrence of any similar outbreak. Hence, OEMs based out of India are planning to develop
a local supply chain in order to follow the ‘China + 1’ strategy and become ‘Atmanirbhar (Self Reliant)’.
Material Scarcity: Insufficient inputs have been a concern since the pandemic began, due to an abrupt rise in consumer
demand like never before. Even now, retailers and suppliers alike are struggling to meet this demand in the midst of
limited availability for many parts and materials. Key metals such as aluminium, nickel, platinum, and copper along with
semiconductor chips are all expected to be impacted which is expected to have a cost effect across industries using these
products. Simultaneously, disruption to the flow of electronics, raw materials, and parts supplies emanating out of China
and other locales has seriously impeded global trade, forcing companies to recalibrate and in some cases, wholly
reconsider their long-standing supply chain and partner ecosystems. As a result of such shortages, we foresee a shift to
raw materials flowing from Asia and Africa instead. Some changes will be permanent, but they are unlikely to change in
the short to medium term.
Port Congestions: Port congestion caused by the pandemic and now the war remains one of the top challenges for the
world’s supply chains, seeing as port owners, carriers, and shippers are collectively still scrambling for a viable solution
to this problem. Although the loading/unloading process typically goes according to plan, labour shortages and social
distancing associated with the pandemic have notably steered things off course (creating major bottlenecks at a number
of busy global docks).
Alternate Source of Supply: The immediate effect on the supply chain has been the sharp rise in the prices of
commodities, including petrol and diesel, which has hit hard. Oil and gas prices, in particular, have already skyrocketed
across the globe due to the high dependence on imports from Russia, the supplier of 40% of Europe’s gas. This rapid
price inflation is forcing companies across the globe to explore alternative sources – not just to find cheaper materials
but also for surety of supply. Russia is also the world’s biggest exporter of all three major groups of fertilizers, again
pushing up input costs. This could lead to a potential food crisis in major importing regions, including the Middle East
and North Africa if alternatives are not quickly found
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C) Chip shortage
Causes: The demand for microchips exceeded supply even in the pre-pandemic era. The spread of COVID-19 globally
created a storm for the semiconductor industry, resulting in a severe supply crunch. First, as the global stay-at-home
orders and lockdowns resulted in unprecedented usage of smartphones, laptops, and streaming devices, the already
excessive demand for chips shot up. Second, the worldwide shutdown of production facilities halted chip production
temporarily. Finally, massive supply chain bottlenecks were witnessed, as some major ports across the world ceased
operations.
Impact of Global chip shortage on the EMS industry: The global chip supply shortage intensified in 2021 after the COVID-
19 pandemic, as major companies across industries have failed to meet the rising demand for electronic goods and
components. Supply chain disruption due to the pandemic, rising demand for electronic products as more people work
from home, and a lack of investment in chip production capacity have all contributed to the global chip shortage. As a
result, the prices of household appliances and electronics have increased. The supply of finished electronic products and
components necessary for local manufacturing has been delayed due to prolonged congestion at Chinese ports and a
lack of containers. As semiconductor companies have a high book to bill in the end market shows strong demand. This
will significantly increase capital expenditure to meet this demand. Based on the current timing of capacity ramping,
analysts predict that there would be a broad-based oversupply of semiconductors at some point in 2023.
Struggles during the COVID-19 crisis: Demand in the auto industry dropped substantially in the first half of 2020.
Moreover, while new vehicle sales improved in the second half of 2020, the highly unclear sales outlook at the time
meant that automakers did not meaningfully increase their semiconductor orders. At the same time, the shift to remote
working and the associated greater need for connectivity significantly drove consumer demand for servers, PCs, laptops,
and equipment for wired communications, all of which considerably depend on semiconductor chips. Even as the auto
industry significantly reduced chip orders, other markets encountered an increased need.
Lack of new capacity: In recent years, the semiconductor industry has matured and achieved greater scale through
consolidation. In the last decade, semiconductor utilization was constantly high at or above 80%. The utilization rate in
2020 reached around 90%, which many industry leaders regarded as full utilization since exceeding that level often
results in excessively long lead times. While the semiconductor industry increased its production capacity by nearly 180%
since 2000, its total capacity remains nearly exhausted at the current high utilization rate.
5G rollout and overlapping chip demand: The demand for semiconductors differs by node size in the industry. The most
advanced chips in small ranges are 14 and 7 nanometres or smaller. These are increasingly used in several leading-edge
technology applications. An expansive rollout of 5G services warrants a huge number of radio-frequency semiconductor
chips and large node sizes as auto chips. This also holds true for power-electronic chips needed to boot up PCs and
servers. This amount of overlap implies that as the 5G rollout occurs over the next few years, auto manufacturers might
face an ongoing shortage of chips.
Industries Impacted: More than 150 industries have been impacted by the chip shortage, but some have been hit much
harder than others. The global semiconductor shortage has affected several industries for over a year now. Industries
are presented with two options: paying more for a product and getting it considerably faster or waiting a little more and
getting products at the market rate. The shortage has affected the production of several household appliances,
smartphones, laptops, printers, gaming consoles, PCs, automobiles, airplanes, and medical devices, among others.
Current Situation: The market for semiconductors has been volatile in the last 2 years and experts predict supply chain
challenges across the semiconductor industry will extend to late 2023 and early 2024. Nonetheless, construction plans
are underway for new semiconductor fabs to address the current microchip shortage and future demand for Artificial
Intelligence, 5G, the Internet of Things and other emerging technologies. At the same time, industry professionals
understand the need to not oversaturate the market with new inventory, and manufacturers are working for a balance
between new 200mm and 300mm technology and supporting older technology and geometry process nodes.
D) Global Inflation
Inflation increased worldwide due to the on-going Russia-Ukraine war, as well as China’s extensive lockdown, which is
having an impact on the global market, where inflation is expected to be high in CY2022. Supply chain disruptions, strict
labour markets in a few countries, and especially soaring commodity prices are some of the key reasons. Prices for oil
and natural gas have risen because of concerns that Russia, the world's largest oil exporter, may be unable to supply oil
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or gas in the event of the conflict. On top of that, global demand is on the rise as the global economy recovers from the
economic downturn. Global inflation is forecast to rise from 4.7% in CY2021 to 8.8% in CY2022 but to decline to 6.5% in
CY2023 and to 4.1% by CY2024.
Inflation is expected to slow down in CY2023; however, it may not reach pre-pandemic levels. Having said this, supply
disruptions are slowly improving and may take some more time to fully ease.
Chart 1.3: Global Inflation rate, average consumer prices (annual percentage change), growth in %, CY2016-
CY2026E
Chart 1.4: Inflation rate, average consumer prices (annual percentage change) in key economies (USA,
Europe, China, India, Middle East, South East Asia), growth in %, CY2016-CY2026E
E) Global Trade War

US-China Trade War: Beginning in early 2017, the US government began making threats of tariffs on Chinese imports. In
the month of March of 2018, the administration endorsed its first of three rounds of tariffs which ultimately covered a
varied range of Chinese exports comprising many manufactured by the country’s 4,500+ EMS companies. Overall, the
US-China trade war has reduced US goods imports from China. Imports declined immediately after tariffs were imposed.
China is now the source of only 18% of total US goods imports, down from 22% at the onset of the trade war. The imports
are transferred to other countries due to the trade war between these 2 major economies. Asian countries especially
India, Vietnam, and Indonesia, are likely to benefit more than the rest of the world due to lower wages and their
geographical proximity to China.
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Overall, the US-China trade war has reduced US goods imports from China. Imports declined immediately after tariffs
were imposed, falling further beginning in March 2020 as global trade collapsed in the wake of the COVID-19 pandemic,
and have since recovered only slowly. Today, US imports from China remain well below the pre-trade war trend
compared to US imports from the world. China is now the source of only 18% of total US goods imports, down from 22%
at the onset of the trade war.
The war is not the only factor weighing on world trade at the moment. Lockdowns in China to prevent the spread of
COVID-19 are again disrupting seaborne trade at a time when supply chain pressures appeared to be easing. This could
lead to renewed shortages of manufacturing inputs and higher inflation.
F) The need for China + 1
Decoupling from China: For Indian governments, policy initiatives for decoupling its economy from China is not a new
phenomenon. Since 2009-10, India had embarked upon countable opportunities for overcoming large imports from
China. India’s trade deficit with China, however, remains huge. Nevertheless, some decoupling trends in India also
became visible since 2019/20, mainly owing to the pandemic which has paved the way for the growth of manufacturing
in India.
Rising labour cost in China: The aspiration level of Chinese workers has increased, and they are focusing on high-tech
jobs, leaving gaps in the low end of manufacturing value chain. This has led to scarcity of the labour and a higher cost
due to lack of availability of the manpower. The average cost of manufacturing labour per day is USD 6.2 in India and
USD 28.2 in China, which make manufacturers to move out of China.
Threat on EMS industry in China: Over the past few years, China has realized its stake of challenges, and what some
individuals recognize as the potential threats to China’s current position as the world’s biggest EMS host country. Trade
tensions, allegations of currency manipulation, and a resurrection of economic patriotism in the US, UK and some other
western nations have all formed a new level of emphasis and scrutiny on the China’s EMS business. All of the above
issues have been exacerbated by allegations and blame games, resulting in a perfect storm for China's EMS industry.
OEMs' need to diversify their supply chain to reduce risk has fuelled the expansion of the EMS industry in countries like
India, Vietnam, and Mexico. Mobile phones from brands such as Apple, Xiaomi, Vivo, Oppo etc., which were earlier
imported from China, are now manufactured in India. EMS partners such as Foxconn, Wistron, Pegatron, etc. have all
invested in manufacturing facilities in India which have given huge boost to the Indian EMS industry.
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CHAPTER 2 - GLOBAL ELECTRONICS INDUSTRY OVERVIEW
Global Electronics Industry
Overview of the global electronics industry
The global electronics industry has evolved tremendously over the last 60 years. Global demand for the electronics
industry is created by emerging and multiple disruptive technologies. The overall electronics market is inclusive of
electronics products, electronics design, electronics components, and electronics manufacturing services. Traditionally
a strong growth market, however, the market contracted by 3.4% in 2020, owing mostly to a decline in private
expenditure triggered by the COVID-19 pandemic. The global electronics industry was valued at USD 2,288 billion in
CY2020 and grew to USD 2,494 billion in CY2021. As per Frost & Sullivan’s analysis, the industry is expected to grow at a
CAGR of 4.9% to reach USD 3,168 billion by CY2026. Some of the critical factors driving this growth are increasing
disposable income, improved acceptability of audio and video broadcasting, higher broadband penetration, the
inclination of the youth towards next-gen technologies, emergence of e-commerce, rising demand from rural markets,
etc.
Chart 2.1: Global electronics industry market size, value in USD billion, growth in %, CY2016-CY2026E
Per capita consumption of electronics in major economies

Chart 2.2: Per capita consumption of electronics in major economies, value in USD, CY2021
Globally, per capita, electronic consumption is increasing and is currently USD 324. Per capita consumption is the highest
in the West and increasing rapidly in major economies such as the North America and Europe, driven by the growing
adoption of wireless connectivity for several electronic devices. Increasing investments in Research and Development
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(R&D) in consumer electronics and technological advancements, coupled with the growing popularity of wearable
electronic devices, are also driving the market. Per capita consumption of electronics in India is only USD 78, 1/4th of
the global average, however domestic electronics consumption is increasing rapidly because of urbanization and the
adoption of electronic products in Tier 2 and Tier 3 cities.
Global electronics manufacturing market split between in-house and EMS

Electronics manufacturing has been divided into two categories: products that are produced in-house by OEMs and those
that are produced by EMS companies. Currently, in-house electronic manufacturers account for approximately 65% of
the total electronics market, which is a significant contribution. However, in recent years, the involvement of EMS players
has expanded significantly, making the job of OEMs easier to manage.
Chart 2.3: Global electronics manufacturing market - Split between in-house and EMS, value in USD billion,
CY2016-CY2026E
Key parameters considered for in-house vs EMS

Contracting task to external EMS providers helps in the reduction of fixed costs which helps in investing the available
cash for other strategic initiatives. This helps the OEMs to reduce the employed workforce directly under their payroll
eventually reducing the cost of labour.
Hidden Cost: There are quite a few hidden costs involved in deploying an outsourced manufacturer that OEMs should
very much take into consideration and discuss with EMS providers. These include costs such as initial design modification,
product testing, and others. It would be ideal that OEMs request the EMS to provide a complete breakdown of all the
costs that could be incurred.
Technical Capability: It would be essential to evaluate the kind of flexibility an EMS provider would be offering along
with the time to market, and sustained quality. EMS providers, offer a combination of the following services: PCB
assembly, cable assembly, electro mechanical assembly, contract design, testing, prototyping and aftermarket services.
Value-Added Service: EMS providers offer numerous value-added services, including configure-to-order and outbound
logistics, among others. OEMs in sectors such as aerospace and defence, as well as in regulated industries such as
medical, A&D and telecom, typically have complex electronics, and it is essential to determine whether the EMS provider
can track rapid changes in new technology or adherence to the latest regulations. EMS providers in some cases are also
seen to have a stake in the supply chain contributors.
Design for Excellence (DFx): It is important for EMS providers to have an efficient management process and the ability
to manage change orders, making them more adept at managing OEM requirements. The design of any electronic device
requires extensive knowledge and comprehensive experience. The EMS providers are known to consider all these
factors, such as safety, reliability, availability, and much more. This causes the design teams of EMS companies to strive
for excellence from the product's inception through its production phase.
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Global Electronics Manufacturing Services (EMS) Industry and Outlook
The global EMS market witnessed a period of steady growth till 2018, riding on the wave of increased outsourcing
activities from brand manufacturers and increasing electronics content. There are obvious inherent economic benefits
to outsourcing. There is no denying the fact that manufacturing outsourcing has seen a steady uptrend over the past
couple of decades. With clear benefits in terms of production efficiency, reduced overhead, labour costs, and faster new
product introductions, OEMs today continue to collaborate with EMSs to develop their products. In addition, OEMs are
also increasingly moving product design and development processes, to EMS partners.
In 2019, however, the opportunities started stagnating due to a multitude of factors. Firstly, a decline in global
automotive sales and saturation of consumer electronic sales. Secondly, supply chain restrictions due to heightened
trade tensions between US and China, followed by the pandemic in the end of 2019. According to Frost & Sullivan’s
analysis, the EMS market continues to face some challenges with the supply chain in 2022 and will continue until 2023
as well, which will have a medium restraining effect. The situation is expected to settle by end of 2023, through various
measures including part localization. Additionally, as the electronics content increases, the demand for electronic
components will increase in the future which will drive the EMS market.
Evolution of the global EMS industry

Chart 2.4: Evolution of the global EMS industry, 1980 to 2020
The EMS market was established more than five decades ago to execute manufacturing designs from government,
defence, and research institutions. As the years progressed, the EMS market grew to support the demand that exceeded
manufacturing capacity of the Brands. By mid 1990s, the advantages of EMS concept became extremely evident and
major brands started outsourcing PCB Assembly in large scale. By the end of 1990s and in early 2000s, several brand
having own manufacturing facility sold their assembly plants to the EMS players, aggressively striving for the market
share. A wave of partnerships followed as the more cash-rich EMS companies started buying the existing plants and the
smaller EMS companies to consolidate their position in the global market.
As technology advances, the size of the components and the circuits usually becomes smaller. With the demand for novel
features and products growing up in recent years, manufacturers are turning towards more state-of-the-art and
sophisticated technical solutions to streamline their manufacturing processes. Electronics manufacturing is observing
substantial traction in the adoption of advanced robots, due to their capability to perform tasks at enhanced precision
levels. Artificial intelligence is another transformative technology in the EMS segment, primarily changing the way the
machines’ function and interconnect. Partnerships, mergers, agreements, and other types of strategic initiatives are
becoming more and more prevalent among the Brands, EMS providers, OEMs, ODMs, and stakeholders as they work to
familiarize with the speedy transitions in the manufacturing space.
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Overview of the global EMS industry
Chart 2.5: Global EMS industry market size, value in USD billion, CY2016-CY2026E
The global EMS market is traditionally comprised of companies that manufacture electronic products, predominantly
assembling components on Printed Circuit Boards (PCBs) and box builds for OEMs. Today OEMs are seeing more value
from EMS companies, leading to involvement beyond just manufacturing services to product design and development,
testing, and aftersales services (repair, remanufacturing, marketing, and product lifecycle management).
Range of services offered by EMS companies globally

Chart 2.6: Range of Services offered by EMS companies, global, CY2021
EMS companies are equipped to provide a gamut of services which include design, assembly, manufacturing, and testing
of electronic components for OEMs. EMS companies can be contracted at different points in the manufacturing process.
Design services and solutions: Design services include multiple associated actions that occur after determining the
customer's specific requirements and before manufacturing or at the beginning of an assembly. The EMS Company based
on inputs from the OEMs creates conceptual design and the same is shared with the OEMs for inputs and approvals.
Prototyping: The next step is to create a Proof of Concept (POC) to demonstrate that concept of design, functions. Post
that, once design for manufacturability, design for testing and design for servicing are established, prototypes are made
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to make sure that the product will serve its proposed purpose after it is manufactured as a part of a bigger production
run.
Testing services: Testing is an essential element across the entire EMS value chain. EMS companies which can design
test solutions for both at PCBA level and at the end of line product testing, including functional testers and fixtures are
preferred by the OEMs.
PCB Assembly: At the heart of the electronics industry is Printed Circuit Board or PCB. A PCB with components mounted
on is called an assembled PCB and the manufacturing process is called PCB assembly or PCBA for short. PCB assembly is
a major activity and normally outsourced to EMS companies.
Box Build: In this, an OEM outsources complete product manufacturing to an EMS company, which manufactures the
final product, adds the OEM’s logo, and dispatches it to the OEM’s warehouse for selling. This model is largely used in
high volume low mix (HVLM) type of products such as mobiles, computer hardware and industrial segments.
Aftersales Service (Repair and Rework): The demand for repair and remanufacture is not high, because majority of
electronic products do not necessitate repair or remanufacturing and are focused more on replacement. Niche verticals
like aerospace and defence, railways and high-end electronics segment is opening to accept third-party repairs due to
high cost of equipment and re-design which provides immense potential for this segment.
EMS market segmentation by services

Chart 2.7: Global EMS market - Segmentation by services, value in USD billion, CY2021 and CY2026E
The EMS market has been split by services into the following:
Electronic Design & Engineering: New and advanced technologies such as IoT, artificial intelligence, and virtual reality,
coupled with smart and connected devices are driving the electronics design market.
Electronics Assembly: Electronics assemblies are large and diverse. It is very attractive and profitable for many EMS
suppliers because of the wide range of complex and high mix of electronic product assemblies.
Electronic manufacturing: Contract manufacturing of electronic components and finished products.
Others: It includes all other activities like supply chain, management, and other aftermarket support services. offered by
EMS.
Large EMS companies who have mastered the art of manufacturing and assembly, are now trying to move up the value
chain and planning to offer additional services such as Design, Testing and Sourcing of components - In short, the industry
is moving from Original Equipment Manufacturing (OEM) to Original Design Manufacturing (ODM). The share of ODM
business is likely to increase from 9.8% in 2021 to 13.1% in 2026.
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EMS market segmentation by ODM vs CM
The global EMS market leads the bandwagon in the production of total electronics, and accounts for 35% of the total
electronics market. While outsourcing increased rapidly in 2019, it remains the most anticipated manufacturing model
for the assembly of advanced electronics products accessible to OEM companies. Large EMS companies have the
capability to offer an entire range of services starting from design, sourcing of components, assembly, prototyping, PCB
assembly, cable assembly, box assembly, and testing, while small and mid-size EMS companies offer primarily PCB
assembly and testing services. The EMS market was valued at USD 880 billion in 2021, is split by Contract manufacturing
which enjoys the majority share valued at USD 794 billion and expected to grow to a value of USD 995 billion in 2026;
ODM has a market share of around 10%, is worth USD 86 billion in 2021, and is expected to grow to approx. 11.8%, worth
USD 150 billion, by 2026.
Chart 2.8: Global EMS market – Segmentation by ODM vs CM, value in USD billion, CY2021 and CY2026E
Chart 2.9: Advantages and Disadvantages of ODM and CM
Constantly increasing logistics and raw material costs are resulting in a rise in total manufacturing costs, which serves as
a catalyst for the OEMs to choose the ODM model and provide an end-to-end solution, including product design and
after-sales support, owing to higher margins and increased visibility. Established supply chains aid in reducing lead times,
which has a substantial positive effect on the profitability of ODMs. Additionally, ODM offers to collaborate with the
OEMs on product localization and design. The ODM companies have versatile capabilities in system designs, plastic
moulding, PCBA, software engineering, and more. Instead of investing in R&D, new entrants or Tier-II players collaborate
with ODMs to select and develop specific models from existing models to enter the market. The secondary benefit for
ODMs from such collaborations is the improvement of capabilities to handle fresh clients.
Example of two major global EMS companies:
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• Flex’s original agenda was to provide manufacturing of PCBs for companies that are based out of Silicon Valley.
Over several decades Flex broadened its scope to become a leading CM firm which was the first American
company to build a manufacturing facility outside of the country in Singapore. Flex went on to acquire other
manufacturing and design firms to expand its global footprint and become one of the largest ODM company.
• Foxconn is a key component supplier to many OEMs and its core focus is on the mass production. Foxconn can
achieve massive economies of scale which effectively makes overall production cheaper. Foxconn provides its
customers with fully integrated solutions covering the whole manufacturing process. It utilizes its manufacturing
expertise and the large scale of its production facilities that help to decrease production cost per unit.
EMS market segmentation by HVLM vs LVHM

Chart 2.10: Global EMS market - Segmentation by HVLM vs LVHM, value in USD billion, CY2021 and CY2026E
HVLM (High Volume Low Mix) is a model used by companies that manufacture significantly or highly automated
consumer electronics, computers, and mobile phones. Electronics assembly manufacturers in aerospace and defence,
industrial electronics, and the medical industry frequently use an LVHM (Low Volume High Mix) operating model.
High volume, low mix (HVLM): This is typically a contract manufacturing setup where only a few types of assemblies
are produced in large quantities. This technique generally allows changes to be kept at a minimum and the equipment
utilization rate significantly high. Contract manufacturers are proven to be more efficient when running at high volumes
and require minimal engineering intervention.
Most global MNC firms work in the HVLM space catering to the needs of mobiles, computer peripherals, consumer
devices and storage devices. This also means that this business requires large-scale deployment of resources and supply
chain arrangements. Also, large EMS players with global presence have a wide product portfolio and end-to-end
solutions. Their centralized procurement helps them procure in bulk which helps them pass the benefit on to the buyers
giving the tier 1 players a competitive advantage.
Low Volume, High Mix (LVHM): This type of contract manufacturing typically has a very high emphasis on quality and
customization which changes according to the requirements of the customer. Considering that their products have high
margins, even major changes in market dynamics do not heavily impact the production process. OEMs that prefer such
solutions prefer to pay higher prices without compromising on quality.
Most companies in the LVHM space cater to the needs of industrial, medical, aerospace, and defence applications. Due
to the nature of the operations, their scale is limited, and they face high component costs and limited bargaining power.
The LVHM production comes at a cost as it typically mandates additional accreditation, facilities, and skill levels, which
effectively translate into overhead costs. LVHM products involve high complexity and are safety critical with high entry
barriers. LVHM products involve the make-to-order manufacturing method, which is commonly used to manufacture
unique and more complex products with specific quality requirements. Continuously rising capex investment in the
industrial, medical, and A&D sectors, which are the key contributors to LVHM, will drive this segment to grow at a faster
pace than HVLM. Due to the high level of complexity in the LVHM category, the customers of an EMS partner would be
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reluctant to source similar solutions from other competitors. Cyient DLM Ltd. has a strong presence in the LVHM
category. Cyient DLM’s technical expertise, capabilities in safety-critical electronics in highly regulated industries, and
customer engagement act as high entry barriers for its competitors.
EMS market segmentation by B2B and B2C
Chart 2.11: Global EMS market - Split between B2B and B2C, value in USD billion, CY2016-CY2026E
The EMS market is also segmented into B2B and B2C segments. Mobile phones and CEA are entirely B2C, whereas
segments such as automotive are mostly B2C, with a few B2B sub-segments (for example, railways). Industrial and
information technology are two industries that fall under the purview of the pure-play B2B segment. The B2C market
was valued at USD 556 billion in CY2021 and is expected to maintain its dominance, reaching USD 716 billion in CY2026,
at a CAGR of 5.2%, while the B2B market is not far behind. In 2021, the B2B market was valued at USD 324 billion, and it
is expected to grow to USD 429 billion by 2026, at a CAGR of 5.7%. The B2B segment primarily caters to high value
products in some of the key segments such as telecom, industrial, automotive, medical, aerospace and defence, which
are driving the market for this segment majorly and will help for faster growth. An increase in the number of connected
devices and data bandwidth will drive data centre expansion and upgrade, increasing revenue opportunities for EMS
providers.
Size of the Box-build split by cost components

Box Build Systems
In the box build system, the OEM outsources the complete product to a third-party EMS firm, and the EMS firms, make
the final finished product, puts in the OEM logo, and dispatch it to the OEM warehouse to be resold. In this case, the
EMS firm takes care of both electronic BOM, Mechanical and Electrical BOM and assembles the final product, and does
the required testing before it is dispatched. This is largely used in high volume low mix types of products such as mobiles,
computer hardware, etc. A box build includes all the other assembly work involved in an electromechanical assembly,
other than the production of the printed circuit board. The box build system includes PCBA, cables, wires and harnesses,
electromechanical components, and other electronic components specific to the product category.
The box build process is very specific to each project and the degrees of complexity vary from project to project. The
most common box-build assembly processes include the installation of sub-assemblies, installation of other components,
routing of cabling or wire harnesses, and fabrication of enclosures. Key components of box build are mentioned below:
• Electromechanical Components: Electro-mechanical components are those that utilize an electrical signal to create
a mechanical change. The electronic components market can be largely categorized as follows:
o Passive components - capacitors, resistors, wound components, and crystals
o Active components - diodes, transistors, ICs, and LEDs
o Electromechanical components - PCBs, switches, relays, cables, and connectors
o Associated components - optical discs, magnets, RF tuners, heat sinks, magnetrons, etc.
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• PCBA (Printed Circuit Board Assembly): The PCBA is the core of an electronic device, which includes Flash Memory,
Application Processor, Graphics Processor, and other semiconductor-based active and passive sub-components. All
electronic devices derive their intelligence and functionality from the PCBA.
• Wire & Harness: A wire harness, often referred to as a cable harness or wiring assembly, is a systematic and
integrated arrangement of cables within an insulated material. The purpose of the assembly is to transmit signal or
electrical power. The wire harness simplifies the connection to larger components by integrating the wiring into a
single unit for “drop-in” installation.
• Magnetics: It includes electrical components that use magnetism in the storage and release of electrical charge
through current. Primarily includes passive components such as transformers, inductors, motors/ generators, etc.
• Metals & Plastics: It includes parts of electronic devices made of sheet metal or plastic mouldings. It also includes
electronic packaging, which is the outer box that houses the electronic components. Sheet metal, cast metal,
moulded plastic, or other materials are commonly used for the outer box.
Chart 2.12: Global EMS market - Box-build market split by cost components, in %, CY2021
EMS market segmentation by the manufacturing locations

Chart 2.13: Global EMS market - Segmentation by the manufacturing locations, value in USD billion, split in
%, CY2021 and CY2026E
China leads the global EMS business with a 46.7% share in 2021. It is a global leader due to operational cost benefits,
availability of a large number of highly skilled personnel, infrastructure, logistical advantages, and proximity to the largest
end-user base across all end-user verticals. However, many global electronics manufacturers are now contemplating on
China + 1 strategy and looking for alternate manufacturing locations for exports, creating tremendous investment
potential for countries like Vietnam, India, and the Philippines etc.
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North America is a leader in adopting next-generation technologies and devices. In the next five years, demand for EMS
will be driven by a rise in electronic device demand, a well-established EMS infrastructure, and evolving government
policies that encourage local production. The EMS industry is poised for a robust growth over the next five years. The
EMS market in the United States was around USD 140 billion in CY2021, and it is expected to grow at a CAGR of 6.1% to
USD 188 billion by CY2026. The electronics manufacturing industry in North America has benefited from skilled labour
force, advanced technology, and pro-business policies. Within North America, the United States (US) leads this industry
in terms of total market share, followed by Mexico and Canada. The US remains very attractive for the low- to medium-
volume and complex electronics product manufacturing, predominantly in the medical, telecom, IT, automotive,
industrial, and military/aerospace divisions. In particular, the U.S. electronics manufacturing sector is an important
intermediary supplier for other key industries. Mexico is an important location for low-cost manufacturing, which results
in a high proportion of assembly revenue being exported.
The India EMS is a sizeable industry, contributing to 2.2% (USD 20 billion) of the global EMS market in CY2022. India’s
EMS industry is the fastest growing among all countries at a CAGR of 32.3% and is expected to contribute 7.0% (USD 80
billion) of the global EMS market in CY2026. There continues to be a strong push from the government to make India an
ideal location for Electronics manufacturing in the region.
EMS market segmentation by outsourcing geographies

Chart 2.14: Global EMS market - Segmentation by outsourcing geographies, value in USD billion, split in %,
CY2021
EMS market segmentation by end-user industries

Aerospace and Defence (A&D) is a relatively small but key revenue-contributing segment. OEMs perceive EMS providers
as strategic solution partners, as it gives them an average savings of 10% to 15%. The outlook for the aerospace and
defence industry is optimistic. In the next few years, apart from cost, A&D OEMs will consider EMS providers' expertise
in advanced technologies as a key partnership factor in boosting EMS revenue. Key trends that will drive new opportunity
in this sector include digital thread and smart factory driving efficiencies, defence contracts building advanced military
capabilities (like the ongoing US government support for the National Defence Strategy will likely keep defence spending
stable), growth in the space in key areas like the launch industry, satellite trends, etc.
The major growth drivers for the commercial aerospace industry are increasing aircraft deliveries, replacement of aging
aircraft, and growing demand for better safety and digital communication devices. Digital technologies are expected to
provide a competitive advantage. The global defence spending was around USD 2.1 trillion in 2021, representing an
increase of 6.7% over 2020 spending (Source: Statista). The increase represents that the countries chose to spend more
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on defence even when they are facing severe economic contraction. USA, China, and India, contribute to around 55% of
the total defence spend.
French industrial giant Thales is expected to grow profitably in the coming years in the aerospace and defence business.
The group which specializes in avionics, radar, and air traffic management (ATM) announced an organic sales growth
target of 3 to 6% and an EBIT margin between 10.8% to 11.1% in CY2022. Also, Honeywell forecast shows strong growth
for aviation business as purchase plans increase sharply. Honeywell forecasts up to 8,500 new business jet deliveries
worth USD 274 billion from 2023 to 2032, which is up 15% in both deliveries and expenditures.
Chart 2.15: Global EMS market - Segmentation by end-user industries, value in USD billion, split in %,
CY2021 and CY2026E
Medical is a key revenue opportunity segment in the EMS market. Business is expected to boom in the medical device
industry's electronic manufacturing services (EMS) segment. This is largely thanks to advanced technologies such as the
Internet of Things (IoT), wireless, and artificial intelligence (AI). The other factor is that medical device manufacturers
have been asked to speed up innovations and adopt newer more unfamiliar technologies without putting the quality
into any kind of risk and without cutting corners. With the advancements in technology, single lab equipment is now
able to perform various tasks. This has in many ways eliminated a lot of time-consuming, repetition of experimental
steps which were performed earlier manually. In the age of collaborative business models, cloud computing is gradually
gaining popularity in the medical equipment space. Many have either completely moved or have moved most of their
processes to the cloud. Medical wearable technologies are also gaining traction in the last few years.
Industrial electronics is another important market, which is primarily divided into power and automation. Leading
manufacturers are adding new applications to their portfolio by partnering with niche application providers. With the
emergence of new applications, there are several opportunities for power electronic devices such as transformers,
chokes, and inductors. Many electronics applications are concerned with the control and operation of heavy machinery.
The worldwide actuators market is expected to grow due to their efficient operation, low maintenance, and other
factors, and a sudden surge in demand coming from the automation sector. Though still nascent, AI-driven technologies
are proving effective at making buildings more efficient. The rapid proliferation of smart devices within buildings and the
interconnection of control systems and alarms have given rise to a new breed of security threats, making it necessary to
protect OT systems and infrastructure as stringently as IT systems.
Telecom segment includes telecom infrastructure and networking equipments. Wireless technology in the last few years
is growing tremendously. There are rapid expansions in mobile network coverage which has managed to reach even the
remotest of areas. There is also an increase in demand which eventually leads to decreasing in charges that are incurred
for using data. The increasing use of satellites used for connectivity is also a key factor driving this market forward.
Furthermore, there is a growing need for spectrum trends, intelligence, and virtualization that is propelling the market
for data centres. The development of multi-tiered data centres is adding to an increasing demand required by OEMs in
augmented and virtual reality. Despite the capacity and speed of 4G technology, there are still cases where the quality
of service is far from being perfect and reliable. 5G is a critical key driver of the telecom industry, especially for its future.
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With greater bandwidth, higher download speeds up to 10GB per second is promised under this new tech. Researchers,
telecom equipment vendors, and service providers are already working intensively towards 5G (fifth generation) of
mobile communication which is very likely going to overcome the existing limitations of technology.
Automobile is one of the key growth opportunity verticals for EMS providers in the next 5 years, due to the technological
transformation currently underway with autonomous cars development and electric car commercialization activities. EV
is one of the key growth opportunity verticals, due to the technology transformation currently underway with
autonomous cars development and EV commercialization activities. Moreover, the growing electronics content will
accelerate the growth of EMS revenue from this vertical.
In the long term, the industry is likely to benefit from the global market. Long lead time for customer acquisition,
onboarding, prototyping, OEM approvals, and production, coupled with the criticality and requirement for high-reliability
anti-collision signalling systems, there are significant barriers to entry for railway projects. An increasing number of
actions are being implemented by various authorities across the world to reduce road accidents. ADAS (Advanced driver
assistance system) gives the owners the ability to adjust the speed of the car based on traffic conditions.
Mobile phones and IT hardware: Mobile phones have emerged as an important commodity in today's world and the
segment commands a significant share of the global EMS market. On the other hand, IT hardware, though a saturated
market, the onset of the pandemic has turned out to be positive, specifically because of the surge in demand for
computers and tablets, driven by work-from-home and study-from-home needs.
Consumer electronics and appliances (CEA): The segment had a consistent performance in the last few years, which is
aided by growth in advanced economies and developing countries. EMS companies have also profited from rising
consumer spending and technological improvements. Rising demand for smart solutions will fuel future growth.
Furthermore, OEMs and EMS manufacturers are progressively supplying both premium and mid-range appliances to
meet the growing demand for both product categories and increase revenue.
Trends, challenges, and entry barriers in Global Electronics Manufacturing

Mega Trends in the Market Driving the Growth of the Global EMS Market
• Technological advancements and acceptance of smart home devices: The development of new manufacturing
technologies and the emerging end-use sectors, such as the Internet of Things, are expected to boost demand
for the EMS industry. Major manufacturers are strengthening their R&D investment in order to differentiate
their products and attract new end-use applications. The rising popularity of smart home devices in developed
nations such as the United States and European countries raises very high expectations for EMS companies.
• Greater emphasis on vehicle electrification: The Electric Vehicles market will be the most lucrative in the
automotive industry over the next decade. With an ever-increasing electronic content in each car, energy-
related modules, and sub-assemblies, as well as charging infrastructure, which requires an overall ecosystem;
it is a paving out major potential for EMS firms to enter this fast-developing industry and serve the leading EV
manufacturers.
• Technological upgrade of facilities: Most of the large manufacturing companies are investing heavily in the
technological up-gradation of their facilities by adopting digitization and industry 4.0 concepts. This will increase
demand for Industrial electronics products which in turn will boost the EMS industry
• Product development activities: The dependence created by electronics in product development activities
across all verticals will turn out to be a significant driver for EMS, especially in consumer electronics and
automotive segments, where new devices and systems are being developed. As the electronic content
increases, the volume of manufacturing will increase, driving the market.
• Accelerated demand post-COVID-19: has currently increased the requirement for EMS services. This will
subdue in the mid to long-term once inventory is created. Also, major medical device manufacturers are very
keen to design & manufacture smaller and smarter medical devices that integrate new technologies like IoT and
other electronics-embedded features. Furthermore, the growing demand for the wearable and the smart
medical devices is pushing the need for smaller, flexible, and light-weight products in the healthcare business.
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• Digital thread and Smart factory to drive efficiencies: Going forward it is anticipated that A&D companies will
accept digital thread and smart factories in 2023. Digital threads are considered very useful as it helps connect
the life cycle of A&D products from the initial design of the product until the final stages. This helps in collecting
dynamic feedback as we go along the process. This will effectively help in reducing the overall time to market,
service costs and help in quickly adapting to the changing needs of customers
• Electrification, an emerging trend in Aerospace segment: Top aerospace companies as well as new entrants
are investing in research and development centred around electrical propulsion, generation, distribution,
storage, and conversion. Electrification means the migration of both the aircraft and propulsion systems to one
which is powered by electricity instead of pneumatics, hydraulics, and jet fuel. While the industry awaits the
magic battery, hybrid aircraft will be required to drive the electric propulsion technology forward. Many
companies are investing in ushering in such advancements.
Challenges/market restraints hindering the growth of Global EMS industry

• Fragmented market: Due to its strong growth potential, many companies are entering the industry which is
causing stiff competition in the market. The existence of a high number of market participants in all areas results
in competitive pricing, which reduces market revenue potential. This is mainly applicable for HVLM products.
However, specialised sectors such as A&D and medical, are highly complex, and expensive, there are obvious
challenges and barriers that make it almost impossible for new players to enter this market. High capital
requirement and strict regulations are the key barriers preventing companies from entering these sectors.
• Shrinking operating margin: A majority of the market participants face challenges with respect to the operating
margin. In the EMS industry, profit margins are relatively low. As component prices are on an average, key focus
lies on the labour costs. A low operating margin is viewed as an impediment to growth, considering the impact
it can create on expansion plans. Currently, this is viewed as a significant restraining factor for the market.
However, in the long term, as overall demand increases, market participants will be able to expand through
technological investments. Thus, the impact will lower in the mid to long terms.
• Complex structure and delay in supply chain: Supply chain delays causing shortage of components are likely to
impact the revenue in the short term. Russia-Ukraine conflict has impacted supply chains in the semiconductor
industry. The conflict may have particular impact on the supply of Neon and Hexafluoro butadiene gases, which
are an essential element to manufacture semiconductor chips as these are used in the lithography processes
for chip production. However, the overall, the impact of transformation is very low in the mid and long terms.
• Shortened product lifecycles and uncertain demand: Customer preferences and interests continue to evolve
at a breakneck pace. To launch the items on schedule while fulfilling quality and volume objectives, a
collaborative effort across difference sections is required. The industrial sector should be able to handle the rise
in demand if it reaches exceptional heights. If demand falls, companies must have a strategy in place for the idle
raw materials or machinery.
• Regulations and violations of IP: Local stringent laws and trade pricing are having an influence on the EMS
sector, driving OEMs to build in-house manufacturing capabilities. In addition, an increasing number of cases
on infringement of intellectual property rights are posing a serious threat to EMS companies.
• Skilled labour shortage: There is substantial competition for R&D personnel, qualified technical experts, sales
and marketing professionals, and post-sales services providers, as well as a rising attrition rate in the EMS
industry
• Sustainability: Emerging regulations and requirements are forcing organizations to account more and more for
Corporate Social Responsibility (CSR) in decisions. E-Waste, a famous subject today, is driving conversations
about the disposal of merchandise and there has an effect on the environment. Companies must now reflect
on consideration on of the whole product lifecycle in decisions.
Entry barriers in the EMS industry

• Capital Investment Cycle: One of the issues which face the entire industry – especially component
manufacturers and the EMS companies – is that of long capital investment cycles. It takes a long time, as
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compared to other manufacturing industries, to realize a return on invested capital. This also acts as a barrier
to entry for a newer player and the capital-intensive nature of the industry makes it hard for the smaller players
to achieve scale.
• Presence of established players: Furthermore, the players are increasingly investing in R&D and exhibiting
mergers, acquisitions, and partnerships as key growth strategies to gain a competitive advantage. The strong
presence of established players in the marketplace poses high entry barriers for new players entering the
consumer electronics market.
• Uncertain Demand: Uncertain demand for products closely affects the EMS provider. Companies may have to
deal with volatile economy and variable demand which leads to fluctuations in productions. Consumers in
today’s day and age are very clear about their requirements, which sometimes leads to spike in demand for a
certain product. A company is expected to be resourceful as inventory is also expected to keep up with the
demand.
• Long approval cycles: There are challenges in the acquisition process, especially in the A&D segment. From the
‘statement of case’ for a major aircraft deal to ‘acceptance of necessity’ can take up a long time. Also, request
for information and request for proposals and the selection and negotiation process takes three to four years,
and the production or delivery takes another two to three years.
• Need for certification and technical know-how: Attaining and maintaining technical knowledge through
continued training, and development, are essential elements in regulated industries such as A&D, medical,
telecom and others. With high barriers to entry in these sectors (such as high capital costs for inventory, the
need for specific certifications and the need to be close to the customer) it is unlikely that any new competitors
will enter the market any time soon
Government incentives and programs

A) India
Make in India: In 2014, the government of India announced this initiative to make India a global manufacturing hub, by
facilitating both domestic as well as international companies to set-up manufacturing bases in India. As per the scheme,
government released special funds to boost the local manufacturing of mobile phones and electronic components.
Production Linked Incentive (PLI) Scheme: The scheme was first announced by the Government of India in 2019 to
encourage incremental investment and sales of manufactured goods, specifically for the Indian mobile phone and
component markets. It is expected to boost exports in the coming years. The scheme anticipates a total production value
of INR 11,500 billion over the next five years.
Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): The scheme aims to
strengthen the electronics and semiconductor manufacturing ecosystem, which helps to meet domestic demand for
electronic components and semiconductors, improve value addition, and create jobs. Incentives up to INR 32.85 billion
will be awarded under the scheme over a period of 8 years.
Merchandise Exports from India Scheme (MEIS): The government of India offers benefits of up to 4% under this scheme,
depending on the country of exports and the products. The scheme's rewards are calculated as a percentage of the
realized free-on-board value, and MEIS duty credit can be transferred to the company for working capital needs or used
to pay various duties, such as basic customs duty.
Modified Electronics Manufacturing Clusters Scheme (EMC 2.0): The scheme aims to strengthen the infrastructure base
for the electronics industry in India and to deepen the electronics value chain. The program offers financial incentives
for the development of high-quality infrastructure, as well as common facilities and amenities for electronics
manufacturers.
Semiconductors and Display Fab Ecosystem: Aim of the program is to provide appealing incentive support to companies
involved in Silicon Semiconductor Fabs, Display Fabs, Compound Semiconductors/Silicon Photonics/Sensors (including
MEMS) Fabs, Semiconductor Packaging (ATMP/OSAT), and Semiconductor Design (CAD). It is a comprehensive incentive
program approved by the Government of India for the development of a sustainable semiconductor and display
ecosystem in the country with an outlay of INR 76,000 crore.
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Defence offset policy: The key objective of the Defence Offset Policy is to leverage capital acquisitions to develop Indian
defence industry by (i) fostering development of internationally competitive enterprises, (ii) augmenting capacity for
Research, Design and Development related to defence products and services and (iii) encouraging development of
synergistic sectors like civil aerospace, and internal security (Source: Ministry of Defence, GoI). India has implemented
the Defence Offset Policy for capital imports over INR 300 billion. Foreign vendors are required to invest at least 30% of
the value of the purchase. Since 2007 when the first offset contract was signed, a total of 57 contracts have been inked.
Though India has extensively pursued defence offsets through an official policy in 2005, the earlier policies did not
concentrate on technology and R&D capability dispersion from foreign to Indian defence companies. The Defence
Acquisition Policy 2020 (DAP 2020) aims to redress such deficiencies by shifting the focus away from components to
technology investments and export of platforms. Avenues for expanding offsets have been expanded in the DAP 2020,
giving foreign entities direct credit in transferring critical technologies to the Indian industry. Though certain critical
technologies such as hypersonic flight related technology, electromagnetic rail guns etc. has been reserved only for
DPSUs and DRDO, most technologies used in defence equipment are now open to private players.
The government has tried to balance the interests of foreign stake holders here by allowing them to authorize their
vendors to discharge offsets on their behalf. Note that the baseline indigenous component mandates for Buy (IDDM)
and Buy (Indian) categories have been increased by 10% to provide more opportunities to the Indian industry. Overall,
the new changes aim facilitating technological capability advances of indigenous companies while reserving a greater
opportunity share for them in military contracts, accelerating the growth of the Indian defence industry.
B) China
Semiconductor manufacturing has long been a priority for China, and this has gained steam further with the Made in
China 2025 plan and its ultimate goal of becoming increasingly self-sufficient in semiconductors.
A broad set of policy levers exists both centrally and locally:
1. Investment incentives (land, grants, tax credits, etc.): In China, incentives are to the extent of up to 30%-40% of
a new fabrication facility’s total cost of ownership, which is almost well above other countries.
2. They are available for both domestic and multinational firms, but the best terms often require some technology
transfer.
3. The additional support that China provides which is not typically found in other countries are:
• Equipment is leased at preferential rates.
• Firms have access to credit and loans at below-market rate
• The state directly invests equity in domestic companies (which historically have delivered below-market
returns)
It is estimated that the amount of government support extended by China to its top four semiconductor manufacturing
companies exceeds 20-30% of their revenue.
C) USA
CHIPS Act: To strengthen the U.S. position in semiconductor manufacturing and R&D, the US government has authorized
a set of programs called Creating Helpful Incentives to Produce Semiconductors (CHIPS) in America. The intent of this set
of programs is to restore the country’s leadership in semiconductor manufacturing by providing incentives and
encouraging investment to expand manufacturing capacity for the most advanced semiconductor designs as well as
those of more complex designs which are still very much in high demand and would grow the research and innovation
ecosystem for microelectronics and semiconductor R&D in the U.S., including the investments in the infrastructure
necessary to better integrate advances in research into semiconductor manufacturing. Key highlights include
1. $39B would be directed to incentivize the construction or modernization of facilities in the U.S. for
semiconductor fabrication, assembly, testing, advanced packaging, or R&D; and
2. Another $11.2B would support several R&D and infrastructure investments including the establishment of a
National Semiconductor Technology Centre (NSTC), investments in advanced packaging, the creation of a
Manufacturing USA institute targeting semiconductors, and expansion of R&D in support of semiconductor and
microelectronics.
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ITAR Program: International Traffic in Arms Regulations (ITAR) control the export and import of defence-related articles
and services on the United States Munitions List (USML). This list includes the commodities and related technical data
and defence services controlled for export purposes. The ITAR controls not only end-use items, such as radar and
communications systems, military encryption, and associated equipment, but also the parts and components that are
incorporated into the end use item. According to the US government, all manufacturers, exporters, and brokers of
defence articles, defence services, and related technical data must comply with ITAR. Consequently, more businesses
are requiring their supply chain partners to be ITAR compliant. It means the company must be “ITAR certified” and
registered with the State Department’s Directorate of Defence Trade Controls (DDTC).
The U.S. is projected to be the largest spender on defence worldwide in 2021, and this trend is expected to continue
until 2032. In 2021, the U.S. spent USD 742 billion on defence. The forecast predicts an increase in defence outlays up to
USD 998 billion in 2032. A significant portion of this budget will be spent on contracts with third-party businesses,
including contractors who supply the U.S. military with products, raw materials, and services. The global defence
electronics market is valued at USD 130 billion and the US accounts for approximately 55%.
D) Europe
European CHIPS Act: The European Chips Act will help to address weaknesses in Europe’s semiconductor supply chain
as well as promote research and production of these chips through investments in public and private chip fabs. This will
help the region respond to any future supply chain disruptions. Additionally, it will help the EU achieve its goal of reaching
20% global production of semiconductors by 2030.
The European Chips Act has three main components that will help secure a supply of semiconductors as well as reduce
dependency on chipmakers outside of Europe
• First, the act will pool resources from member states and countries associated with the existing Union programs.
$12.8 billion will be made available to strengthen research, development, and innovation for prototyping,
testing, and experimentation of new devices, train staff, and more.
• Second, a new framework will ensure the security of supply by attracting investments and enhancing production
capacities such as advanced processing nodes. The fund will also allow access to finance start-ups to help mature
innovations and attract investors.
• Third, the act will enable coordination between member states and the Commission for monitoring the supply
of semiconductors, estimating demand, and anticipating shortages. This will help monitor the value chain by
gathering key intelligence from companies to map primary weaknesses and bottlenecks.
E) Southeast Asia
Southeast Asian discretionary incentives tend to be offered at a local authority level. In Thailand, new incentives have
been released for semiconductor manufacturing, R&D, and other digital technology as the objective of the government
is to take advantage of the soaring demand for products in this sector. The R&D and human resource (HR) incentives
apply to companies making large investments in innovation. Eligible companies will benefit from extended tax holidays
lasting up to 13 years without a corporate income tax exemption ceiling. In other words, these companies will be given
an exemption from Thailand’s corporate income tax rate of 20%. Back-end semiconductor investments, such as in wafer
SORT, die bank, assembly, and integrated circuit testing, qualify for tax holidays of eight years with machinery
investments of at least 1.5 billion baht (US$45.7 million), and five years for machinery investments below 1.5 billion baht
(US$45.7 million).
Trends on alternative locations for manufacturing to China

Comparative Analysis of industry in India, China, Vietnam, and Mexico
Economic development in India is gaining support as a result of the continuing expansion of private consumption and
investments some industries following the liberalisation of foreign ownership. The projected government expenditure
expansion would further enhance growth by focusing on social infrastructure, making the best use of technology, digital
India, make in India, job creation in Micro, Small, and Medium Enterprises (MSMEs), and heavy investment in
infrastructure.
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A. Economic comparison of favourable manufacturing parameters
China is now the world's second-largest economy. The growth rate is impressive when compared to the size of the
economy. The primary difficulties for its expansion are excess capacity issues, labour costs, and financial market
weaknesses. India and Vietnam are gaining ground as the second-best destinations after China. The IMF estimates that
India's GDP is improving, and projects that GDP will be around 6.5% by 2026. Various government initiatives and tax
regimes are expected to stimulate India's domestic manufacturing sector.
India has the potential to become a global manufacturing powerhouse, competing with China, which now produces one-
fifth of the world's commodities. With a relatively young population, India boasts the world's second-largest population.
India's median age is 28.7 years, lower than China's median age of 37.4 years, Vietnam's median age of 31.9 years and
Mexico’s median age of 29.2 years (CIA’s World Fact book, 2020). Chinese employees' aspirations have risen, and they
are increasingly focused on high-tech jobs, leaving gaps in the industrial value chain. A lack of manpower has resulted in
a labour shortage and increased costs.
Chart 2.16: Economic comparison on favourable manufacturing parameters, India, China, Vietnam and
Mexico, 2021
B. Labour market comparison

India labour cost is one of the lowest globally. This along with a large surplus workforce, is expected to grow until the
end of this decade, which gives it a competitive edge to challenge its rivals in Southeast Asia in the race for a China+1
strategy. In comparison to other Asian countries, India, and Vietnam benefit from lower labour costs. Vietnam, with a
population of less than one-tenth that of China, is experiencing skilled labour shortages as global manufacturers rush to
set up shop here to avoid US tariffs. It is also hampered by a scarcity of specialised supply chains. India is expected to fill
this void due to its advantage in skilled and semi-skilled labour.
Chart 2.17: Labour market comparison, India, China, Vietnam and Mexico, 2021
With nearly 500 million people of working age, India has one of the world's largest workforces, next to China. Each year,
tens of millions of students across the country graduate from colleges and enter the workforce. Apart from a favourable
labour environment, India has an abundance of design talent (hardware and software). Most important factor perhaps
that is driving the EMS industry in India is the labour force. Many people associate this with China’s growth and how it is
losing its price competitiveness with rising wage cost. Similarly, Mexico has expanded dramatically over the last decade,
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mainly because of attractively low labour costs and the intense competitive environment within America. The
employment rate of prime-age men in Mexico (66.6%) is low in comparison with other OECD countries.
C. Manufacturing eco-system comparison
China has been the most ideal manufacturing destination due to its long history and supremacy in electronics
manufacturing. The electronic sector in China has expanded at three times the rate of the country's GDP. Exports account
for a large portion of China's electronics manufacturing, including notebooks, mobile phones, and flat panel displays.
The current uncertainty in China's manufacturing favourability has stemmed from the global economic crisis and years
of rapid expansion. Vietnam benefited significantly from the US-China trade war. Vietnam is aggressively investing in
infrastructure to facilitate the strong inflows of FDI. Economic zones, industrial parks and clusters, hi-tech parks, and
agri-tech zones are among the sectors targeted for investment. Vietnam has introduced new incentives to attract high-
tech investment. Manufacturing in Mexico continues to grow across most industries, both in size and sophistication. In
fact, Mexico is the 12th largest exporter in the world. Respective governments have streamlined certain regulations
which allow businesses to establish operations in Mexico with little difficulty. Although many industries are moving their
manufacturing to Mexico, the most prominent industries in Mexico are the automotive, aviation and aerospace, medical
device, apparel and textile, and consumer products industries
The position of the Indian electronics sector is changing, and electronics is recognised as a key segment for policy focus.
The National Policy on Electronics (NPE), 2019 has highlighted the local value addition and a supportive environment has
been developed. The government is rapidly attracting the eye of global and domestic companies with an unimpeded
focus on manufacture through Make-in-India policies. The favourable developments leave India with great aspirations
to dominate electronics manufacturing in the region. The Product Linked Incentive (PLI) Scheme was announced in the
years 2020 by the Government of India considering the incremental investment and sales of manufactured goods. The
PLI scheme, which was first introduced for mobile phones and was later expanded to IT Hardware, White Goods, and
Telecom and Networking Products, is now being expanded to other sectors in the coming years. Indian electronics
manufacturers are heavily dependent on imports for raw materials sourcing. The phased manufacturing programme of
the Government of India involves a mix of local assembly import levies and incentives. Since plastic components are
driven by international prices, there is no noticeable disadvantage for Indian producers. As a large number of electronic
manufacturing units are anticipated to undertake greater value addition, the component cost is likely to go down over
the next 3 to 4 years. Various PLI schemes across sectors are expected to address this challenge by bridging the cost gap
in between India and China.
Chart 2.18: Manufacturing eco-system comparison, India, China, Vietnam and Mexico, 2021
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CHAPTER 3 - INDIAN ELECTRONICS INDUSTRY OVERVIEW
India Macroeconomic Outlook
Real GDP
The last decade was a mixed bag for the Indian economy and the country has seen a see-saw movement in GDP growth
between 2010 and 2020. However, the growth started slowing down in FY2018 and reached a low of 3.7% in FY20.
Eminent experts have cited Demonetisation and GST implementation as the key reasons for this moderation in growth.
While the Government was taking corrective measures, the economy received a jolt from the Covid-19 pandemic at the
beginning of FY21. The economy bounced back from Q3 FY21 on the back of huge pent-up demand and the festive
season. FY22 was strong, and the Indian economy registered an 8.7% growth in the financial year. The Indian government
has taken a slew of measures to bring the economy back on track. There is a strong focus on the growth of the domestic
manufacturing sector through various policy initiatives such as Atmanirbhar Bharat, PLI schemes, etc. These initiatives
will help the economy to register stable growth of approximately 6.6% in the medium term.
Chart 3.1: Annual Real GDP and Real GDP growth (Annual %age Change), Value in INR Trillion, Growth in %,
India, FY17-FY27E
Consumer Price Index (CPI) and Inflation

Chart 3.2: Consumer Price Index (CPI) and Annual Inflation Rate, Index in Number, Rate in %, India, FY17-
FY27E
India’s inflation was estimated to be approx. 7.0% in 2022. The rate of inflation in 2022 is mainly due to the rise in prices
of crude petroleum and natural gas, mineral oils, basic metals, etc. owing to the disruption in the global supply chain
caused by the Russia-Ukraine conflict. The Central bank states that these are effects of the pandemic, the geopolitical
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conflict, and the weakness in the Indian rupee which is also due to a mismatch in demand and supply of goods and
services, leading to downside risks to growth. There are mandates from the government to the central bank to maintain
retail inflation at 4% with a margin of 2% on either side for a five-year period ending March 2026
The RBI declared in August 2022 that it intends to lower inflation to its medium-term target of 4% within the next two
years. The RBI released regulations intended to enhance the regulatory framework controlling these activities. In
December 2022, the Monetary Policy Committee (MPC) raised its repo rate/ lending rate, by 35 basis points to 6.25
percent, based on an assessment of the current and evolving macroeconomic environment, in an effort to reduce
persistent inflationary pressures. This is the fifth consecutive hike in the key lending rate by the RBI.
Index of Industrial Production

Due to the pandemic, investment activity was sluggish from March to May 2020. Project completions were delayed, and
industrial activities remained muted during this period. Industrial output growth, returned to positive territory after a
two-month period, owing mostly to the low-base impact and strong performances by the manufacturing, mining, and
power sectors. As predicted by RBI, the business confidence improved from 97 in 2021 to 104 in 2022 (Source: OECD-
Organisation for Economic Co-operation and Development). The manufacturing sector constitutes around 77 percent of
the IIP. There has been an increase in industrial activity since June 2021, which gained momentum through FY22 and is
expected to continue through FY23 as well.
Chart 3.3: Index of industrial production based on sector, Index in Number, India, FY16-FY22
Per Capita Income

Chart 3.4: Per capita income and growth (annual percentage change), value in INR, growth in %, FY17-FY27E
The per capita income is a broad indicator of the prosperity of an economy. India's per capita income, calculated in
correlation to Real GDP, was INR 100,032 during FY21 compared to INR 108,247 in FY20, an approximate decline of 7.6%.
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Per capita income increased by around 7.6% during FY22 to touch INR 107,670. The growth is likely to be stable at
approximately 5.5% CAGR over the medium term.
Indian Electronics Industry

Overview of the Indian electronics industry - Total market and domestic consumption
Electronics is one of the fastest-growing industries in the country. The total electronics market (domestic electronics
production and imports of finished goods) in India was valued at INR 9,263 billion (USD 124 billion) in FY22, expected to
grow at a CAGR of 18.4% to reach INR 21,540 billion (USD 289 billion) in FY27. The landscape of the industry is changing
significantly, and revised cost structures have shifted the focus of multinational companies in India.
Chart 3.5: Total electronics market, India, value in INR billion and USD billion, growth in %, FY17-FY27E
Chart 3.6: Domestic electronics consumption market, India, value in INR billion and USD billion, growth in
%, FY17-FY27E
At present, the Indian government is striving to strengthen manufacturing capabilities across several electronics
industries and fill the gaps to make the Indian electronics sector globally competitive. India is positioned as both a high-
quality destination for design and a cost-effective option. Low manufacturing costs, a skilled workforce, and a vast
geographical area are some of the driving elements behind the development of India's electronics ecosystem. Also, the
manufacturers are slowly shifting their focus on product mix from high-volume, low-mix (HVLM) products to low-volume,
high-mix (LVHM) products.
The demand for electronic goods in India has grown significantly in recent years. The domestic electronics consumption
market is estimated at INR 8,117 billion (USD 109 billion) in FY22, expected to grow by 10.6% to reach INR 13,463 billion
(USD 181 billion) in FY27. Increasing electronics penetration in semi-urban and rural markets, a shift in lifestyle among
the Gen Y population, and the adoption of smart gadgets are some key drivers supporting domestic consumption.
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Indian domestic electronics production vs. exports vs. imports
Chart 3.7: Domestic electronics production market, India, value in INR billion and USD billion, growth in %,
FY17-FY27E
Domestic electronics production accounted for approximately 69% of the total electronics market in FY22, valued at INR
6,376 billion (USD 86 billion), and is expected to grow to approximately INR 19,403 billion (USD 260 billion) in FY27, owing
to various government initiatives and the development of India's electronic ecosystem. India has the potential to be one
of the most attractive manufacturing destinations and support the objective of "Make in India for the World". The
government is spearheading various policies and initiatives in the electronics industry to build the complete electronics
manufacturing ecosystem, to propel India into the top five countries for electronics production and the top three
countries for electronics consumption. The government’s stated objective of enhancing manufacturing capability within
India has been backed by the creation of a favourable environment. The government has also taken several steps towards
increasing the ease of doing business, which has resulted in increased manufacturing setups by multiple foreign
manufacturers in the country. This environment has certainly encouraged the EMS market as electronics brands/ OEMs
continue to push for collaboration and partnership.
Chart 3.8: Import of finished goods market, India, value in INR billion and USD billion, growth in %, FY17-
FY27E
The total import value of finished goods in the electronics industry was valued at INR 2,887 billion (USD 39 billion) in
FY22, compared to INR 1,736 billion (USD 23 billion) in FY21. Shortage of chips has slowed down domestic manufacturing
in the last quarter of FY22 which resulted in higher imports of electronics products. China and Hong Kong accounted for
~ 63% of India's total electronic imports in FY22. Imports from the United States, Japan, and Taiwan now meet the
majority of semiconductor demand. To reduce reliance on imports, the government is developing electronics
manufacturing clusters (EMCs) across the country to provide world-class infrastructure.
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Chart 3.9: Electronics exports market, India, value in INR billion and USD billion, growth in %, FY17-FY27E
The value of total exports increased by 40% in FY22 to INR 1,146 billion (USD 15 billion), compared to FY2021, which was
worth INR 818 billion (USD 11 billion). As domestic production increases, the export market is expected to grow
significantly over the next five years at a CAGR of 47.8% to reach INR 8,078 billion (USD 108 billion) in FY27. The top 3
leading products in the export category are mobile phones, engine control units, and industrial machinery. India holds
superior design competence and the availability of a talented workforce at lower wages compared to China, which
fortifies its position as the futuristic, domestic-cum-export-oriented manufacturing destination.
Comparison of Indian domestic electronics production vs consumption vs exports

Chart 3.10: Comparison of Indian domestic electronics production vs. consumption vs. exports, value in INR
billion, USD billion, FY22 and FY27E
The government’s stated objective of enhancing manufacturing capability within India has been backed by creation of a
favourable environment. Whether it is the customs duty for certain products or removal of duties on components or
encouraging local component manufacturing, there has been appreciable movement to drive domestic manufacturing.
The government has also taken several steps towards increasing the ease of doing business, which has resulted in
increased manufacturing setups by multiple foreign manufacturers in the country. This environment has certainly
encouraged the EMS/ ODM market as electronics brands/ OEMs continue to push for collaboration and partnership.
In recent years, India's demand for electronic products has increased substantially, primarily due to India's development
in the EMS segment. Low manufacturing costs together with skilled workforce and a vast geographical area are some of
the driving forces behind India's electronics ecosystem development. India is currently the world's second largest mobile
phone manufacturer, and the Indian start-up ecosystem is still expanding, with the potential that Indian start-ups have
shown a huge opportunity for India.
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Indian Electronics production as a % of GDP
Chart 3.11: Contribution of domestic electronics production to Indian GDP, in %, India, FY17-FY27E
In FY22, the electronics production in India contributed to 2.7% of the nominal GDP (at current prices), which is expected
to increase to around 5.3% by FY27. The Government's objective is to provide domestic manufacturers with a better
facility to make them competitive with imports into the industry by simplifying the tariff system, simplifying the
procedures, giving incentives, and improving the infrastructure. Considerable high value-added manufacturing takes
place in the consumer electronics and appliances segment and most products command high brand equity globally,
offering an excellent opportunity for ESDM companies to export.
Indian domestic electronics production - Split between in-house manufacturing and EMS
Chart 3.12: Indian domestic electronics production market - Split between in-house manufacturing and
EMS, value in INR billion, growth in %, FY17-FY27E
Domestic electronics production by OEMs with in-house capabilities currently accounts for nearly 77% of India's total
domestic production market, estimated at INR 4,908 billion (USD 66 billion) in FY22. Many OEMs develop, design, and
manufacture electronic products in-house. However, this scenario is slowly shifting to EMS partners. EMS providers are
gradually evolving to offer complete design services in addition to contract manufacturing, which benefits both EMS
providers and OEMs. This strategy allows EMS providers to gain higher margins, while OEMs benefit by outsourcing
manufacturing and design activities, enabling them to focus on other expansion activities.
Due to the large, complex, and highly competitive nature of the electronics industry, OEMs may now focus on marketing
and aftermarket services, leaving manufacturing to its EMS partners. Frequent technology changes, which an EMS player
with economies of scale is better positioned to accommodate and allow for better price negotiations with raw material
suppliers compared to OEMs.
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Key growth drivers for the electronics industry in India
Improvement in demand and supply scenario: India has witnessed more than 14% growth in electronics consumption
between FY17 and FY22. The long-term growth outlook for the industry is extremely positive, primarily because market
penetration for many electronics products is still very low compared to the global average. Besides factors such as a
stable growth outlook for the economy, the Digital India program, rising disposable incomes, changing lifestyles,
emerging work-from-home culture, expansion of organized retails to tier 2 & tier 3 cities, improving electricity and
internet infrastructure, and better logistics infrastructure will provide additional impetus to the industry. It is with these
strong fundamentals, many global brands along with their supply chain partners have invested in electronics
manufacturing infrastructure in the country in recent years and India is ready to become an important electronics
manufacturing hub globally.
China + 1 Strategy: There is a new urgency to examine practical alternatives to manufacturing in China given the tariff
conflicts and the after effects of the COVID-19 pandemic, supply chain issues, rising manufacturing cost structures, and
changing geo-political landscape. However, transferring production decisions is not very straightforward as there is
strong vendor incorporation of all major components in China. Due to the above factors, OEMs are considering an
alternative country for additional production rather than completely replacing China. India is well positioned to benefit
from global OEM’s strategy towards “China + 1” for supply chain diversification.
Localization of supply chain: High domestic volumes and consumption, and higher outsourcing volumes will influence
domestic electronics manufacturers to bring in the component ecosystem locally and enhance local capabilities of
component sourcing, thus making the ecosystem stronger and closer. Tier-2 companies (companies supplying products
to Tier-1 companies/ OEMs) are increasingly focusing on product localization, innovative product design, and R&D.
However, the extensive financial costs involved in setting up manufacturing, capacity additions/expansions, R&D,
manpower, etc. influence them to leverage EMS services. In 2014, there were only 2 companies in India manufacturing
mobile phones, which have increased to more than 270 in 2020.
Emerging technologies: Electronic product life cycles are becoming shorter due to rapid technological advancement
and newer products with upgraded technology. Also, changing customer attitudes and various consumer-to-consumer
websites have made it relatively easier for customers to replace existing electronic devices with newer products.
Increased demand for high-speed data has also contributed to the rising demand for premium smartphones. This
growing preference for high-tech products has fuelled rapid innovation in the consumer electronics industry. Emerging
technologies such as IoT, AI, and the incorporation of robotics and analytics in the industrial and strategic electronics
segments have all contributed to the overall development of electronic products, which has boosted local demand.
System automation: The Indian design companies work on end-to-end product development, with a focus on
miniaturization, IoT, automation, AI. Advanced analytics and industrial automation enabled by the IoT provide
manufacturers with greater efficiency and productivity gains. However, the rapid growth of AI, ML, the deployment of
5G technology, edge computing, and cloud computing has necessitated hardware innovation, resulting in high demand
for electronic design automation.
Indian Government policy/incentives driving domestic production and push for exports
The Government in India is encouraging domestic manufacturing through supporting policies and initiatives that are
likely to lead to overall development in the ecosystem and has opened gates of opportunities for companies, vendors,
and distributors in the market. Incentives for local manufacturing, demand side support through Government
procurement, import barriers via duties, and favourable steps like GST that reduced the complexity of operations, are
pull factors for MNCs to invest in India.
Make in India: In 2014, the government of India announced this initiative to make India a
global manufacturing hub, by facilitating both domestic as well as international companies to
set up manufacturing bases in India. As per the scheme, the government released special
funds to boost the local manufacturing of mobile phones and electronic components. It has
also introduced multiple new initiatives, including promoting foreign direct investment,
implementing intellectual property rights, and developing the manufacturing sector. The Make in India initiative, a part
of the ‘Atmanirbhar Bharat Abhiyan’ (Self-reliant India), would provide an additional boost to the country’s business
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operations by encouraging the substitution of imports of low-technology products from other countries and generating
demand for local manufacturing. Atmanirbhar Bharat Abhiyan is planned to get carried out in two phases:
• Phase 1: The emphasis will be on segments like medical, textiles, electronics, plastics, and toys
• Phase 2: For products like gems and jewellery, pharma, and steel, etc.
Production Linked Incentive (PLI) Scheme: The scheme was initially announced in the year 2019 by the
Government of India considering the incremental investment and sales of manufactured goods. It is
expected to promote exports in the next few years. As per the scheme, a total production of INR 11,500
billion is expected including INR 7,000 billion in exports in the next five years. Production Linked Incentive
Scheme (PLI) for large-scale electronics manufacturing was notified in April 2020.
As per the 2021-22 budgets, under the PLI scheme, the government allotted INR 1,970 billion for 13 sectors. However,
the financial outlay for the auto sector was revised in September 2021, bringing the total allotment down to around INR
1,661.9 billion. Initially introduced in mobile phone production, this policy is being expanded to other sectors as well.
The scheme is also extended to white goods (Air conditioners and LED lighting) and select few electronic/ technology
products. It has different thresholds of investments required for domestic and international companies. Fully integrated
manufacturers are going to be the biggest beneficiary of this scheme. This scheme will help India Inc. to be an integral
part of the global supply chain.
Chart 3.13: PLI scheme in 13 key sectors for enhancing India’s manufacturing capabilities and enhancing
exports, Atmanirbhar Bharat, FY21-FY22
Chart 3.14 (a): PLI scheme for manufacturing of medical devices, August 2020
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Chart 3.14 (b): PLI scheme for Telecom and Networking products manufacturing in India, February 2021
BIS Certification: Importing electronics and IT products without BIS registration is now currently prohibited in India.
India is tightening the quality controls for electronic products to restrain the rising import of cheap electronic items,
particularly from China, and boost local manufacturing under its Make in India initiative. According to the DGFT
(Directorate General of Foreign Trade) notification, every business importing and selling electronic products such as
mobile phones, LED lights, etc. in India is required to register with the BIS for government clearance; failing to do so the
imported goods would be re-exported back to its origin.
Earlier, the government had started the Electronics & Information Technology Goods Order in the year 2012 and
mandated 15 electronic products under this category to have BIS certification. These incorporated laptops, televisions,
and notebooks among others. The order now encompasses each imported electronic & IT product up for sale in the open
market. New rules have got wider implications for the future imports of electronic items to India – which imports close
to 50% of its entire electronic products sold in the market. Given India’s enormous appetite for imported electronic
products, it is very important for importers and foreign manufacturers to get every aspect of compliance right. Failing to
do so can prove to be very expensive and can also damage the business’s credibility.
India for India and India for Global

Exports: The export market is expected to grow substantially in the next five years at a CAGR of 47.8%, owing to various
government initiatives. such as the PLI scheme, Atmanirbhar Bharat, etc. which facilitates domestic manufacturing. Cost-
effectiveness, a talented and affordable workforce, a burgeoning domestic electronics market, and export opportunities
will drive the market for EMS/ODM in India. An increase in design and manufacturing capabilities has led to export
opportunities for some products and is a key driver for other segments as well.
Constantly improving local assembly of components: Global players use domestic manufacturers for EMS services as
they have in-house manufacturing facilities, as well as R&D and testing facilities. However, many components like LCDs,
relays, communication modules, PCBs, passive components, and microcontrollers are imported. Components like
mechanical components, terminals, brass terminals, and screws are locally sourced. Sub-assembly modules and finished
goods assemblies are happening currently in India and are very lucrative opportunities given in the Indian
ecosystem. Even though component manufacturing is currently being dominated by China, Japan, and South Korea, India
has showcased strong potential in this part and is on the path to developing a strong component manufacturing base.
Frost & Sullivan expects Cyient DLM's enhanced capabilities to enable them to meet the potential demand and leverage
India for India and India for global opportunities.
Ease of doing business in India: India’s business environment can be improved by simplifying the procedures involved
in setting up and conducting business. To position India as an attractive business destination, various incentives such as
reducing the burden of additional taxes on start-ups and strengthening the IP protection framework are being provided.
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India is evolving as an innovation-driven R&D destination for global companies. The government, academia, industry
players, and industry associations are making concerted and coordinated efforts to help the industry reach its potential.
Investment-based Incentives are offered to industries to attract investment and enhance exports. The government
provides a 20-25% CAPEX subsidy and a grant-in-aid of 50-75% project cost to companies that meet the requirements.
The opportunities in India surpass the challenges, which are evident from the World Bank report's improvement in rank
of ease of doing business in India, which has risen from 142nd rank in 2015 to 63rd rank in 2020.
Increasing FDI inflow in the Electronics sector: The increased demand for electronic goods such as mobile phones and
consumer electronics has resulted in the segment attracting the greatest amount of foreign direct investment (FDI) in
recent years. The significant increase in FDI was primarily due to the establishment of manufacturing and development
centres by electronic companies, as well as the government's approval of 100% FDI. However, the introduction of the
new tax regime, Goods and Services Tax (GST) in India in FY17 resulted in many manufacturers and foreign players
delaying their investments in India between FY18 and FY19 to prepare for this new tax regime. As a result, investments
were low in the fiscal year during the period, and it gradually increased from the end of the fiscal year 2019.
Chart 3.15: FDI inflow in the Electronics sector, value in USD billion, FY15-FY22
The Indian manufacturing sector’s contribution has increased from 16% to over 18% in the last 10 years (Source: IBEF),
which has been driven by initiatives like "Make in India" and other sector-specific initiatives. Cyient DLM Ltd. aims to
benefit from such incentives through its expansion into electronics manufacturing. The Government of India is also
focused on building the semiconductor manufacturing industry in India, including with the Atmanirbhar Bharat scheme,
which is aimed at providing financial support to companies in electronics manufacturing and semiconductor
manufacturing, and which in turn is also expected to give a further impetus to electronics manufacturing in India.
Key challenges for the electronics industry in India

Import substitution: India’s import of electronics products systematically declined between FY’15 and FY’20 however
increased sharply in FY’22 owing to a slowdown in domestic production due to a shortage of semiconductors globally.
The long-run mission of the Govt. is to reduce dependency on imported electronics products and services through
‘Atmanirbhar Bharat’ and develop a local electronics manufacturing ecosystem.
Supply chain realignment: Local availability of components and chip fabrication are primary activities that determine
the strength of a country’s electronics manufacturing ecosystem. India has a very limited component supplier base; a
majority of the high-value and critical components are imported. Components that are predominantly imported include
ICs, PCBs, and other active components. As supply-chain resilience and localization are becoming more significant, India
has had to take the necessary steps to improve the domestic value chain capability for long-term benefits.
Component manufacturing: India lacks a robust ecosystem of companies that manufacture electronic components
locally. Hence, the companies must bear the brunt of importing high-cost components. India levies a very high tariff on
import of components used for electronics products compared to its Asian competitors in China, Thailand, and Vietnam.
Companies in the electronics industry should work together to obtain a minimum number of crucial components now
imported (fully or partially). Such an arrangement should have minimal quality and sourcing pricing criteria. This will aid
component manufacturers in planning and upgrading.
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CHAPTER 4 - INDIAN ELECTRONICS MANUFACTURING SERVICES (EMS) INDUSTRY
OVERVIEW
India EMS Industry Outlook
Introduction to the EMS industry in India
Chart 4.1: Evolution of the EMS industry in India
The Indian EMS industry is relatively young, with nearly three decades of experience. The EMS industry has grown in
prominence over the last decade, particularly in the last five years. The industry, which was traditionally a domain of the
PSUs, has seen the participation of a few MNCs and many private sectors Indian companies’ post-liberalization of the
Indian economy. These companies were addressing the requirements of Consumer Electronics OEMs and some of them
were manufacturing for their global requirement. The Indian market opportunity is driven by the expected geographical
diversification by global OEMs of their manufacturing needs to reduce dependence on China and the availability of
government incentives and other schemes, among others.
The period of 2005-07 saw the first big-ticket investment in EMS operations in India with the entry of Jabil Circuits and
Nokia. This triggered a series of large / medium-scale investments in the Indian EMS sector. The period of 2013-14 was
a dampener as Nokia wound up its India operation however, this was short-lived. Now, global EMS giants have started
showing interest in India. Indian EMS industry has embarked on an upward journey. Since 2015, many global and
domestic players have announced investments in India, which includes key players such as Foxconn, Dixon, Flex, Jabil,
Vedanta, etc. As most of the global players and their supply chain partners are investing in manufacturing, the Indian
EMS industry is well poised to unlock its true potential in the coming years.
There are more than 30 players in the organized market ranging from large, medium to small. Major players are Cyient
DLM, Flex, Jabil, SFO, Elin Electronics, NTL, Syrma, and Foxconn. Many EMS providers are slowly evolving to offer
complete design services apart from contract manufacturing/original equipment manufacturing. This acts as a win-win
situation for both EMS players as well as OEMs; EMS players obtain higher margins through this model, and OEMs benefit
by outsourcing manufacturing and design activities, enabling them to focus on other expansion activities. Embracing the
ODM model of partnership with EMS partners, coupled with venturing into new product segments, is propelling the
brands to pursue EMS engagement. High volumes will influence EMS to bring in the component ecosystem locally and
enhance domestic capabilities for component sourcing, thus making the electronics ecosystem stronger.
Ambitious expansion plans and capacity augmentation of indigenous EMS players to capitalize on favourable policy
initiatives ensure that the EMS sector in India shall witness heightened growth in the coming days. Also, India has done
well in Electronics design and is slowly establishing itself as a design hub of the world. The next phase of growth in the
design sector is characterized by the growth of indigenous design companies creating their own IPs as against the
erstwhile growth of outsourced captive design services companies. This, together with impressive, expected growth in
the EMS market, presents an opportunity for Design-led manufacturing.
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Indian EMS Industry Value Chain Analysis
Chart 4.2: Value Chain of the EMS Industry in India
Electronic manufacturers in India lack mature R&D set-ups due to large Capex investments and long gestation periods.
Europe and the US continue to dominate R&D and IP ownership of related work. This has also been a factor that has
restrained EMS providers from investing. Most MNCs hold their IP in the headquarters location (mostly located in the
USA and Europe). Although India has a competitive edge in design services, most such work is outsourced to cost-
effective destinations (China, South Korea, Thailand). However, in terms of manufacturing/ system assembly, India has
an established setup. Many EMS providers are slowly evolving to offer complete design services apart from contract
manufacturing. EMS players obtain higher margins through this model.
The country also has high maturity levels in packaging, distribution, repair, sales, and marketing functions to meet
geographical standards and cater to local requirements. After-sales services which include repair and maintenance are
important for the Indian buyer as the use-and-throw perception is still not acceptable in the Indian electronics
ecosystem. Many players like Dixon, Flex, etc. are offering after-market services like repair, refurbishment, logistics,
vendor management, etc. Cyient DLM leverages the design capabilities of its promoter Cyient Ltd., a leading engineering
services provider with over three decades of domain expertise providing engineering and design solutions globally with
a focus on multiple industries.
Indian EMS Industry Size and Growth Outlook

Chart 4.3: Indian EMS market, value in INR billion, USD billion, growth in %, FY17-FY27E
Indian EMS industry is part of the larger Electronics ecosystem of the country. A systematic approach has been followed
to separate various components of the Indian Electronics market and derive the size and potential for the EMS business
in India. The Indian EMS market comprises various tiers of companies, including global EMS companies with operations
in India and large, midsized, and small Indian EMS companies. The company faces competition from Indian EMS providers
such as Centum, SFO Technologies, Bharat FIH Ltd., Kaynes Technology India Ltd., and Syrma SGS Technology Ltd., as
well as international players such as Flex, Celestica, Pixels, Jabil, and Avalon Technologies Ltd. The EMS market is
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witnessing strong tailwinds. Cyient DLM Ltd. is well positioned to take advantage of these tailwinds on the back of its
solutions-oriented approach, client-focused service, and track record of reliability. Being a wholly owned subsidiary of
Cyient Ltd., its relationship with its promoter allows them to benefit from its reputation, customer relationships, global
salesforce, network, and technical expertise, making it one of the industry’s leading integrated EMS and solutions
providers in India.
Indian EMS market segmentation by ODM vs CM

Chart 4.4: Indian EMS market segmentation by ODM vs CM, value in INR billion, USD billion, growth in %,
FY17-FY27E
In the total EMS market, contract manufacturing (CM) accounts for approximately 80%, while original design
manufacturing (ODM) accounts for the remaining 20%. As reference designs and specifications are provided primarily by
the OEMs to EMS providers, there is not much scope for product differentiation. EMS companies are steadily shifting
towards ODM models, giving full turnkey solutions for items from design, product development to reverse logistics. Also,
due to increased competition, EMS companies are striving to diversify their product offerings. EMS providers have the
expertise to procure and manufacture at faster turnaround times. Moreover, they are able to leverage their global
footprint and easy access to local markets to deliver their customer products ahead of competitors. In the ODM industry,
innovation is critical to success. While cost reduction remains the major driver of EMS outsourcing, other factors such as
improved design skills have contributed to ODM capabilities. Cyient DLM is one of the leading integrated Electronic
Manufacturing Services and solutions providers with strong capabilities across the value chain and the entire life cycle
of a product.
Indian EMS market segmentation by HVLM vs LVHM
Chart 4.5: Indian EMS market Segmentation by HVLM vs LVHM, value in INR billion, USD billion, growth in
%, FY17-FY27E
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Most Indian-originated EMS firms and MSME EMS firms working in the LVHM space cater to the needs of industrial,
medical, and A&D applications. However, the operation scale is limited, and the industry requires additional
accommodations, facilities, etc., which translates to higher overhead. There is stiff competition from firms catering to
the HVLM category due to the fact they are dominated by international EMS firms, which have their operations at a
global level and have much better leverage.
Indian EMS market segmentation by B2B vs B2C

Chart 4.6: Indian EMS market Segmentation by B2B vs B2C, value in INR billion, USD billion, growth in %,
FY17-FY27E
In India, the B2C market was valued at INR 1,289 billion in FY22 and is expected to maintain its dominance, reaching INR
5,309 billion in FY27, while the B2B market is far behind. In FY22, the B2B market was valued at INR 180 billion, and it is
expected to grow to INR 686 billion by FY27.
Indian EMS market segmentation by B2P Vs B2S

Chart 4.7: EMS Market break-up by B2P vs B2S, India, by Value in %, FY22
Build to print is a type of contract manufacturing which refers to the process of building products to client work
instructions. This is generally used to manufacture components or pieces of equipment.
In the build-to-print (B2P) process, a client shares the EMS provider, a detailed product specification/ drawing that has
been created its internal team. The design will also outline the essential materials needed to create the product, and
then the product is created. The EMS manufacturer is then accountable for producing the product according to those
drawings. The Indian EMS market is predominantly following B2P process and accounts for 75% of the total EMS market,
as the design and specifications are shared by the clients/ OEMs, who in turn own the IP.
Build to specification (B2S) refers to the process of building products from scratch, as per the client's need, function, or
size requirements. EMS providers help clients develop solutions for the required needs. After discussing the EMS
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manufacturer will support in designing and creating a product to the given specification. In the B2S process,
manufacturers help clients see a project through from start to end. Only very few players are involved in B2S process
contributing to around 25% of the total EMS market in India.
Cyient DLM’s plans to set up its own design competency and continue to build upon its engineering competency will
enable it to increase its current mix of B2S services and retain its position as one of the leading Indian EMS companies
with the breadth of capabilities operating in the contract manufacturing space for high mix safety-critical electronics.
Size of the Box-build split by cost components

PCBA contributes the largest share of the total box build, estimated at around 40% in FY22. Building PCBA manufacturing
capabilities is going to be key to India’s desire to become the world's premier electronics manufacturing hub. Investing
in PCBA is crucial not only for maintaining the domestic manufacturing momentum, but also for India's efforts to reduce
its dependence and trade deficit on China. Local demand for magnetics, which primarily consist of passive components,
appears to be increasing, primarily due to the adoption of high-end technology devices. Technological advances such as
the deployment of 5G/4G/LTE networks and the Internet of Things (IoT), as well as government policies and incentives,
will propel the growth of the overall electromechanical components market in India.
Chart 4.8: Box-build split by components, by Value in %, FY22
Indian EMS market segmentation by end-user industries

Chart 4.9: Indian EMS market - Segmentation by end-user industries (segment of interest), value in INR
billion, USD billion, growth in %, FY22 and FY27E
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The expansion of India's EMS industry is being fuelled by a variety of factors. Significant reasons driving the growth are
raising labour costs in other parts of the world and a trend among large OEMs to outsource manufacturing rather than
invest in their own infrastructure. Due to the size, complexity, and high level of competition in the Indian market, OEMs
are focusing more on marketing and aftermarket activities, leaving the production to contract manufacturers. EMS
companies are better positioned to adapt to frequent technology changes, and economies of scale allow for stringer
pricing negotiations with raw material suppliers. Cyient DLM's customers belong to a diverse range of high-entry-barrier
industries that have stringent qualification requirements. Frost & Sullivan believes that with changing global trends,
there are opportunities to diversify product range within the industry in which Cyient DLM operates. The company is
well-positioned to service such changes and increases in customer requirements on account of its advanced design and
manufacturing capabilities.
Aerospace and Defence: The Aerospace and Defence sector in India is at a point where modernization and
indigenization programs are being undertaken. The Ministry of Defence has major plans for the modernization of
obsolete equipment through long-term plans, capability plans, capability roadmaps, and capital acquisition plans. The
Government of India had also identified the Aerospace and Defence sector as one of the major focus areas for the ‘Make
in India’ (i.e., ‘Atmanirbhar Bharat’) program and has taken considerable steps to push forth the establishment of
indigenous manufacturing infrastructure supported by requisite research and development ecosystem. Within the
defence sector, defence electronics has emerged as a key market. IESA, along with the National Association of Software
and Services Companies (NASSCOM) have put together draft recommendations on a “Defence Electronics Policy” in
order to enhance the development of the sector.
Automotive: Automotive electronics sales are expected to go up, driven by rising income levels, and an increasing level
of in-vehicle digital experience. Passenger vehicles are expected to capture nearly two-thirds of the Indian automotive
electronics market driven by the rising use of telematics control units, infotainment units, and other electronic
components such as on-board diagnostics, electronic control units, anti-lock braking systems, and ADAS functions. Rising
awareness among people about advanced safety and communication services, coupled with more embedded
connectivity service offerings by automakers, is also one of the drivers for this market. In terms of sales, the Indian
Electric Vehicles market is still in its nascent stage, but there have been a number of developments in recent years.
Various government initiates, stringent emission norms and increasing awareness and adoption of EV vehicles, is driving
the EV market in India.
Medical: The Indian medical electronics sector comprises large, midsized, and small companies, which have multiple
opportunities to meet the demand from domestic as well as global markets. Government policies & regulations play an
important role in creating an enabling environment for any industry. The Government of India has taken several
initiatives to support the medical electronics sector and help realize its potential in the near future. The Indian
government has also planned more medical technology parks to stimulate domestic medical equipment manufacturing.
These initiatives are likely to help increase the inflow of foreign direct investments, promote research & development
and production advances, boosting the market for medical electronic devices.
Industrial: Industrial electronics play a vital role in improving the efficiency and productivity of industries and are
anticipated to grow in industries like energy, transportation, petroleum, chemical, semiconductor, mining, agriculture,
and others. Current emphasis is also placed on a branch of power conditioning dealing with power electronic switches,
sensors, actuators, meters, intelligent electronic devices (IEDs), automation equipment, semiconductors,
nanotechnology, etc., using power semiconductor devices in modernizing industry technology.
Telecom: This segment includes telecom infrastructure and networking equipment. The Indian Telecom Tower industry
has grown significantly in the last six years. The number of mobile towers increased from 400,000 in 2014 to 660,000 in
2021. Similarly, the number of Mobile Base Transceiver Stations has grown rapidly by 187% and increased from 800,000
in 2014 to 2.3 million in 2021. To further expedite digital connectivity, the Government has approved the auction of
IMT/5G spectrum for the deployment of 5G services within the country. There are rapid expansions in mobile network
coverage which has managed to reach even the remotest of areas. There is also an increase in demand which has
eventually led to decreasing in charges incurred for using data much more than in the global scenario.
Electronics outsourcing – comparison between India and other key economies

India has a well-established EMS base; however, it is currently under penetrated compared to the global giants such as
US and China. Although India has a competitive edge in design services along with high maturity levels in packaging,
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distribution, repair, sales, and marketing functions, it still is lacking in terms of limited component ecosystem. Due to
various government initiatives and programs, India will evolve into strategic growth areas for EMS providers due to the
extent of network deployments coupled with its low-cost manufacturing capabilities.
Chart 4.10: Contribution of EMS to Total Electronics Market by key economies, by Value in %, FY22
Indian Defence Electronics Market

Chart 4.11: Defence Electronics Market, India, by value in INR billion, USD billion, FY17-FY27E
The Indian Defence Electronics segment will witness large-scale indigenization efforts over the next decade leading to
improved manufacturing and quality standards. This will further increase the presence of Indian components in global
supply chains which are already being used in Israeli, USA, and European combat aircraft. At present Defence Electronics
make up only 25-35% of the cost of platforms used by the Indian armed forces, which is expected to increase in the
future. However, at present over 60% of the electronic components used are supplied by foreign OEMs. As indigenization
efforts continue, future procurement will see a large portion of defence electronics sourced locally, and as such platform
recapitalization programs across all three forces such as new combat aircraft acquisition, submarine building, and T-72
replacement will be key contributors to future market valuation of this product segment. Some of the key OEMs in the
defence sector include Hindustan Aeronautics Ltd. (HAL), Bharat Electronics Ltd. (BEL), Mahindra Aerospace, ISRO,
Thales, Honeywell, Boeing, Lockheed Martin India, etc.
The Defence Electronics market was cumulatively worth ~ INR 570 billion (USD 8.1 billion) from CY2016-CY2020 and grew
at a CAGR of 4.5% during the period. At present, the market is evaluated to be worth approximately ~ INR 140 billion
(USD 1.9 billion) in 2021 and is expected to grow to ~ INR 390 billion (USD 5.2 billion) in CY2026 with a cumulative market
opportunity for this segment in the order of ~ INR 1,420 billion (USD 19.1 billion) and a CAGR of 22.7% during the period.
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Advantage India: A favourable destination for Electronic Manufacturing
The manufacturing scenario in India has changed a lot in the last few years. Among 190 countries, India ranked 63rd in
‘Ease of Doing Business in 2021, an improvement of 79 positions in the five years between 2014 and 2020. With the
recognition of the electronics sector as one of the key growth drivers for the Indian economy, the sector has received
significant attention from the government in the last 6–7 years through various policies, schemes, and incentives. The
National Policy on Electronics (NPE) emphasized local value addition and created an enabling environment. The
government’s focus on manufacturing through Make-in-India policies attracted the interest of both global and domestic
companies. The following factors will contribute to India becoming the next Electronics manufacturing hub of the world.
• Stable political government that assures global investors on consistency in policies
• Rising cost of labour in China while India is still at a lower end of this cost
• Creation of National Manufacturing Zones (NMZ), Electronics Manufacturing Clusters (EMC), close coordination
between centre and states for investment promotion
• High domestic demand for products and services; local needs
• Investment by EMS companies in capabilities and capacities.
• Duties and tariffs to discourage imports and encourage domestic value addition
• Digitalization that accentuates demand for select products
Increasing contribution of India to the global EMS industry

At a broad level the market share of India in the global EMS industry is expected to increase from 2.2% in 2022 to 7.0%
in 2026; while the share of China is expected to reduce from 46.7% in 2022 to 44.4% in 2026 (refer chart 2.13). One of
the key reasons is attributed to China+1 strategy. As the Chinese electronics contract manufacturing cost structure
continues to be on the rise, along with changing geo-political landscape, so has the OEM customer interest amplified in
moving the electronics production to the other countries having similar price, quality, and receptiveness. OEMs are
considering India, Vietnam, Indonesia, and other South East Asian countries as potential manufacturing locations. India,
as a developing economy that provides infrastructure as well as a platform for cost-cutting, has a distinct advantage.
Key growth drivers for the industry
A strong push towards Make in India: India is witnessing a major drive by the government of India to push for the
domestic manufacturing of Electronics, especially in segments such as Mobile Phones, Televisions, and Medical &
Strategic Electronics. The Government of India’s “Atmanirbhar Bharat Abhiyaan” or Self-Reliant India campaign provides
an increasing range of incentives to attract and localize manufacturing and production in India. These incentives promote
manufacturing and exporting products in various industries.
Influx of new electronic applications going forward: New emerging opportunities like Electric Vehicles, Internet of things
and Electronic Security system (Cameras or Storage) are opening up new electronic market for India and these industries
will also be driven by the Make in India thrust.
Strong regulatory push and GOI initiatives to drive electronics usage in India: New regulations like BS VI for Auto, Digital
India program, Digital payments and Smart Cities program is going to drive more usage of electronics in India and
therefore will lead to a far greater thrust on Make in India than it was seen before.
Changing geopolitical situation post COVID: Post Covid, alignments in the global markets has shown that there is a far
greater resistance to rely on China as their key manufacturing source. There are discussions in numerous forums to
diversify their manufacturing operations to counties other than China. India is seen as one of the possible diversification
areas along with Vietnam and other SE Asian nations.
Investment by Global and Domestic EMS players in India

The higher growth rate in India vis-à-vis the global market is because of multiple factors: consistent local demand for
electronic products, the government’s focus on domestic manufacturing, and programmes like Make in India and Digital
India, which have led to increasing manufacturing investment in the country. The Make in India initiative, tax and duty
support, and government support through policies, most notably, have been instrumental in encouraging new
investment from EMS companies. Dixon Technologies, a provider of electronic manufacturing services, has invested
more than INR 6 billion in new capacity in India to serve the domestic and global markets in the mobile devices, laptops
and tablets, telecom equipment, and LED components segments in the coming year.
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European Telecom and Networking Products dealers Ericsson and Nokia have conveyed their intention to increase
existing manufacturing operations in India to support their worldwide supply chain. Local telecom component
manufacturers VVDN Technologies, HFCL, Dixon, Coral Telecom, and Sterlite Technologies have also expressed interest
in the PLI scheme of the government. India is expected to run a widespread outreach programme with the support of
the "Invest India team" for the Production Linked Incentive scheme. Nokia and Ericsson are also going to target the BSNL
big ticket 4G contract expansions after GOI dropped a few clauses which earlier prohibited them from participating.
As the cost structure of Chinese electronics contract manufacturing keeps going up, especially with the changing
geopolitical situation, OEMs are becoming more interested in moving electronics production to other countries with
similar costs, quality, and openness. Given the tariff issues and the supply chain disruption, there is an urgency to
investigate realistic alternatives to manufacturing in China. However, transferring manufacturing decisions is not an easy
task. The integration of sub-tier vendors for metal fabrication, plastics, and other mechanical components in China
reduces product cost, efficiency, and time-to-market. Due to the above factors, OEMs are considering adding another
country for increased production rather than replacing China entirely, and are looking into production locations like
India, Vietnam, and Indonesia.
Some of the notable expansions announced recently:
• In 2022, Reliance Strategic Business Ventures Ltd (RSBVL), a subsidiary of Reliance Industries Ltd (RIL), has
entered into a joint venture with Sanmina Corporation for INR 16.7 billion, with a 50.1% stake. According to
reports, the JV will focus on telecom infrastructure (5G), medical and healthcare systems, industrial and
cleantech, defence and aerospace, and also plans to establish a manufacturing technology centre of excellence
that will serve as incubation for the product development and hardware start-up ecosystem.
• In 2021, TATA Electronics (TATA Group) stated that it will invest INR 57 billion (USD 790 million) as part of its
phase 1 investment in an industrial complex in Tamil Nadu, India, to construct a phone component
manufacturing facility.
• In 2021, Jabil announced they are going to invest INR 20 billion (USD 275 million) in Pune and plans to venture
into smartphones, home appliances, mobile spare parts, and food packaging.
• Dixon Technologies, a provider of electronic manufacturing services, announced in 2021 that it would invest
approximately INR 6 billion (USD 80 million) to build new capacity in India in the mobile devices, laptops and
tablets, telecom equipment, and LED components.
• Flex, a US-based manufacturer of electronic components, announced in 2020 that it is considering increasing
its investment in India to ~ USD 12 billion to expand its manufacturing capabilities and boost exports from India.
Key restraints for the industry

The inefficient supply chain for the required electronics: India has a limited component supplier base; a majority of
high-value and critical components are imported. Components that are predominantly imported include ICs, PCBs, and
other active components. As supply-chain resilience and localization are becoming more significant, India has to take the
necessary steps to improve the domestic value chain capability for long-term benefits. The introduction of the PLI
scheme to promote component sourcing; FDI policies relaxing companies' ability to set up bases in India; and the
establishment of dedicated freight corridors that help in the advancement of transportation technology and increase in
productivity are some of these steps.
Lack of manufacturing ecosystem: In India, there is lack of a stable component ecosystem. Moreover, FTAs with ASEAN
countries make imports less expensive than domestic production, thereby intensifying the situation. Tax disputes, a
scarcity of skilled engineers, and a sparse network of local component manufacturers are all significant factors impeding
the growth of India's mobile component manufacturing industry.
Skilled labour shortage: There is substantial competition for R&D personnel, qualified technical experts, sales and
marketing professionals and post-sales services providers.
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CHAPTER 5 - GLOBAL AND INDIA EMS - DEEP DIVE INTO FOCUS INDUSTRIES AND
PRODUCTS
Chart 5.1 Summation of opportunities from select segments for Cyient DLM’s EMS business in India
Global EMS market size India EMS* market size

Industry Market dynamics (USD billion) (INR billion)
2021 2026 CAGR FY22 FY27E CAGR
A&D ▪ A&D is one of the most complex and specialised industries in 34 45 6.0% 37 186 38.0%
EMS
▪ India ranked 19th among the world’s defence exporters in
attracting the foreign investments
▪ Relaxation in FDI investment in the A&D sector aids in
collaborating with global players to have a competition edge
in the market
Medical ▪ Increased demand for healthcare and medical devices from 27 37 6.0% 23 125 40.9%
rise in medical tourism. Need for high-speed analysis is also
driving growth of the medical equipment’s market
▪ It is backed by government’s commitment to facilitate growth
▪ Development of ‘medical device parks’ across States create a
robust ecosystem for manufacturing in India
Industrial ▪ India is gradually progressing towards Industry 4.0 through 80 110 6.5% 58 155 21.7%
government initiatives
▪ The rapid adoption of modern technology, backed by cost-
saving features, is driving growth in this market
Telecom ▪ India is one of the largest exporters of telecom equipment 95 126 5.7% 57 145 20.5%
and this trend expected to increase
▪ Increased outsourcing to companies with design, logistics and
after sales support
▪ Data centre storage solutions, BTS, GPON, IP PBX, Network
infra (4G and 5G) related solutions are the key offerings of
the EMS companies
Automotive ▪ Themes such as Connected, Autonomous, Shared and Electric 63 85 6.3% 66 240 29.5%
are driving digitalization and requirement for EMS in this
space
▪ Significantly higher usage of electronics and controls in EV
▪ ADAS, EV and Safety are fast-emerging segments
* Size of the Indian EMS market is defined as the total value of production of electronics components and assemblies in
India, outsourced by the OEMs to the India based global or local EMS companies. These components and assemblies
would then be consumed locally for manufacturing finished products (both for domestic consumption and for exports)
or will be exported as components/assemblies to the global OEMs.
Indian EMS market for the target segments are poised to grow at a much faster pace than the global EMS market because
of the following reasons:
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1. A favourable manufacturing ecosystem (already elaborated in the previous chapters) will help India to garner
higher share in the global electronics production in each of the target segments. India will be considered as one
of the global electronics manufacturing hubs in the coming years.
2. Outsourcing of electronics manufacturing to the EMS companies is expected to increase significantly in the
coming years as OEMs will continue to increase their focus on the core activities.
3. Indian EMS companies will export EMS services to the global OEMs for their global production facilities
Chart 5.2: Global EMS market - Segmentation by end-user industries, value in USD billion, 2021-2026
Chart 5.3: Indian EMS market - Segmentation by end-user industries, value in INR billion, FY2017-FY2027E
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A. Aerospace and Defence Electronics
Aerospace & Defence Industry Overview
The A&D industry typically encompasses civil aviation, defence aviation and defence equipment. 2021 was a partial
recovery year for the global A&D industry, following the most challenging year ever resulting from the collapse of
commercial aviation amidst the COVID-19 pandemic. The industry experienced more than a decade of robust growth,
but the pandemic had been more tenacious than originally expected. Despite many headwinds, domestic travel partially
recovered in 2021, allowing the commercial aviation sector to report significant improvement over 2020. Additionally,
M&A deals (in value) in the sector set a record, surpassing USD 100 billion for the first time and more than doubling over
2020, with SPAC transactions contributing to much of this activity. The global A&D industry, which is sized at USD 720 Bn
in 2021, is expected to grow at 5.9% CAGR to become USD 960 Bn market by 2026 (source: BRC). Leading commercial
aerospace companies such as Boeing, Raytheon, Collins, and SpaceX, as well as emerging drone start-ups, will also
provide growth in the mid-to-long term.
Meanwhile, the defence sector was steady, reporting modest growth in the US and significant growth in Europe, with
global military expenditures hitting an all-time high of USD 2.1 trillion in 2021. Unlike commercial aviation, the defence
end markets were unaffected by the pandemic. In February 2022, Russia’s invasion of Ukraine resounded throughout
the global defence sector. The full implications of this event are still unfolding but are already influencing future defence
budgets globally in terms of funding and priorities.
India’s defence capital expenditure is constantly growing, which is evident from the annual defence budget, which has
increased to INR 5.25 lakh crore for FY23 from INR 4.78 lakh crore for FY22. Besides, there is increased demand for large
aircraft from Indian carriers like Indigo, SpiceJet, Tata etc. There are major initiatives from the government of India
promoting a steady flow of foreign investment in this sector. This offers opportunities for start-ups as well as further
expansion for the existing players. Certain companies that have played a big role in moving this industry forward be it
defence or civil sector include Hindustan Aeronautics Ltd. (HAL), Bharat Electronics Ltd. (BEL), Mahindra Aerospace, ISRO,
Thales, Honeywell, Boeing, Lockheed Martin India, etc. BEL, Thales, and Honeywell are the long-term customers of Cyient
DLM.
Aerospace and Defence Electronics Production Market landscape
A&D OEMs are aware of the upward trend and are expanding their product offerings through in-house development or
strategic partnerships. Across the globe, these OEMs are adopting various digital technologies such as advanced
electronics for surveillance, communications, and cyber warfare that are supported by AI technology. Aerospace
guidance production will continue to grow, especially in imaging, signal processing, and smart weapons as military
budgets rise. The size of the global A&D Electronics market is USD 100 Bn in 2021 and is expected to grow at 5.9% CAGR
to reach USD 133 Bn by 2026.
In India, the aerospace and defence (A&D) industry is growing at a brisk pace. India’s Defence production in FY 2021-22
stood at INR 92,708 crore (USD 11.85 billion). The Indian government has set the defence production target at USD 25
billion by 2025 (including USD 5 billion from exports by 2025). The government is taking numerous initiatives to
encourage local manufacturing and reduce its external dependence on defence procurement. Advancements in
sophisticated equipment such as avionic systems, radar systems, flight management system (FMS), cockpit control units,
etc. will further drive the A&D Electronics market in India. The size of the Indian A&D Electronics market is INR 83 Bn in
FY’22 (approximately 1.1% of the global market) and is expected to grow by 32.5% CAGR to reach INR 339 billion by
FY’27, this will contribute to 3.4% share of the global A&D electronics production.
Aerospace & Defence Electronics EMS Market Landscape
Aerospace and defence are one of the most complex and specialised industries in electronics manufacturing. These
applications are safety-critical with a negligible margin for error and thus require superior technical expertise and
engineering capabilities from EMS players. Increased research and development expenditure, quick approval on
clearances, better public-private partnerships (PPP) models, and higher customer acceptance rates are furthering the
EMS market to achieve its full potential. Most of the orders are in the LVHM category because of the critical nature of
the products which requires a high degree of technical expertise. Also, the industry has very high barriers to entry and
requires high standards of quality with multiple certifications. North American top‐tier EMS firms Flex, and Jabil are the
primary suppliers to this sector, followed by second‐tier suppliers like Plexus, Celestica, Benchmark, and Sanmina.
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European suppliers like éolane, Citron, TT Electronics, and Zollner are also very active in this sector but did not make the
top ten list. The global EMS market for the A&D Electronics segment is valued at USD 34 Bn in 2021 and is expected to
grow at 6% CAGR to reach USD 45 Bn by 2026. The A&D Electronics segment accounts for 3.8% share of the Global EMS
market.
Indian EMS market for the A&D Electronics segment is valued at INR 37 Bn in FY’22 and is expected to grow at 38% CAGR
to reach INR 186 Bn by FY’27. The A&D Electronics segment accounts for 2.5% share of the Indian EMS market. The
reasons for such high growth of the Indian A&D Electronics EMS market are the following:
• India’s share in global A&D electronics production is likely to increase from 1.1% in FY’22 to 3.4% by FY’27
• India’s share in the global A&D electronics EMS is expected to increase from 1.5% in FY’22 to 5.6% by FY’27.
• Share of outsourced services for A&D electronics production in India is expected to increase from 45% in FY’22
to 55% by FY’27
Some of the prominent EMS players operating in the Indian A&D segment include Jabil Circuit, Cyient DLM, Data Patterns,
SCI Technology, SFO Technologies, Centum Electronics, Kaynes Technology, Hical Technologies, Smile Electronics, etc.
Cyient DLM is one of the few EMS companies in India catering to highly regulated industries and the largest supplier of
EMS services to the aerospace and defence industry by value in India. The company primarily focuses on segments such
as defence and commercial aviation, and defence equipment. Their key focus is on products such as cockpit display units,
flight management systems, surveillance radar systems, communication/navigation systems
Snapshot on Cyient DLM’s key offerings in the A&D segment
o Cockpit Display units: Aircraft cockpit display units are used in flight instrument systems and typically used to
show flight data. Advances in technology has certainly seen a spike in demand for cockpit display units as it
helps in enhancing the human-machine interface. This segment is anticipated to expand at a rapid pace due to
an increase in use of connectivity solutions for commercial aircraft. Various factors such as growing need and
emphasis on safety and increasing focus on automated flight control will continue to drive this market in the
coming years.
o Flight Management Systems: A flight management system, or FMS, is an air craft computer that has multiple
functions right from pre-engine offset to take off landing to engine shut down. An FMS is made up of four basic
components such as a flight management computer (FMC), an electronic flight instrument system (EFIS), an
Automatic Flight Control, and an Aircraft Navigation System. The rapid expansion of the aviation sector in India
along with other benefits such as enhanced navigation, lower power consumption and reduced weight are also
driving the growth in this market.
o Surveillance Radar Systems: The surveillance radar systems are designed typically to provide details on the
location of aircraft over long or short ranges. India’s growing effort towards tactical superiority is one of the key
drivers for demand for next-generation combat aircraft which will drive this market forward. Another key
reason that is propelling the growth of the Radar System Market can be attributed to an increase in the use of
radars for unmanned vehicles.
o Communication/ Navigation systems: In today’s day and age where there are multiple aircraft aloft at the same
time, communication and navigation systems are key to safe and successful flights. An increasing number of
flight retrofitting and new flight deliveries are driving the market for communication and navigation systems.
This is also responsible for the procurement of aircraft antenna, etc.
Outlook of A&D EMS business in India
• The global A&D EMS market is expected to grow to approximately USD 39 billion at a CAGR of 3.2% by CY2026.
Indian A&D EMS market in the aerospace and defence sector is expected to grow to approximately INR 186
billion at a CAGR of 38.0% by FY2027.
• Economic recovery for the aerospace and defence industry gained momentum in the year 2022 on the heels of
rising demand for the air travel. As passenger traffic slowly returns to the pre-pandemic levels, increases in new
aircraft and military orders signal continued growth in the forthcoming year. But optimism is held in check by
ongoing risks, from inflation to talent shortages to supply chain disruptions.
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• Emerging markets such as space, supersonics/hypersonic, and Advanced Air Mobility are poised to change the
industry landscape and capabilities in the coming years. 2023 will likely be an important year for these emerging
markets in terms of investments, technology evolution, and regulation. According to industry outlook,
organizations are most likely to invest in space-related technologies and AAM in 2023.
• Multichip modules will have a big impact on the aviation/defence and aerospace industries over the next five
years. Applications are like those expected in the automotive industry, but have additional value in
maintenance, safety, manufacturing, fuel management, electromagnetic radiation shielding, antennas, radar,
and metamaterials. For example, there are market applications that involve mechanical/nonelectronic solutions
such as structural and tensile frames, filtration and water purification, intelligent materials, and wearable
clothing technologies.
• Players in the A&D space have focused their attention on leveraging industry 4.0 technologies. The aerospace
industry is expected to grow at a rapid rate owing to the rising demand for aircrafts and components alike.
• A&D companies are increasingly expected to be more agile with production capabilities to handle future
disruptions. The digital thread is something that connects engineering, supply chain, manufacturing, and
aftermarket, and is expected to play an even more prominent role in building agility in 2023. Technologies such
as cloud, big data, IoT may help companies in taking care of day-to-day operational challenges
• Initiatives are likely to be taken by the Indian government to give an impetus to the domestic manufacturing
such as ‘Aero India’, promoting R&D under the ‘Atmanirbhar Mission’, ‘Make in India’ initiatives
• There are aggressive efforts to modernize infrastructure in the aerospace and defence sector, which is
estimated to consume approx. USD 70 billion in the coming decade.
• According to the Ministry of Defence, 57 offset contracts have been signed till March 2022, with a total offset
obligation of USD 13.5 billion to be discharged between 2008 and 2033.
• As India is speedily modernises its military segment, the A&D industry is anticipated to consume electronics
worth INR 70-72 billion over the coming decade.
• As we move ahead, technology trends such as aerial ride sharing, and autonomous vehicles is expected to help
realize benefits that were never heard of before.
• AI will play a very significant role in product design, which will help significantly streamline manufacturing
systems in a considerably short time frame.
Growth drivers and key trends in the sub-segments of focus:
i) Commercial Aerospace
The commercial aviation industry experienced excellent growth over the last few years, but in 2020, due to the pandemic,
there was a freezing of personal and business travel, plunging airlines into near bankruptcy. Revenue stayed flat for 2021.
For the future, the market for travel, entertainment, and connectivity services will keep this industry strong for EMS over
the next few years. This is because there is great demand for fast travel and all forms of connection to the Internet, and
entertainment that are charged as a premium. Digitalization is a ubiquitous strategy essential to sustain business and
growth in a post-pandemic economy. Similarly, one can expect to see increased development of safety hardware in the
flight navigation, surveillance, and security systems that are so critical to the success and maintenance of this industry.
In India, the Commercial aviation industry is seeing a surge on the back of rise in middle income households over the last
decade, increasing number of low-cost carriers, modernization of leading airports in the country. This is certainly
expected to boost the commercial aviation sector in the future. The cargo sector in particular, during the pandemic has
come to the fore as one of the most promising areas for the Indian commercial aviation sector. India saw rapid evolution
in the air cargo industry during pandemic growing from just 7 to 28 cargo freighters in the past three years. Owing to
these efforts, India is the 7th largest commercial aviation in the world and is expected to jump to 3rd position in the
coming decade.
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Growth Drivers
• Almost all global airlines are focus on investing in digital transformation. Airlines have identified the importance
of adopting digital solutions to improve their operations and increase their revenue. Digitalization will be a key
differentiator in airlines revenue, as they return to post-pandemic normal.
• Next-generation aircraft are built to integrate easily in an aviation industry powered by digital solutions.
Advanced propulsion systems and sensors with capable supporting solutions (fuel reduction, efficient
maintenance management) will generate further demand.
• In terms of region, regional connectivity and international popularity give North America a strong demand and
supply equation for new aircraft. North American airlines are more financially stable than those of other regions,
so they can satisfy demand for new aircraft.
• The IATA’s carbon emission reduction timelines are already prompting airlines to opt for new-generation
aircraft to replace older aircraft in their fleets. New-generation aircraft (such as A220, A321neo, and B787-9)
are significantly more fuel efficient. Increasing jet fuel prices are also encouraging airlines toward new, fuel-
efficient aircraft and sustainable aviation fuels to effectively manage costs and environmental commitments.
• The total closure of aviation services during COVID-19-induced lockdowns created strong pent-up demand for
air travel. As per IATA predictions, passenger numbers will reach almost 83% of 2019 passenger numbers by the
end of 2022. The trend of early retirements and conversions of passenger aircraft to freighters for revenue
maximization during the peak lockdown period led to a dearth of aircraft available for active service. Because
passenger travel demand is directly proportional to aircraft demand, the quick recovery in air travel has led to
an increase in aircraft demand.
• While the entire European region is reeling from the negative impact of the Russo-Ukrainian War, air travel will
progressively recover. Airspace closures around Ukraine will affect some flights to and from APAC, but the high
demand for transatlantic flights will drive the region's recovery.
• A very strong increase in air passenger traffic especially after the pandemic and it continue recover to go past
the pre pandemic levels will definitely drive this market forward
• The fundamental driver for the growth of the commercial aviation segment is from the rising middle class,
emphasis of tourism and a higher disposable income.
• Favourable policies are being developed by the government which will give a boost to the aviation sector.
Schemes like the UDAN-RCS have been launched by the government to increase air connectivity, affordability,
and profitability.
• In 2022, a budget of INR 90,000 crore has been set aside by Airports Authority of India (AAI) and other operators,
to expand or modernise the existing infrastructure of the airports.
• In 2020, the Indian government has committed an investment of INR 1 trillion, to open 100 new airports in the
next 5 years, to meet the increasing air passenger traffic.
Key Trends
• The aviation industry is increasingly focused on climate change, encouraging aircraft operators to intensify
emission reduction efforts.
• IATA implemented the Fly Net Zero 2050 commitment with the help of partner airlines to achieve net-zero
emissions by 2050.
• The decreased risk of COVID-19 is inspiring air travel demand, and aircraft demand will follow similar trends.
• There are indications of the commercial and defence aviation industry being one of the fastest growing
industries in the country today. In 2021, the commercial aviation industry contributed nearly USD 30 billion to
the GDP of India. This is indicating towards India becoming the third largest aviation market by 2024.
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• To address some of the top challenges by the industry, the aerospace companies are using technologies such
as cloud, mobility, and big data. These technologies allow companies across the value chain to connect with
each other which aid in giving decision makers the right information.
• Replacement of existing aircraft with sustainable ones is seen as a trend that is catching up fast which is
expected to generate demand for passenger aircrafts in the near future.
• Rapid adoption is seen in the Narrow body aircraft as it helps reduce the airlines operating costs.
ii) Defence Aerospace
The defence aerospace sector is expected to be a pillar for India’s future economic growth. Indian defence spending due
to efforts for modernization and increased threat perception is increasing the potential for the Indian defence
manufacturing sector. This sector is emerging as one of the fastest growing industries in the country in the last few years.
India is slowly emerging as a critical market for defence aircrafts as India continues to improve its aerial capabilities and
modernizing its existing fleet of aircrafts. In its efforts to protect its borders, India is also taking giant strides towards
indigenously developing military aircraft.
HAL which is one of the most prominent companies in India produces BAE Hawk Trainers and Sukhoi as well as indigenous
aircrafts such as Tejas LCA, Dhruv and Cheetah. Along with this, HAL is also working towards developing fifth-generation
Advanced Medium Combat Aircraft under the Make in India initiative.
Growth Drivers
• In 2020, Leidos, a fortune 500 company, completed purchase of Dynetics, a leading provider of high-technology,
mission-critical services, and solutions to the U.S. Government, for USD1.65 billion and make it a wholly owned
subsidiary within the defence technology area.
• India’s vision to be self-reliant in defence sector is witnessing a substantial growth of over 10% year on year.
Substantial changes introduced in the defence policy framework is aiding towards indigenizing content to levels
of at least 50%. These endeavours will aid India in securing its make in India ambition.
• Transfer of technology and encouraging private sector to participate in defence aerospace to be aligned with
industry needs. India is also working towards building an ecosystem for research, design, and development in
academia. An approximate 25% of the total budget is allocated for this.
• Relaxation in foreign direct investment (FDI) is continuing to see further relaxations to nearly 75% under the
automatic route which permits companies to set up manufacturing plants.
Key Trends
• Canadian-US defence cooperation includes official government-to-government agreements, interdepartmental
memoranda, defence industry agreements, and service-to-service understandings. The two countries have a
bilateral agreement to maintain North American Aerospace Defence Command (NORAD), which provides
aerospace early warning and air sovereignty defence for North America.
• The Indian defence aerospace industry is expected to witness a healthy rise in demand for defence aircrafts and
components. Rising trend in Indians defence spends in FY22 witnessing a near 10% higher spend than FY2021.
• Tata Advanced Systems Ltd and Airbus Defence and Space signed a deal worth INR 20,000 crore to make military
aircraft in India and opened a facility in Gujarat in 2022, which will be utilised for manufacturing 40 C-295
aircrafts for the Indian Air Force. It will enable to build a robust aerospace ecosystem in the subcontinent by
encouraging MSMEs to produce aircraft components and spares.
• In 2021, Defence Ministry, has approved the launch of Defence Testing Infrastructure Scheme (DTIS) with an
outlay of INR 400 crore to create state-of-the-art testing infrastructure and boost domestic A&D manufacturing.
• In 2021, Hindustan Aeronautics Ltd. (HAL) received a request for proposal (RFP) from the Indian Air Force for
their 70 HTT-40 Basic Trainer Aircraft requirement at Aero India 2021 in Bengaluru.
• The Defence Ministry at ‘Aero India 2021’ announced to reduce defence imports by USD 2 billion in 2022.
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• India is reportedly planning to develop an air-launched swarm drone system to equip itself against forces like
China, giving the Indian fighter jets an edge during potential conflicts in the future. State-owned A&D
manufacturing company, HAL is partnering with two start-ups to work on the project.
iii) Defence Equipments
The defence sector has been a strong contributor to the EMS industry over the years, yet growth has been very slow for
the last several years as the US military attempts to reduce its costs and capital expenditures on equipment. Most
product assemblies in this sector are low in volume and not commodity‐like or price sensitive, so OEMs may have little
motivation or requirement to outsource production assembly. In contrast, project managers of established programs
like C3 (command, control, and communications) constantly look for ways to save money on COTS (commercial off‐the‐
shelf) commodities, and EMS suppliers (including verticals such as Ducommun, NEO Tech, Sypris, or DRS Laurel
Technologies) are the preferred companies to service these design and production needs. The United States dominates
the world in military spending, and thus overall demand for EMS services in this segment in the Americas will be good
for both domestic EMS companies and vertical ODMs. However, because it is a niche industry, suppliers tend to specialize
in military certifications to meet specifications. Once well established with an OEM customer, EMS subcontractors usually
do well, but it often takes years of acquiring knowledge and certifications and perfecting the necessary organizational
systems to succeed in this business.
The defence equipment industry is an important sector for the economy. Defence production in FY 22 stood at INR
92,708 (USD 11 billion) crore (Source: IBEF). Countries like India are increasing their defence spends owing to rising
concerns arising over national security. In the last couple of years, India was one of the top importers of defence
equipment’s in the battle to gain technological supremacy over neighbouring countries such as China and Pakistan.
Military fixed wing, naval vessels and surface combatants, and missiles and missile defence systems are the largest
market segments for the Indian defence sector. Military rotorcraft, submarines, artillery, tactical communications,
electronic warfare, and military land vehicles are some of the other key segments. Major defence manufacturing
companies in India include Bharat Earth Movers Ltd. (BEML), Bharat Electronics Ltd. (BEL), and Hindustan Aeronautics
Ltd. (HAL). The Government of India is taking various initiatives to reduce important dependence for procurement of
defence equipment’s. The Indian government is working towards achieving production targets of USD 25 billion by FY25.
Growth Drivers
• Major drivers within the defence industry are the arms race between the United States, Russia, and China, as
well as the looming threats that China and Russia are perceived to pose. The tripartite arms race is
predominantly central to the development of hypersonic technology, with both Russia and China claiming to
have functioning weapons in production. The threat from Russia will continue to be the major driver of the
defence spending of NATO, especially amongst the Eastern European nations
• China has embarked on a massive trade and infrastructure project with an estimated total spending of
approximately USD 1 trillion by 2027. The “belt and road” initiative has been the driver behind China’s foreign
policy in recent years since its proposal in 2013. Under the plan, rail, pipelines, and maritime installations are
amongst several infrastructure investments in Bangladesh, Malaysia, Sri Lanka, Pakistan, and Kenya, to name a
few
• The ongoing border disputes with China and Pakistan will certainly add to the demand for defence equipment
in India. Enhanced security measures are taken by the government on strengthening border infrastructure.
• Along the same lines, India introduced 63 bridges, established by Border Roads Organisation (BRO), in six states
and two union territories in 2021.
• To encourage the local manufacturing of defence equipment’s, the Indian defence industry has kept aside a
capital spend budget of USD 130 billion between 2021 and 2026. Also, the government has established defence
corridors in Uttar Pradesh and Tamil Nadu to encourage indigenous production of A&D related equipments.
• India is also on its way to establishing a skill development centre with focus on promoting research for
development of materials used in defence equipment’s.
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Key Trends
• U.S.A. defence spending will remain the largest globally, thus making the country the most attractive market.
Canada’s ability to increase its defence spending further is unlikely to be sustainable.
• U.S.A. DoD official documents show an increase from USD 718.3 billion in 2020 to approximately USD 747 billion
in 2024 at a CAGR of 1.0%.
• Japan will steadily improve its defence capabilities through the Medium-Term Defence Programme (FY2019 –
FY2023).
• The Ministry of Finance in Germany forecasts a decrease in defence spending to USD 48.8 million in 2023,
putting equipment programmes at risk
• A USD 2 billion increase in the 2019 defence budget is part of a structured growth plan to meet the 2% GDP
target on defence spending by 2025 in Germany.
• Italy has committed to reach the 2% of GDP target by 2024 though the downward trend in its budget indicate
that this may not be achieved.
• Turkey’s defence budget exhibits a high growth rate and is on track to reach the NATO mandated spending by
2024
• In 2020, the Union Ministry of Defence formulated the Defence Production & Export Promotion Policy 2020 as
an essential guidance document to fast-track the government’s commitment for the 'Atmanirbhar Bharat' and
provide a streamlined, and significant boost to country's defence production capabilities for self-reliance and
exports.
• There is a growing emphasis on supply chain management in defence. i.e., companies like HAL have introduced
a public procurement policy for MSMEs. This has helped in achieving almost 25% procurement from MSME.
• IESA, along with the NASSCOM have put together draft recommendations on a “Defence Electronics Policy” and
hope the GOI may implement in a well-timed manner to enhance the development of the sector. The policy
references indicate that India not only needs to form world-class companies, but it is vital to bring them in the
global value chain of the OEMs.
• In 2022, Defence Acquisition Council (DAC) boosted the ‘Make in India’ initiative accorded Acceptance of
Necessity (AON) for capital acquisition proposals worth INR 8,357 crore for the purpose of modernisation and
operational needs of the armed forces.
• Defence ministry plans to set aside 101 defence items under the import embargo to offer the potential military
hardware manufacturing opportunities to the Indian defence sector.
• There is an increasing trend in promoting private companies, MSMEs and start-ups in the defence industry
allocating a budget of nearly INR 21,000 crores in FY 23.
• According to recent data, there are close to 70 AI based projects planned until FY 2024 out of which 40 projects
have already come to fruition.
B. Medical Electronics
Medical Equipment Industry Overview
As the healthcare sector adapts to the changes induced by the pandemic, it is undergoing a major transformation in
terms of technology adoption, new product development, and care delivery approach. The global Medtech OEMs are
investing heavily in R&D and launching new devices to cater to post-pandemic-related demands. Major demand
generators include MRI, X-Ray, Ultrasounds, etc. and patient aids include hearing aids and pacemakers, etc. The global
Medical Equipment industry, which is sized at USD 420 Bn in 2021, is expected to grow at 5.2% CAGR to become USD
540 Bn market by 2026 (source: Statista)
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In line with the global trend, The Indian Healthcare sector is also incessantly growing due to its strengthening coverage,
services, and growing expenditure by public and private players. The medical tourism and luxury healthcare markets are
among India's fastest-growing industries, which create significant demand for specialized, high-tech medical equipment.
The Indian medical equipment market is sized at USD 5.2 Bn in FY’22 and is expected to grow at 7.3% CAGR to become
USD 7.4 Bn market by FY’27 (source: Statista). India has an overall 75-80% import dependency on medical devices. The
export of medical devices from India stood at USD 2.53 billion in FY21. The US, Germany, China, Brazil, Iran, etc. are a
few crucial countries that import Indian medical devices.
Medical Electronics Production Market landscape
The digitalization of medical devices will continue, and OEMs are digitalizing their devices and operations to deliver value
for Medtech service providers and patients. This is leading to the development of new business models such as platform
approaches. The adoption of minimally invasive surgery techniques, the rising adoption of surgical robots, and the
gradual shift of some procedures to outpatient settings will continue to drive the uptake of some medical device
categories, including consumables. The size of the global Medical Electronics market is USD 100 Bn in 2021 and is
expected to grow at 5.7% CAGR to reach USD 132 Bn by 2026.
There are vast opportunities for investment in healthcare infrastructure in both urban and rural India. The current
demand and supply side dynamics provide a significant opportunity and rationale for manufacturing medical devices in
the country. Increased demand for healthcare and medical products due to rising medical tourism will also act as a
catalyst for domestic production. The government has come up with multiple initiatives to promote India’s medical
equipment manufacturing sector. It was recognized as a focus sector in 2014 by the government during the Make in
India campaign. The size of the Indian Medical Electronics market is INR 140 Bn in FY’22 (approximately 1.9% of the
global market) and is expected to grow by 22.6% CAGR to reach INR 388 billion by FY’27, this will contribute to 3.9%
share of the global medical electronics production.
Nearly 65% of the manufacturers in India are domestic companies operating in the consumables segment and catering
to local demand with limited exports. Large MNCs dominate the higher end of the market with widespread service
networks. Domestic OEMs operate in the low-cost, high-volume market segments, whereas the global players operate
in the high-tech device segment, which is mostly catered through imports. Some of the notable OEMs in this industry
include global companies such as GE Healthcare, Johnson & Johnson, Siemens, Philips, etc., and domestic companies
such as Molbio diagnostics, Opto Circuits, Allied Medical, Trivitron Healthcare, etc.
Medical Electronics EMS Market Landscape
The global EMS market for the Medical Electronics segment is valued at USD 27 Bn in 2021 and is expected to grow at
6% CAGR to reach USD 37 Bn by 2026. The Medical Electronics segment accounts for 3.1% share of the Global EMS
market.
At present, EMS companies are pursuing the hugely under-penetrated medical electronics market in India for substantial
growth opportunities. A well-developed electronics component manufacturing ecosystem is a prerequisite for domestic
medical electronics manufacturing. Reliability and faster product realization is the key to success in the medical
electronics business. Most of the innovative start-ups are looking at EMS companies that are adequately certified with
advanced infrastructure, to support them in the difficult stage of product realization and mass manufacturing.
Indian EMS market for the Medical Electronics segment is valued at INR 23 Bn in FY’22 and is expected to grow at 40.9%
CAGR to reach INR 125 Bn by FY’27. The Medical Electronics segment accounts for 1.5% share of the Indian EMS market.
The reasons for such high growth of the Indian Medical Electronics EMS market are the following:
• India’s share in global medical electronics production is likely to increase from 1.9% in FY’22 to 3.9% by FY’27
• India’s share in the global medical electronics EMS is expected to increase from 1.1% in FY’22 to 4.6% by FY’27.
• Share of outsourced services for medical electronics production in India is expected to increase from 16% in
FY’22 to 32% by FY’27
The EMS providers are very much aligned to meet the expectations of the medical device manufacturers. Some of the
key EMS players addressing the medical electronics market in India include Cyient DLM, Jabil, Dixon, Kaynes, SFO
Technologies, Sanmina-SCI, Flex, Avalon, and Smile electronics. Existing EMS companies who are having design
capabilities, are globally certified for manufacturing Medical Devices, and are having advanced infrastructure will benefit
immensely in the years to come.
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Snapshot on Cyient DLM’s key offerings in the Medical Electronics segment
o Patient care monitoring equipment: Patient monitoring involves the use of equipment to continually monitor
a patient's vital indicators using a medical monitor and collect medical and other types of health data. It includes
respiratory monitoring, hemodynamic monitoring, neuromonitoring, cardio monitoring, multi-parameter
monitoring, etc. These equipments have significantly impacted the market by demonstrating the efficacy of
therapeutic approaches through the monitoring of a patient's vital parameters. Considering its importance,
companies are increasing their production of such monitoring equipment on a large scale. Rising occurrences
of chronic diseases because of changes in lifestyle, a growing inclination for home and remote monitoring, and
the convenience and portability of devices are the primary reasons driving the market.
o Diagnostic equipment: Equipment for diagnostic imaging include X-rays, MRI scans, CT scans, ultrasonography,
and nuclear imaging, among others. This market is driven by the rising demand for early and accurate disease
diagnosis, the expansion of imaging modalities' application profiles coupled with the rising prevalence of
infectious diseases, ongoing technological advancements in diagnostic imaging, and the continued integration
of imaging modalities with artificial intelligence and other digital tools. X-ray imaging systems dominate the
market due to its widespread application and adoption within the healthcare industry.
Outlook of Medical Electronics EMS production in India
• An influx of private equity capital—even in the regulated and reimbursed markets—is helping the provider
space scale quickly; it is also defining some acquisitions. As health systems consolidate and the number of rural
and middle-class hospitals declines, the concierge model of primary care, virtual/at-home care, and ambulatory
surgery centres is gaining traction.
• The regulatory situation, especially in Europe, will be challenged by a lack of medical device regulations (MDRs)
and a shortage of notified bodies. The US regulatory situation is also uncertain, especially in terms of emergency
use authorization (EUA) and user fee amendments (UFAs).
• While digital is becoming the norm for medical device company operations (such as sales and marketing), it is
also pushing medtech to deliver value for providers and patients with devices and digital data. New business
models are emerging (platform approaches, for example), but this trend is exposing medtech companies to
potential scrutiny in terms of cybersecurity.
• The Government of India’s ‘Make in India’ initiative presents a platform for the sector to revisit the operating
model, identify key imperatives for growth and explore possibilities for creating a step change in the medical
devices sector. The department of pharmaceuticals launched the PLI scheme for domestic production of
medical devices, with a total expenditure worth INR 34.2 billion for the period FY21-FY28, to increase domestic
manufacturing of medical devices and attract significant investments in India.
• In 2021, the government approved a medical devices park in Oragadam (Tamil Nadu) which is expected to
attract an estimated investment of INR 3,500 Crore and offer direct and indirect employment to nearly 10,000
people.
• In 2020, the government set up a National Medical Devices Promotion Council to promote the local
manufacturing of high-end medical devices and attract the investments in the sector, which is expected to
create more investments in next 5 years.
• In 2020, AiMeD (Association of Indian Manufacturers of Medical Devices) invited Japanese investors who were
interested in setting-up a manufacturing base for the medical devices in India. As a part of the initiative, India
is targeting 1200 technical collaborations with the Indian investors for USD 5,746 million and above, 200 JVs
with the foreign investors for USD 1,903 million and above and 50 MNCs for USD 1,904 million and above.
• Hyderabad is emerging as the medical device’s hub in the country. Establishment of the country's largest
medical devices park in Sultanpur in 2017 has attracted more than 40 companies to set up units till 2020.
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i) Laboratory Equipment
Laboratory equipment incorporates important aspects in healthcare, medical and pharmaceutical research study. These
equipment’s are getting smaller and smaller as new technologies are abolishing these equipments like series of pumps
and valves which are required to store samples. New technologies include recent advancements in fluidic components
which can integrate multiple laboratory functions into a single chip requiring smaller amounts of samples. According to
World Health Organization, noncommunicable disease leads to cause of ~40 million deaths every year, which is equal to
70% of all deaths globally. Cardiovascular diseases account for most of noncommunicable disease mortality (~17.7
million) each year, followed by cancer (~8.8 million), respiratory disease (~3.9 million) and diabetes (~1.6 million).
Laboratory equipment, include mustimeter, oscilloscope, optics, analysers, precision tools, etc. A high demand for
customised instrumentation from various applications has opened a huge potential for growth in the laboratory
equipment’s market in India. Regulations mandating quality assurance activities especially in the healthcare sector has
further accelerated the market growth. Lab equipment manufacturers face a challenging scenario due to tight regulatory
guidelines implemented currently and the lack of provision of adequate infrastructure. All laboratory equipment
manufacturers and suppliers in India need to prudently employ all resources and materials to promote sustainable
energy efficiency overall to save energy expenditure and enhance safety measures. Future growth projections in the
laboratory equipment market are essentially dependent on expenditure on research and development. It is heartening
to note that India’s laboratory equipment manufacturing industry is recording rapid growth due to growing strategic
alliances for increased investment in the healthcare sector.
Growth Drivers
• Increasing chronic diseases for example chronic respiratory diseases, cardiovascular diseases and diabetes, and
growing incidence of lifestyle diseases like heart disease, atherosclerosis, obesity and hereditary disease like
haemophilia, Down’s syndrome, sickle cell anaemia and cystic fibrosis are leading to the swelling demand of
laboratory equipment to bring innovative technologies in the market.
• The industry’s growth is driven by the need for achieving keener accuracy in diagnosis with finer laboratory
apparatus, reduced downtime, effectively meeting all quality control standards and cost-effectiveness.
• Focused efforts on the part of multiple domestic regulatory bodies to promote innovation and provide the
necessary infrastructure will help elevate their image and performance.
• The industry’s focus on high-speed analysis will result in the right selection of lab equipment’s. Advanced packed
columns result in faster, more accurate, and more reliable analysis than open tubular columns.
• An increasing awareness and demand for better wellness and healthcare, increasing expenditure on research
and development projects in the pharmaceutical and biotechnology sectors, and the alarming rise in lifestyle
diseases are some of the key drivers of this market. The government and investors are encouraging new vendors
to establish high-quality labs.
Key Trends
• Key companies in the laboratory supplies market are launching new products with innovative features and
technologies which ease the operation of samples. There is a trend for smaller and easy-to-use instruments
with built-in connectivity.
• Technology trends are also enlightening laboratory competences. Innovative technologies and procedures allow
laboratory technicians and scientists to work more precisely and competently than ever before
• The increase in real-time monitoring has resulted in an increased need for adapting analytical capabilities to
support online process monitoring.
• A lot of demonstration for medical students which is required to provide them with requisite knowledge is
driving factor for requirement of laboratory equipment
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ii) Medical Equipment
Given the broader industry dynamics, all the stakeholders in the medtech space predict a growing number of M&As and
the consolidation of healthcare providers in some regions. Provider sector experts predict a few megamergers of health
systems in the United States. Physician practice acquisitions are also being observed; however, a drive to acquire assets
and build a continuity of care model to support all types of care delivery needs is being noticed.
By mid-2021, most parts of the world began to witness a gradual release of the pent-up demand for elective surgeries
as coronavirus cases began to decline. This helped medtech companies make up for the lost revenues of 2020 and early
2021.
The medical equipment EMS market only increased by an estimated USD >200 million in 2020. Jabil, Flex, Plexus, and
Sanmina are the leading suppliers in this category, all with revenue of over USD 1 billion. They are followed by second‐
tier providers such as Benchmark, Kimball Electronics, and Venture, which have strong positions also. The majority of
outsourced medical product assemblies are performed by small to medium‐sized EMS companies worldwide. ODM
suppliers experienced a decrease of about USD 18 million in medical revenue for 2020, as customers focused on essential
items.
Most new medical companies are like new communications equipment companies—they are disinclined to manufacture
the products they design and prefer to partner with an EMS supplier—so this segment is usually very promising for EMS.
Though, to protect themselves from product liability issues, OEMs that outsource tend to seek suppliers that will
assemble only the PCB, with the box assembly being completed in‐house. EMS suppliers do not perform the final or
functional test, which often involves regulatory restrictions and performance requirements before release.
The Indian Medical Devices market is experiencing dynamic changes with the emergence of advanced technologies,
evolving clinical and administrative needs, and the introduction of new policies and regulations, which is forcing industry
participants to innovate to maintain their competitive edge. There has been an increased innovation in the handheld
portable medical devices like blood pressure monitors, oximeter, glucometer, portable ECG monitors, etc. The
innovations have prompted an increased demand for the medical electronics.
Continuously rising healthcare expenditure acting as a growth catalyst for the market in Indian economy. Medical
infrastructure along with growing adoption rates of advanced equipment’s, with a potential for strong domestic demand
and other supporting factors, India is set to emerge as an ideal destination for the purpose of setting up manufacturing
facilities, especially for the global companies looking to align their global manufacturing footprint with shifting
consumption patterns. A shorter lead-time as well as the opportunity to significantly enhance service levels indicates
well for increasing healthcare penetration in India.
Growth Drivers
• The healthcare industry's focus is shifting to value-based, patient-centric remote monitoring solutions, which
will necessitate the introduction and boost the adoption of non-contact patient monitoring technologies.
• Improvements in interoperability will drive market growth as hospitals shift to integrated monitoring solutions
for enhanced patient data analysis and accessibility.
• The growing adoption of minimally invasive surgery techniques and surgical robots will continue.
• Technological advancements and an access to advanced equipment to address patient s’ needs, as well as
increasing affordability of diagnostic devices by users is expected to dominate the market.
• Electronic medical devices are gaining appeal across all age groups. Advanced technology appeals to younger
people and makes self-care easier for older patients. Increasing technology advancements such as advanced
telemedicine, novel drug discovery methods, data-driven healthcare, and nanomedicine, among others, will
propel the medical electronic devices market forward in the future years.
• There is introduction of new policies and regulations. As healthcare infrastructure improves, new policies and
schemes will continue to enhance local medical device manufacturing capacity, eventually supporting medical
device exports. Incentives for domestic manufacturing of medical equipment have the potential to attract
substantial investments and a sizable total outlay in support of a market-encouraging strategy.
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• Make in India initiative helps the sector to revisit the operating model, identify key imperatives for growth and
explore possibilities. There is consistent demand for surgical instruments, cancer diagnostics, orthopaedic and
prosthetic equipment, imaging, and electro medical equipment.
Key Trends
• The gradual release of pent-up demand for elective surgeries-as COVID-19 cases reduced-helped medtech
OEMs cope with the revenue lost in 2020/early 2021.
• The cardiology segment witnessed a significant boost of more than 75% in 2021 (growth rate over 2020) due to
the increased uptake of technologically advanced cardiology devices.
• Patient monitoring devices, which have experienced significant growth during the pandemic, will not be able to
maintain the same momentum in 2022 and forward due to market saturation. The segment will suffer a decline
of more than 50% going forward.
• Government schemes focused on medical equipment manufacturing: The Indian government is focused on
developing medical electronics as a popular manufacturing stream in the country through its initiatives like
IIPME i.e., Industry Innovation Programme on Medical Electronics. Some of the clusters that have emerged in
India include Bangalore & Mangalore (Karnataka) with companies like GE Healthcare, as well as Vishakhapatnam
(Andhra Pradesh) with companies like B Braun, St. Jude Medical, and Medtronic. AMTZ (Andhra Pradesh
MedTech Zone) is India’s premier medical technology park with dedicated manufacturing and scientific facilities
that include specialized laboratories, warehousing, and testing centres such as the Centre for Electromagnetic
Compatibility and Safety Testing, Centre for Biomaterial Testing among others. It is one of the world's major
medical technology manufacturing clusters, with over 100 companies engaged in the research, development,
and manufacturing of medical devices.
• The digitalization of medical devices will continue, and OEMs are digitalizing their devices and operations.
Advancements in configuration and connectivity have spurred new types of robotic surgeries, wherein surgeons
use remote surgery tools.
iii) In-Vitro Diagnostics
The change in reimbursement for diagnostic testing, pressure from Protecting Access to Medicare Act, regulatory trends
in Europe, demand for large-scale testing, shift to precision diagnostics, emerging companies, and evolving business
models demand assessing portfolio, evaluating competitor strategies, and exploring opportunities for business growth.
The competitive nature of the In Vitro Diagnostics (IVD) industry has unfolded through the COVID-19 pandemic, as it
continued to serve the healthcare domain and successfully reach a revenue of USD 85.91 billion in 2020. Clinical
chemistry and immunoassays dominate the revenue share; molecular diagnostics and point-of-care-testing continue to
grow at the highest rates; and tissue diagnostics and haemostasis will experience moderate growth followed by rest of
the technology segments.
The top-10 companies serving the IVD industry together accounted for 65.2% of the global revenue in 2020, while the
top-20 companies together made up 78.8% of the global proceeds. The NA region, primarily with contributions from the
US, leads the market, maintaining its stronghold on the IVD industry. APAC, primarily driven by Japan, China, and India,
along with the other growing economies will experience the highest growth rate, while Europe will continue to grow at
a slower pace
Growth Drivers
• Rising awareness of personalized medicine is driving the integration of liquid biopsy Next Generation
Sequencing (NGS) based Companion Diagnostics (CDx) in standard cancer care.
• Developing multiplex assays that integrate the separate IVDs enabling lower testing cost and support data
generation (e.g., POCT) has provided growth opportunity for existing participants and entry of new players.
• Advanced automation, coupled with Internet of Things (IoT) for connected instruments as well as AI and
analytics for improving process flow and efficiency, will become a differentiator for participating companies.
• Cost-effective automated IHC and ISH instruments for tissue diagnostics will act as a key driver on account of
declining number of pathologists
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• With consistent increase in chronic and infectious diseases, diagnostic laboratories in India are under immense
pressure to deliver accurate results in a faster and cost-effective manner. This makes the laboratory diagnostics
market well poised for tremendous growth. Also, the government is setting up innovation centres for medical
diagnostics products.
• Increasing incidence of chronic and infectious diseases is likely to boost IVD test volume and create better
opportunities for growth. The competition between labs is increasing, resulting in faster delivery of accurate
data in a cost-effective manner, which is the current need. Hence there is an increase in demand for automated
and semi-automated IVD equipments.
• New clinical regulations enforcing new standards may increase consumable demand. Manufacturers are
upgrading their instruments to be IVDR (In Vitro Diagnostic Regulation)-compliant to sell in the European
market. This compliance requirement will improve the need for advanced clinical consumables, including caps,
vials, inserts, and mats, for efficient separation requirements in clinical applications.
Key Trends
• APAC is witnessing a random growth in the uptake of innovative technologies. Companies focused primarily on
the US and EU member states in the last decade; however, the present trends signify an early ingress into Asia.
The burgeoning number of clinical trials and the plethora of pharmaceutical companies that have established
R&D centres in Asia are key contributors for such transformation.
• Manufacturers focusing on Clinical Laboratory Improvement Amendments -waived platforms have enabled
smaller physician practices to adopt Point-of-care testing to increase revenue at their facility, the trend is bound
to continue over the forecast period. Further the direct-to-patient approach has intensified since the pandemic
that will provide growth to the segment.
• Rapid growth and demand in remote diagnostics and patient monitoring.
• Molecular diagnostics is becoming increasingly popular among tier-I and tier-II cities in India, as the results are
comparatively faster and more accurate than routine diagnostics tests.
• Manufacturers across segments are launching newer products with better technologies such as multitasking
reagents and wider range application equipment.
C. Industrial Electronics
Industrial Equipment Industry Overview
Industrial electronics generally refers to the use of electronics for power and control systems, outside of the field of
communications. The industrial electronics plays important role in improving efficiency and productivity of multiple
industries such as manufacturing, energy, transportation, chemicals, mining, and agriculture. The industry manufactures
various electronics products and components such as drives, sensors, switches, actuators, meters, PLCs, and robotics.
The global Industrial Machinery and Equipment industry, which is sized at USD 720 Bn in 2021, is expected to grow at
5.7% CAGR to become USD 950 Bn market by 2026 (source: Frost & Sullivan Analysis)
The industrial equipment segment in India has grown significantly over the last decade due to growing demand for
reliable and cost-effective manufacturing. The rapid adoption of modern technology, backed by cost optimization
features, is driving the growth of this market. The demand for factory automation solutions in India is anticipated to
surge with an increase in domestic manufacturing and an emphasis on increased process efficiency. Industrial
Automation is currently focused on promoting Industry 4.0, or the digitization of industry, with IIoT-based solutions for
smart manufacturing.
The Indian government has taken a number of steps to create a healthy environment for the growth of the country's
industrial sector, that include promoting FDI and Ease of doing business, National Infrastructure Pipeline, Make in India
initiative, Trade policy measures, Constitution of Investment and Project Development Cells, One District One Product,
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and PLI Scheme. The Government of India has also taken up numerous Industrial Corridor Projects as part of National
Industrial Corridor Programme which is aimed at development of the greenfield industrial regions which can compete
with the best manufacturing and investment destinations in the world.
Industrial Electronics Production Market landscape
Industrial electronics can be broadly classified into power electronics and industrial automation. (a) Power electronics
play a crucial role in electrified vehicle applications that require compact and highly efficient power conversion solutions.
One of the major factors driving the demand for power electronics products is the increasing demand for energy-efficient
products. (b) The Industrial Automation industry on the other hand, presents numerous opportunities for innovative
technology companies that support multiple other industries. It is becoming an integral part of manufacturing companies
that utilize cutting-edge technologies. The size of the global Industrial Electronics market is USD 249 Bn in 2021 and is
expected to grow at 5.8% CAGR to reach USD 330 Bn by 2026.
A globally competitive manufacturing sector is India's most promising source of economic growth and job creation in this
decade. Several factors contribute to India's potential to participate in global markets. First, the value chain is well-
positioned to benefit from India's advantages in terms of raw materials, industrial expertise, and entrepreneurship.
Followed by the required skilled and semi-skilled labour in the manufacturing sector, and finally a strong push and
support from the government. The size of the Indian Industrial Electronics market is INR 797 Bn in FY’22 (approximately
4.3% of the global market) and is expected to grow by 15.4% CAGR to reach INR 1,630 billion by FY’27 - this will contribute
to 6.6% share of the global Industrial electronics production.
Some of the key OEMs in the industrial electronics market includes GE, Rockwell, Siemens, Schneider, Honeywell, ABB,
L&T, etc. The industrial players utilise India's cost advantages. In addition to the local market, leading firms such as
Schneider Electric, Honeywell, and ABB have had remarkable growth on the export market.
Industrial Electronics EMS Market Landscape
The global EMS market for the Industrial Electronics segment is valued at USD 80 Bn in 2021 and is expected to grow at
6.5% CAGR to reach USD 110 Bn by 2026. The Industrial Electronics segment accounts for 9.1% share of the Global EMS
market.
Most of the large manufacturing companies are investing heavily in the technological up-gradation of their facilities by
adopting digitization and industry 4.0 concepts. This will increase demand for Industrial electronics products which in
turn will boost the EMS industry. The Make in India initiative is designed to strengthen India's manufacturing sector,
boosting essential industries including power, metals and minerals, and chemicals.
Indian EMS market for the Industrial Electronics segment is valued at INR 58 Bn in FY’22 and is expected to grow at 21.7%
CAGR to reach INR 155 Bn by FY’27. The Industrial Electronics segment accounts for 3.9% share of the Indian EMS market.
The reasons for the comparatively higher growth of the Indian Industrial Electronics EMS market are the following:
• India’s share in global Industrial electronics production is likely to increase from 4.3% in FY’22 to 6.6% by FY’27
• India’s share in the global Industrial electronics EMS is expected to increase from 1.0% in FY’22 to 1.9% by FY’27.
• Share of outsourced services for Industrial electronics production in India is expected to increase from 7% in
FY’22 to 10% by FY’27
Some of the key EMS players operating in the Industrial EMS space include Kaynes, Amber, Cyient DLM, SFO
Technologies, Syrma SGS, Avalon, and VVDN Technologies among others.
Snapshot on Cyient DLM’s key offerings in the Industrial segment
o Building Technology / clean energy products: The phrase building technology refers to the methods and
technical processes used in a building's construction. Architects are gradually moving away from creating
different variations of a standard building and shifting toward building consistently original prototypes. With
this emerging trend comes much more demanding building performance requirements and a greater amount
of distinctive products and specialist suppliers. India is well poised to incorporate the latest construction
techniques and technologies within building ecosystem in the coming days.
Indian renewable energy sector is the 4th most attractive renewable energy market in the world with 4th in
wind power and 5th in solar power. Recently, India had 101.53 GW of renewable energy capacity and represent
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about 38% of the overall installed power capacity. The wind energy potential would be about 70 GW of offshore
and expect to add 10 GW of solar PV manufacturing capacity over the next five years. India is targeting initially
approximately 1 million tonnes of annual green hydrogen production by 2030.
o Flow measurement and analysis units: Flow Measurement is the process of assessing fluid in plant or industry.
The flow can be measured through a variety of different devices like Coriolis, vortex, differential pressure,
magnetic, ultrasonic, turbine and positive displacement meters. With huge capacity expansions planned for the
refining and the infrastructure in India, it is estimated that the flowmeter market will get started on a robust
growth track during the forecast period. Furthermore, new projects as well as the refurbishment opportunities
will open up new opportunities for suppliers.
o Room and plant controllers: The control room is where the operators perform plant operations using control
systems every day, and a safe, comfortable, and functional environment helps operators to run the plant more
competently. The control room must therefore be designed accordingly to fulfil the plant requirement.
Outlook of Industrial EMS business in India
• Organised manufacturing is the biggest private sector employer in India. The manufacturing sector of India has
the potential to reach USD 1 trillion by 2025 (Source: IBEF).
• With an allocation of INR 1.97 lakh Crore for the next five years starting FY22, the production-linked incentive
(PLI) was established to build global manufacturing hub across 13 industries.
• India is an attractive hub for foreign investments in the manufacturing sector. Several brands have set up or are
looking to establish their manufacturing bases in the country. Some of the large investments announced in last
2 years include:
o In 2021, the UP government announced the introduction of GNRTP (Greater Noida Robotics
Technology Park) at a total project cost of USD 365 million.
o In 2021, Optiemus Electronics Limited (OEL) announced an investment of INR 1,350 crores for
manufacturing telecom products and mobile phones.
o In 2021, Samsung completed construction of its display production plant in Noida, Uttar Pradesh as
part of the company's goal to move manufacturing capacity away from China.
o In 2021, Amazon India intends to begin production of electronic products with contract manufacturer
Cloud Network Technology (a subsidiary of Foxconn in Chennai).
i) Field control devices
Field control devices are products that connect any building management system to its physical environment. They
provide the system with the means to continually adjust a building's environment to make it more energy efficient,
comfortable, and safe for its occupants. The energy-efficient operation of any facility is dependent on the precise and
reliable operation of field devices, such as sensors, valves, and actuators.
There is heavy reliance on industry sensors for factory automation and industry 4.0. To monitor the health of the
equipment, sensors such as motion, environmental, and vibration sensors are used. These sensors range from linear or
angular positioning to tilt sensing, levelling to fall detection. The Indian industries are more than capable of developing
their operations economically and demographically considering both domestic interests and export opportunities that
are expected to increase soon.
Growth Drivers
• The increasing demand for valve diagnostics and remote condition monitoring services is expected to minimize
the costs and amount of downtime and improve efficiency.
• Increased investment in the process industry will drive the growth of valves and valve services, especially in
emerging markets. There is an increase in demand for digital technologies and smart solutions from process
industries.
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• Enhanced safety regulations and stricter emission norms are driving the need to upgrade existing manufacturing
facilities; thereby, increasing the demand for valves.
• Owing to exposure to severe conditions, the rate of replacement and repair of valves and their accessories for
existing plants has increased.
• Demand for automation is expanding in government-designated essential industries like food and beverage,
manufacturing, and pharmaceutical, due to a lack of labour and the need for remote monitoring and working,
which has driven the demand for various sensors.
Key Trends
• The deployment of IoT technology in the industrial field has resulted in the Industrial IoT becoming the
development direction and trend.
• Gas flow sensors are extensively utilized in industrial automation, natural gas, metallurgy, mining, petroleum,
aviation, industrial packaging, and industrial cleaning, among other fields.
• Additionally, the requirement for the flow measurement in oil and gas in response to rigorous rules related to
controlling harmful gas emissions from the power plants is driving the adoption of flow sensors.
• AI-based Sensors for Valve Performance Management: Sensors embedded in valves must be efficient,
intelligent, context-aware, dependable, accurate, and linked, in order to accomplish the high level of
automation necessary in today's smart IoT applications.
ii) Actuators
Broadly industrial actuators are classified as hydraulic, pneumatic, and electric. There is a sudden surge in demand for
actuators with an ever-increasing utilization of automated machinery/systems. These actuators play a vital role in the
automation process. Actuators are typically responsible for moving, controlling, or positioning a mechanism or system,
to make the working of automated equipment seamless and easy. The past few years has seen an exponential
requirement for actuator with the surge in application across various sectors such as industrial automation and
transportation. The demand for actuator in the industrial automation is expected to continue to grow over the next five
years driven by need for increased performance in industrial automation, consumer electronics, Internet of Things (IoT),
and implantable electronic applications.
Growth Drivers
• Linear actuators are a kind of electric actuator used for applications like material handling, robotics, window
automation, and solar panels. Electric linear actuators with integrated controller for automation of the industrial
machinery or agricultural vehicles not only offers easy installation but also provides movement precision along
with simple maintenance. Rising industrial automation will act as a growth catalyst for actuators going forward.
• Miniaturization has been driving the sensors and actuators market, supported by the growth of new sensor and
actuator modalities by leveraging the semiconductor expertise.
• The electrical actuator segment is estimated to record exponential growth in the actuators market. Electrical
actuation systems find applications which are safe to use, easy to reconfigure, and require low maintenance
when compared with the hydraulic and pneumatic actuation systems. This has led to soaring demand for the
electrical actuator solutions and is anticipated to be a major driver boosting growth of actuator market
Key Trends
• Sensors and actuators are an essential part of the industrial automation system as they help accomplish
precision and efficiency. The need for the motion control technologies using sensors and actuators plays a major
role in the factory and industrial automation systems.
• Emergence of Automation and Industry 4.0 will further push the rising automation in industrial space in the
country
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• India is fast fast-tracking the deployment of numerous emerging sensors, actuators and IoT technologies. The
country provides an opportunity to install these technologies at a larger scale to bring economies of scale.
Advanced IoT-based opportunities and ecosystems are emerging steadily. The Indian Government is taking
steps to push the implementation of emerging technologies with innovative proposals, including Make in India,
Digital India, Smart Cities, etc. These plans are expected to further boost the actuators market in the country.
iii) Building Tech
Building tech or building automation solutions is being revolutionized by increasing industry convergence and the
emergence of innovative technologies. This has led to a rapid increase in the digitalization of buildings, resulting in a
spurt in demand for smart buildings and BMS systems. These technologies are causing significant disruptions and
influencing how buildings are managed and shifting roles away from traditional skills towards technological expertise
and collaborative efforts. The building tech sector can be segmented into Electronic Security and Safety, HVAC Control
Systems, Lighting Control Systems, and Building Energy Management System.
One of the key drivers for growth of this market is Smart cities in India. As more and more cities turn smart, the adoption
of Building tech and Building Management Systems is on the rise. By the year 2020, there were more than 2,000 projects
(valued at approx. USD 5 billion) that reached completion under India's smart cities initiative. This program was launched
in 2015, where 100 cities were selected for infrastructure improvements with advanced technologies.
Growth Drivers
• The COVID-19 pandemic has accelerated the adoption of digital solutions in buildings and created several
opportunities essential to the growth of the building technologies market.
• New business models, particularly resilient and outcome-linked ones, are attracting new customers,
significantly expanding the customer base for building solutions.
• Increasing demand for energy-efficient and sustainable buildings is acting as a market growth catalyst. Industry
participants have been trying to include environment-friendly practices in the design, construction, and
operations of buildings. One of the easiest ways to reduce energy usage is through BMS deployment.
• Simplified and effective building operation and maintenance are emerging as market growth accelerators. BMSs
help to automate building equipment, such as HVAC and lighting systems, saving 5%–30% of total energy
consumption.
Key Trends
• The two technologies that are at the juncture in the building construction segment are Augmented Reality and
Virtual Reality.
• Digital twin, which is a virtual representation of a build tech system combined with a smart building platform,
will become the fourth-generation solution for the homes & buildings industry in the operations and
maintenance phase of building life cycle management.
• Building Information Modelling is another hot trending construction technology. It can be proved to be a game-
changer for the building construction industry as it can signify project development and highly collaborative
surroundings in a 3D format.
• The Covid-19 pandemic has encouraged investments and financing mechanisms for sustainable buildings
through many recovery plans for the building sector. Top companies increasingly see sustainability as a
responsibility and an opportunity for competitive advantage.
iv) Intelligent Field modules
Smart transmitters are intelligent field instruments that are either purely loop-fed or in addition supplied with auxiliary
energy. A smart transmitter makes use of a microprocessor containing the software needed to make a transmitter smart.
The intelligence of a field instrument does not have to be stored exclusively in the microcontroller software. Diagnostics
and other safety features can also be unified into other semiconductor modules so that the microcontroller can comprise
additional processing software. Smart transmitters usually use the standard 4 mA to 20 mA current loop, which impedes
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the maximum power consumption of a transmitter. The consumption of the respective components must hence be
greatly limited. If a so-called 3.2 mA low alarm current is used, this limit is 3.2 mA.
Growth Drivers
• In these times of constantly rising industrial demand, machine downtime is costly. A networked factory
facilitates planning and hence helps prevent interruptions in production. Rising adoption of smart transmitters
pushing the IFM market in growth path
Key Trends
• Trends in smart transmitters include low power consumption, low space requirement, better functionality,
better performance, safety considerations, and preventive maintenance
D. Telecom Electronics
Telecom Equipment Industry Overview
The telecom sector is undergoing a massive transformation globally. Increasing competition from non-telecom service
providers, abridged network investments, and the rise of digital media and mobile technology is forcing telecom
operators to drastically change their business models and service offerings to survive. With ever-expanding options for
high-quality communication and internet services from telecom, cable, wireless, and satellite internet providers,
consumers are expected to enjoy improved flexibility in purchasing and consuming services in the upcoming years.
However, these trends may also lead to a more competitive environment in 2023 and going forward. The global Telecom
Equipment industry, which is sized at USD 510 Bn in 2021, is expected to grow at 5.0% CAGR to become USD 650 Bn
market by 2026 (source: Statista)
India is currently the world's second-largest telecommunications market. Indian telecom industry’s exponential growth
over the last couple of years is primarily driven by affordable tariffs, roll-out of Mobile Number Portability, wider
availability, expanding 3G & 4G coverage, evolving consumption patterns of subscribers, and a conducive regulatory
environment. The Government has eased the market access for telecom equipment and provided a fair and proactive
regulatory environment to ensure consumer access to affordable telecom services. Over the next five years, increased
mobile phone penetration and reduced data prices will add 500 million additional internet users in India. There is a need
for deep penetration of broadband networks to propel the telecom and networking products sector in India. It is also
estimated that 5G technology is going to contribute nearly USD 450 billion to the Indian Economy in the period of 2023-
2040.
Telecom Electronics Production Market landscape
The global telecom industry is witnessing a massive technological transformation - faster 5G networks, 5G fixed wireless
access, and satellite services will create more consumer options for connecting to the internet. Next-generation
applications arising from the confluence of faster and more reliable 5G connectivity, distributed computing, and AI will
spark growing interest in multi-access edge computing and private cellular networks. These new networks, services, and
applications will create opportunities for telecom electronics products like GPON, IP PBX, and Media Gateway as well as
Router and Modems. Routers, GPONs, and modems are going to remain key revenue contributors within the Telecom
and Networking Products business in the forecast period. Global players like Ericsson, Nokia, Samsung, ZTE, and Huawei
dominate the telecom equipment market. The size of the global Telecom Electronics market is USD 249 Bn in 2021 and
is expected to grow at 5.2% CAGR to reach USD 322 Bn by 2026.
In India, the Union Cabinet approved INR 12,195 crore (USD 1.65 billion) production-linked incentive scheme for telecom
and networking products under the Department of Telecom. On October 14, 2021, 31 companies comprising 16 MSMEs
and 15 Non-MSMEs (eight domestic and seven global companies) have been approved under the Production-linked
Incentive Scheme. In October 2021, the government notified 100% foreign direct investment through the automatic
route from the previous 49% in the telecommunications sector. The PLI scheme in telecom and networking products
aims to make India a global hub of manufacturing telecom equipment. The size of the Indian Telecom Electronics market
is INR 261 Bn in FY’22 (approximately 1.4% of the global market) and is expected to grow by 18.9% CAGR to reach INR
621 billion by FY’27, this will contribute to 2.6% share of the global telecom electronics production.
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Telecom Electronics EMS Market Landscape
The OEMs’ requirements in this industry are technical expertise in the manufacturing of large and complex PCBAs and
quick ramp-up capabilities. EMS companies provide a variety of core manufacturing and ancillary activities, allowing
OEMs to focus on their core competencies while improving overall efficiencies. While Foxconn remained the overall
industry leader, Pegatron, Jabil, USI, Sanmina, and New Kinpo Group increased their revenue in this sector, while
companies like Flex and Celestica experienced a fall. The global EMS market for the Telecom segment is valued at USD
95 Bn in 2021 and is expected to grow at 5.7% CAGR to reach USD 126 Bn by 2026. The Telecom Electronics segment
accounts for 10.8% share of the Global EMS market.
The technologies allow for the efficient manufacturing of telecom equipment as India aspires to become a major
manufacturing hub. So far, the domestic EMS sector has been unable to meet demand because it is majorly driven by
government entities. As a deeper value unlocking is happening steadily in this sector, large EMS participation can also
be seen. Going forward, an increasing trend of outsourcing design, R&D, and manufacturing will open opportunities for
EMS players. Indian EMS market for the Telecom Electronics segment is valued at INR 57 Bn in FY’22 and is expected to
grow at 20.5% CAGR to reach INR 145 Bn by FY’27. The Telecom Electronics segment accounts for 3.9% share of the
Indian EMS market. The reasons for the relatively higher growth of the Indian Telecom Electronics EMS market are the
following:
• India’s share in global telecom electronics production is likely to increase from 1.4% in FY’22 to 2.6% by FY’27
• India’s share in the global telecom electronics EMS is expected to increase from 0.8% in FY’22 to 1.5% by FY’27.
• Share of outsourced services for telecom electronics production in India is expected to increase slightly from
22% in FY’22 to 23% by FY’27
India aspires to be a major original equipment manufacturer of telecommunications and networking products. Syrotech,
Netlink, Alcatel Lucent, Bharat FIH, Syrma SGS, Tejas Networks, Speech & Software Technologies, and Alphion India are
key telecom OEMs and EMS players.
Outlook of Telecom EMS business in India
• While the extensive adoption of 5G offers many benefits, it also creates new security concerns and challenges.
As operators have taken steps to gage and minimize threats arising from the 5G and software-centric networks
in their own organizations, they are in a distinctive position to offer 5G security services to enterprises pursuing
to deploy their own cutting-edge wireless networks.
• The enterprise market for private cellular networks and edge computing is gaining momentum. The market is
still nascent but promises to be competitive, with many different players vying for their share. Network
operators will have to compete against other players, who may prove key partners in delivering their solutions.
Ecosystem players will likely begin to stake out and define their role in this emerging but rapidly evolving market
in the coming year.
• As the importance of coverage and capacity grows, telecom infrastructure service providers have expanded
potential to assist Telco’s. Services are becoming crucial for everything from network deployment to network
benchmarking and optimization.
• In 2021, The Department of Telecommunications (DoT) had announced PLI scheme for Telecom and
Networking. The government has granted approval to 42 companies including 38 MSMEs under this scheme.
The companies have committed investment of INR 4,115 crores and is expected to generate additional sales of
INR 2.45 Lakh crores over next five years.
• Some of the notable investments by large Telcos, OEMs and EMS players include:
o In 2021, Dixon Technologies announced plans to invest INR 200 crore under the telecom PLI scheme; this
investment will include the acquisition cost of the Bharti Group’s manufacturing unit.
o In 2021, Bharti Airtel announced an investment of INR 50 billion in expanding its data centre business to
meet the customer demand in and around India.
o In 2021, Bharti Enterprises Ltd. and Dixon Technologies Ltd. created a joint venture to take advantage of
the government's PLI plan for telecom and networking device manufacture.
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i) Network Infrastructure
The rapid development and deployment of the 5th-generation (5G) wireless ecosystem will lead to the overhaul of the
legacy network infrastructure. Concurrently, network operators will embrace cloud-based network infrastructure,
services, and solutions. Sixth generation (6G) is the next big thing in the telecom business, and its development will run
at the same time with the standardization and eventual deployment of 5G. The post-pandemic normal will advance the
development of smart cities with seamless connectivity and network infrastructure. In 2020, the United States placed
sanctions on multiple Chinese companies, including Huawei and ZTE, which are 2 of the leading companies in the 5G
space. In 2021, the sharp surge in pent-up demand from sectors such as 5G infrastructure, automotive, and cloud led to
a supply–demand imbalance for network equipment and related industries, such as semiconductors, and their
customers.
Implementing cloud-native solutions for network testing that can help overcome the limitations of legacy solutions and
support network operators’ digital transformation objectives will become table stakes in the global telecommunications
industry.
The Indian Telecom market has grown at a breakneck pace over the last decade. While much of this development has
been driven by voice, the next wave of growth will be data-driven. Increased potential will result from a focus on
customer experience and network quality, as well as growing demand for wireless data services, 4G, and broadband
wireless access networks. As the importance of coverage and capacity grows, telecom infrastructure service providers
have expanded potential to assist Telco’s. Services are becoming crucial for everything from network deployment to
network benchmarking and optimization.
Over the last seven years, the Indian Telecom Tower industry has grown significantly by 65%. The number of mobile
towers increased from 400,000 in 2014 to 660,000 in 2021. Similarly, the number of Mobile Base Transceiver Stations
have grown rapidly by 187% and increased from 800,000 in 2014 to 2.3 mn in 2021. The DoT is targeting a combination
of 100% broadband connectivity in the villages, 55% fiberisation of mobile towers, average broadband speeds of 25 mbps
and 30 lakh kms of optic fibre rollouts by December 2022.
Growth Drivers
• Rapid commercialization of 5G networks to drive the market for wireless network test equipment
• Move toward virtualization, Self-Organizing Networks, and centralized RAN in the network infrastructure to
auger demand for software-based testing solutions.
• Deployment of private cellular wireless networks by enterprises to aid market growth.
• Demand for data analytics and revenue assurance among network operators enhances need for efficient
network monitoring solutions.
• Spend on Capex in the Telecom and Networking Products industry is very high. Nearly 40 % to 60 % of the Capex
is being utilized for setting up and managing the telecom infrastructure. As revenue per tower and ARPU is
declining over a period of time, sharing of the telecom tower and other types of infrastructure is imminent. By
sharing the infrastructure, operators can actually optimize their capex, and focus more on providing new and
advanced services to their subscribers.
• There is an increased telecom coverage and capacity. Having innovation at the core, Indian telecom tower
business has carved a world-wide niche in terms of infrastructure sharing. By focusing on right mix of
competencies & business opportunities, the tower industry is expected to drive the next infrastructure
revolution & recognize the vision of broadband for all in India. The telecom tower business has remained a
pivotal force in routing the connectivity revolution in India.
• Major European telecom equipment suppliers Ericsson and Nokia along with US based firm CISCO and home-
grown company Tejas networks are the first set of telecom equipment vendors who have received the trusted
sources approval from the National cyber security co-ordinator.
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Key Trends
• Network function virtualization and the deployment of Software-Defined Networking are important trends
driving the segment. The trends will need network monitoring probes that are compatible with a virtualized
network infrastructure. The proliferation of IoT and connected devices enhances the re-engineering of the
probes; combined with 5G, this calls for an overhaul of the existing network infrastructure to a more automated
one comprised of small cells and femtocells located closer to the end user.
• Major trends that will positively influence the Self-Organizing Networks testing equipment market include LTE
proliferation and rapid 5G deployment, the incorporation of SON capabilities into legacy-based network
infrastructures, enhanced customer experience management, and global adoption of SON technology
• While 4G-LTE and IoT continue to be important revenue sources for most participants, the move to 5G is a trend
that participants are relying on; they are, therefore, re-engineering their portfolios to suit testing requirements.
• India is one of the world’s largest and fastest growing telecom markets. Optical fibre connectivity is fast growing
in the global market. India’s current market penetration in optical fibre connectivity approximately 30% of the
mobile towers and 7% of the total households. Significant fabrication and infrastructural improvements are
being carried out to bring in 5G and high-speed connection, and this has been a key focus area from 2021 and
beyond.
• Industrial Internet of Things (IoT), smart homes, connected mobility and autonomous appliances and gadgets
are all deeply reliant on the hyper connectivity. This trend is expected to continue to rule in 2022 and beyond
as smart cities would also need a robust digital neural network for the purpose of functioning seamlessly.
• The year 2022 and beyond can be seen as an era of hyper connectivity (anything, anywhere and at any time).
This is going to create huge security challenges, and henceforth, there is tremendous emphasis on security.
There will be imminent threats, and henceforth, the complete device, application, and the network
infrastructure eco-system are being developed as part of mitigating security challenges.
ii) Data Centre
Data centres represent the backbone of the digital economy. Enterprises and governments need to rely on best-in-class
data centres and digital infrastructure in today's digital world. Enterprises increasingly outsource their data operations
to third-party colocation services providers specializing in data centre operations. The potential of colocation service
providers to build scale in terms of physical space, satisfactory power supply, and cooling systems for servers and
network connectivity backed by effective operations to ensure high SLAs boost enterprise confidence in outsourcing
services.
Demand for data centre colocation services is forecast to be fuelled by the growing need for hyperscale capacity from
public cloud providers, OTT content, and media segments. COVID-19 is accelerating the digital adoption journey of
enterprises further, creating higher demand for storage and compute capabilities. While data centre providers invest
heavily to build new capacity to address demand, implementation of emerging technologies like AI and ML also
encourages service providers to invest in new data centre designs to boost efficiencies. Competition in the industry is
intensifying to address global demand from carrier-neutral and telecom service providers. While it is critical for service
providers to invest in favourable locations, optimize energy costs, and provide best-in-class services, they also need to
develop strategic differentiation in highly competitive markets and align with global trends to enhance customer value.
India is amongst the key players in the data centre sector in the APAC region. Data centres are crucial for national
security, internet infrastructure, and economic output. In India, data centre infrastructure is increasing exponentially,
with a growing preference for the Cloud and increased data consumption and generation by more than half a billion
digital users. The Indian data centre market is likely to add 3,900-4,100 MW of capacity with INR 1.05-Rs 1.20 lakh crore
as investment in the coming five years. Larger hyper-scaler companies like Amazon Web Services, Google, Microsoft,
Facebook, IBM, Uber, and Dropbox etc are outsourcing their storage requirements to third-party data centre providers.
Growth Drivers
• The growth of data center colocation services is forecast to be fueled by the growing need for hyperscale
capacity from public cloud providers and OTT content and media segments.
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• Enterprise digital transformation and the migration of IT workloads to third-party data centers continue to
drive the retail growth of data center colocation services.
• 5G networks will accelerate the deployment of new AI/ML and Big Data technologies, creating a need for best-
in-class digital infrastructure.
• Emerging market segments like crypto mining and cryptocurrency exchanges are forecast to generate demand
for colocation services in the medium to long terms.
• To cater to the ever-increasing demand, Indian corporates like the Hiranandani Group, Adani Group; foreign
investors viz. Amazon, Edge Connex, CapitaLand, Microsoft, and Mantra Group have started investing in the
Indian data centres. Existing players like NTT, CtrlS, Nxtra and STT India are also increasing their capacities.
• The favourable regulatory support, fast growing cloud computing, rising internet penetration, government
effort on the digital economy, adoption of new technologies (IoT, 5G etc), growing needs of the hyper-scalers
are some of the key factors driving the demand for the data centres in India
• Other drivers for data centres (both cloud and colocation) in India include Government measures intended at
driving digital infrastructure growth such as the Digital India initiative; classification of the data centres as
infrastructure assets, and recommending new data localization laws etc.
• The Government of India and several state governments are modifying their data centre policies to support
the infrastructural growth of data centres in India through the tax subsidies. Under a national policy
framework for data centres, the IT ministry aims to provide up to INR 15,000 crore as incentives. As per
industry policy, the government plans to invest up to INR 3 lakh crore in the data centre ecosystem, over the
next five years.
Key Trends
• Enterprises increasingly seek high-density colocation capabilities to support AI-related workloads in storing,
processing, analysing, and disseminating data rapidly and at scale. As enterprises adopt AI strategies, high-
density colocation capabilities will emerge as an important prerequisite in selecting a data centre colocation
service provider.
• Facilities with a forward-looking design philosophy cater to the next evolution of hardware improvements,
future-proofing customers’ current footprint for planned and unplanned density changes. High-density
colocation facility operators can offer customers a window into how an enterprise’s future storage
requirements may evolve.
• The industry revenues are anticipated to increase at a CAGR of just about 18-19% during FY2022-FY2024,
supported by the increase in rack capacity utilisation and ramp-up of the new data centres.
• Between the two main services provided by the DC players, co-location services account for over 62-65% of
revenues as compared to managed services which account for 28-30% of revenues
E. Automotive Electronics
Automotive Industry overview
The Automobile industry has always been a yardstick against which the growth of the overall economy is measured
against. Broadly the industry comprises of products such as commercial vehicles, passenger, three-wheeler, and two-
wheeler. Rebounding from the pandemic-related disruptions of 2020, the global automotive industry registered a
healthy 5.3% increase in sales, with 81 million in unit sales in 2021. Despite the positive recovery trends in the global
economy and vehicle sales, the Russo-Ukrainian conflict has disrupted the automotive supply chain, raising the cost of
auto components and raw materials. Several leading OEMs are planning to shift to in-house chip production through
strategic alliances with leading semiconductor manufacturers. Chip manufacturers are also actively expanding their
production capacity to meet the surging demand in the automotive space. Technology companies are deepening their
presence in the automotive industry by serving as future mobility enablers. Many are entering the EV space and plan to
launch smart vehicles. Automotive OS, autonomous mobility-as-a-service, and purpose-built vehicles are forecast to gain
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prominence in the coming years. Non-traditional automotive players, including Foxconn and Baidu, have entered the
automotive space by showcasing electric, connected, and autonomous software capabilities through product offerings
and innovative business models.
The top 5 global markets have seen a combined sales increase of 3% in 2021 compared with 2019. India led post-
pandemic global auto recovery in 2021, where light vehicle (LV) sales recorded an impressive rebound, increasing by 20%
YoY. Toyota led in global OEM sales registering a growth rate of 13.9%, selling 9.9 million units. Global EV sales reached
6.7 million units (more than twice the sales in 2020), a 108% YoY growth. China remained the market leader, with Tesla
remaining the global leader. Combined, Tesla and VW Group held 25.1% of the global EV market in 2021. The global
Automotive industry, which is sized at USD 2.86 Tn in 2021, is expected to grow at 5.5% CAGR to become USD 3.73 Tn
market by 2026 (source: Statista)
In India, Government Initiatives such as the ‘Automotive Mission Plan’ target production of 940 million vehicles by FY26
with an annual output value of INR 19.7 Lakh Crore bodes well for the market. Statutory requirements on emissions and
safety are expected to generate significant demand for locally manufactured products. Maruti Suzuki and Hyundai
Motors account for more than 50% of the passenger vehicles market. Maruti Suzuki continues its dominance and holds
a leadership position in the market. Some of the other leading players in the passenger vehicle segment include Mahindra
& Mahindra Ltd., Tata Motors, Honda India, etc. In terms of volume, the two-wheeler segment dominates the Indian
automobile market with nearly 77% of the market share. Post-pandemic, the industry is making a strong recovery on the
back of positive movement in the electric two-wheeler segment. By value, the Indian Automotive industry is sized at USD
222 Bn in 2021 and is expected to grow at 6.2% CAGR to become USD 300 Bn market by 2026 (source: Invest India)
Automotive Electronics Production Market Landscape
In the Automotive Electronics industry, the top 5 products, namely, Engine Control Unit (ECU), EV/HV, HVAC,
Infotainment, and Lighting account for 95% of the demand. ECU contributes to a major portion of the overall automotive
electronics. The growing concern among end-users about vehicle performance and fuel consumption are the primary
drivers of ECU. Adoption of various safety features such as ABS, ADAS, Air bags, etc. is expected to increase in the coming
years. As the automakers are expected to ramp up safety services, the industry will see the deployment of vehicles with
cellular vehicle-to-everything (C-V2X) technologies that enable use cases such as road safety, traffic efficiency, and
hazard and road construction warnings.
Over the last decade, various global economies have implemented stricter emission standards, especially for private cars.
The Electric vehicle (EV) industry is witnessing a substantial proliferation and supremacy within the automotive industry.
Automakers and Tier 1 suppliers are also expected to boost their investment in digital cockpits with enhanced capabilities
and use cases because of increased customer demand for comfort and convenience features. The size of the global
Automotive Electronics market is USD 299 Bn in 2021 and is expected to grow at 5.7% CAGR to reach USD 395 Bn by
2026.
Even though there is a significant level of local value additions in the Indian automotive electronics industry, the industry
is still highly reliant on imported components. In FY20, overall automotive electronics imports accounted for 9% of total
imports, adding up to around INR 16,000 crore. There is a presence of many domestic electronics suppliers for the Indian
automotive industry. Auto OEMs are being pushed to enhance their localization of auto electronics, focusing on
procuring components from domestic suppliers to avoid high import duties and save on logistics costs. Suppliers intend
to increase the scale and quality of their products, as well as to establish a long-term value chain. Some of the key OEMs
in automotive electronics include Bosch, Continental, Delphi, Denso, Wabco, etc. These OEMs manufacture ADAS, ECU,
ABS, etc., and are expected to show rapid progress in the future. The size of the Indian Automotive Electronics market is
INR 287 Bn in FY’22 (approximately 1.3% of the global market) and is expected to grow by 18.1% CAGR to reach INR 660
billion by FY’27, this will contribute to 2.2% share of the global automotive electronics production.
Automotive Electronics EMS Market Landscape
In its efforts to move to electrification, automotive manufacturers are progressively matching the pace of technological
growth. This has certainly resulted in making electronics in the automotive industry more reliable and cost-effective. Due
to the introduction of electric and hybrid vehicles, the automotive EMS industry is predicted to gain further momentum.
The global EMS market for the Automotive Electronics segment is valued at USD 63 Bn in 2021 and is expected to grow
at 6.3% CAGR to reach USD 85 Bn by 2026. The Automotive Electronics segment accounts for 7.5% share of the Global
EMS market.
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Indian EMS market for the Automotive Electronics segment is valued at INR 66 Bn in FY’22 and is expected to grow at
29.5% CAGR to reach INR 240 Bn by FY’27. The Automotive Electronics segment accounts for 4.5% share of the Indian
EMS market. The reasons for such high growth of the Indian Automotive Electronics EMS market are the following:
• India’s share in global automotive electronics production is likely to increase from 1.3% in FY’22 to 2.2% by FY’27
• India’s share in the global Automotive electronics EMS is expected to increase from 1.4% in FY’22 to 3.8% by
FY’27.
• Share of outsourced services for Automotive electronics production in India is expected to increase from 23%
in FY’22 to 36% by FY’27
The Auto OEMs are interested in collaborating with Indian EMS providers to offer solutions that demonstrate their
capabilities while also improving system-level understanding. Some of the prominent EMS players operating in Indian
automobile space include Jabil, Sanmina, Kaynes, Syrma SGS, Digital circuits, SFO technologies, Amar Raja, etc.
Outlook of Automotive EMS business in India
• The government of India has announced various incentive packages such as the semiconductor manufacturing
scheme, the FAME -II scheme extended until 2024, PLI scheme for auto and auto component sectors, and PLI
for various other cell technologies are expected to provide an enormous impetus to the sector as it endeavours
to implement various innovative technologies.
• India is expected to become one of the leaders in the shared mobility space by 2030. This opens up big
opportunities for both electric and autonomous vehicles
• Automotive is one of the key growth opportunity verticals for EMS providers in the next 5 years, due to the
technological transformation currently underway with autonomous cars development and electric car
commercialization activities. Moreover, the rapidly growing electronics content will accelerate the growth of
EMS revenue from this vertical.
• In 2021, the Indian government announced the PLI plan for automobiles and auto components totalling INR
25,000 Crore. This scheme is expected to attract investments of more than INR 40,000 Crore by 2026.
• The government intends to make India a worldwide manufacturing centre as well as a research and
development (R&D) powerhouse. The Government of India intends to establish R&D centres under NATRiP
(National Automotive Testing and R&D Infrastructure Project) at a total expenditure of US$ 388.5 million in
order to bring the sector up to global standards.
i) Advanced Driver Assist System (ADAS)
The automotive industry value chain is transitioning from its traditional pyramidal form to one that is flat. Technology
companies working with original equipment manufacturers (OEMs) and tiered suppliers to develop, validate, supply, and
integrate advanced driver-assist technologies to enhance the comfort and convenience of the driver in the vehicle.
Growth Drivers
• Driven by regulation, consumer acceptance, and rapid strides in active safety system technology, the
penetration of Advanced Driver Assist Systems (ADAS) in LV has grown at a blistering pace.
• The advanced driver assistance system (ADAS) market was initially driven by emerging OEMs offering features
such as hands-off highway driving assist systems in the US market. The competitive intensity has compelled
traditional OEMs to introduce ADAS features by offering hands-off driving features in their L2+ vehicles.
• The ADAS market is currently driven by premium and mass-market OEMs, especially their expensive and flagship
vehicles that feature ADAS systems such as adaptive cruise control (ACC) and lane-keep assist (LKA). These
offerings are expected to be updated to L2+ hands-free assists over the three to five years.
Key Trends
• L0 – No Assistance: Single sensor-based ADAS warning systems such as BSD, FCW, and RCTA are likely to grow
in ‘A’ segment vehicles in developed markets and A, B, and C segments in emerging markets
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• L1 – Feet off: The L1 ADAS market penetration is forecasted to grow exponentially in North America and Europe
by 2025 due to GSR regulation and voluntary fitment
• L2 – Hands off: L2 and L2+ will capture the largest market share worldwide, with over 20 million vehicles in the
next few years
• L3 – Eyes off: ALKS regulations will promote the increased L3 feature adoption in flagship vehicles of premium
OEMs, closely followed by mass-market OEMs in select countries
• L4 – Mind off: Robotaxis and autonomous parking features will open the L4 market by 2025
• L5 – Passenger: L5 AD introduction in the market will depend on technology maturity and L4’s success; thus,
expected after 2035
ii) Electric Vehicle (EV)
In 2021, of 6.7 million units sold, 70.7% were BEVs, and 29.1% were PHEVs. Global EV penetration increased from 4.4%
in 2020 to 8.8% in 2021. APAC recorded a 151.7% YoY growth, the highest among others, helping it widen the gap
between itself and Europe in 2021. Tesla retained the leadership with sales of 936,172 units, followed by the VW Group
with 762,717 units. Tesla (13.8%) and VW Group (11.3%) held 25.1% of the market. A total of 641,000 MWh of units have
been delivered globally in the last 11 years, with 2021 delivering 251,400 MWh, 80% higher than in 2020. EV charging
point installations surpassed 1.5 million points compared to 1.1 million in 2020, with China (accounting for 65%) having
the maximum number. CHAdeMO is the first prominent format to be phased out by 2024. China’s upcoming ChaoJi
format is expected to grow in the next decade as it is compatible with AC and DC (like CCS) and with current and old
connector formats. Advanced features, such as V2G services, business intelligence, blockchain technology, and
suggestive charging pattern, will be available and preferred by network operators in the next 5 years of
management/aggregator cloud platforms. Leading battery manufacturers (BYD, CATL, and LG Chem) and OEMs (for
example, BYD, Daimler, and VW) are now looking at next-generation battery technology. It focuses on module-less
battery pack technology, integrating cells directly into the pack without packing them into modules.
Growth Drivers
• The global push towards electrification and fuel economy has led to ever-stringent emission norms. This has
resulted in some regions already committing to ICE bans.
• Countries across the global are working towards ambitious plans such as ‘Net Zero’ emissions by 2050 and ICE
vehicle ban from 2030 in some regions
• Global developed economies are aiming towards a ‘Low Emission Society’. This strategy is supported by
investing in infrastructure, green transport solutions and transitioning to a circular economy.
• Battery electric vehicles with longer ranges are comparatively priced than ICE vehicles. An increasing number of
fast charging stations will reduce the range anxiety and charging capability
• By 2030, EVs are expected to constitute approximately 27% of the overall passenger car market
• In India, NITI Aayog is currently targeting a commercial EV penetration of nearly 70%, a two-wheeler, and three-
wheeler EV penetration of 80% by 2030. Robust government policies and programs by the government are all
contributing to the growth of EV market in the country. Some of the policy support initiatives launched by the
government to increase EV adoption include FAME 1 and FAME 2 India scheme, PLI scheme, Battery swapping
policy, tax exemptions and many such initiatives.
Key Trends
• Global emergence of Giga factories: Approximately 86 battery manufacturers will hold 95% of the market share,
of which 50% will be from China by 2030. Over 118 Gigafactories are likely to emerge by 2025
• Charging infrastructure development: OEMs will now shift to advanced charging systems, such as bi-directional
charging, which enables functions such as V2G.
• Next generation battery technology: Transformation towards alternate battery structure (cell to pack) and
chemistry (solid-state, hybrid chemistry, such as LFP and NMC)
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• Wireless Battery Management System (WBMS): WBMS aims to reduce possible mechanical failures due to
cables, harnesses, and connectors by eliminating 90% of all wiring and cabling
• Transition to Silicon Carbide (SiC) based Power Electronics: SiC based PE architecture (along with the Powertrain-
based Domain Control Unit) becoming the most powerful features than OEMs require. Leading semiconductor
manufacturers and OEMs are rapidly moving towards SiC.
• The technological shift to 800V architecture will disrupt the market as the charging dynamics transform from
400V to 800V. It is expected that post 2025, majority of the OEMs will shift towards the 800V architecture.
iii) Safety
Active and passive safety systems are crucial in terms of getting a vehicle approved to be sold in a particular market.
Active safety systems include antilock braking system (ABS), electrical brakeforce distribution (EBD) and electronic
stability control (ESC). Airbags and seat belts are also known as passive safety systems. ABS and EBD are known by their
standard terminologies across the industry, while ESC systems have proprietary names from the OEMs providing the
feature on their vehicles. The revenue for these systems is usually from the OEMs to the tier suppliers who integrate the
hardware, and the software is integrated by the OEMs themselves.
Growth Drivers and Trends
• With increasing levels of autonomy and differing seating arrangements, safety features are now looked at from
a different perspective than earlier. Safety features on a vehicle are increasing, with more focus towards ADAS
features.
• Many active safety features have been mandated across the world and OEMs are exploring other ways to make
vehicle safer as a part of their goal to achieve zero fatalities towards the end of the decade. Safety requirements
set by institutions such as NCAP becoming more and more stringent. India has recently proposed the
introduction of the Bharat new vehicle safety assessment program (BNVSAP) which is very much like the NCAP
(New car assessment program) for India.
• Advancements in the safety field have brought about new features that enhance the safety of the occupants
inside the car. Some of these features include centre airbags and seatbelt airbags
• It is expected that the safety features that were limited to the premium segment of the passenger vehicle
market will trickle to the mass-market segments as well. In Premium segments, many vehicles are also equipped
with side airbags in the rear seat, which was unheard of earlier
• OEMs have started providing value-added features at lower additional costs to please more customers. For
example, providing ECS together with ABS and EBD provides more value for customers than just ABS and EBD
alone.
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CHAPTER 6 - COMPETITION OVERVIEW
Global EMS Industry
The global EMS market accounts for 35% of the total electronics industry. The EMS market has grown steadily over the
last few years, owing to increased sales of mobile phones, consumer electronics, and IT products. OEMs' widespread use
of contractual services is fuelling this growth.
Industry structure
The global EMS market traditionally comprised of companies that manufacture electronic products, predominantly
assembling components on PCBs and box builds for OEMs. The global EMS market is addressed by more than 1,000
players. However, the top 10 players contribute to 53% of the market. Hon Hai Technology (Foxconn Group) is the market
leader, accounting for nearly 24% of the market in 2020 and 4.8x times larger than the nearest competitor. Pegatron,
Quanta, Compal Wistron, Jabil and Flex are some of the leading players in the EMS market. Apart from the top 10 players,
Continental, Wabtec (Faiveley), TMEIC, Cummins, Robert Bosch, Trimble Mobility Solutions, Kyosan, and Collins
Aerospace are major OEM’s who outsource manufacturing to EMS players in their respective industry segments. The
entire universe of peers (both Indian & Global) has been included in this report and some of them might not be directly
comparable to Cyient DLM in terms of Business Model.
Chart 6.1: Industry structure of EMS market, Global, 2021
Business analysis of key Global companies

Chart 6.2: Company background of key EMS companies, Global, 2021
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Chart 6.3: Market share, Service offered, Focus end-user segments, Strategy and Future outlook of key EMS
companies, Global, 2021
Financial benchmarking of key Global companies

Chart 6.4 (a): Profitability ratios – Revenue, Material Margin, EBITDA margin, Global, 2019-2021
82
Chart 6.4 (b): Profitability ratios – Net Margin, RoE, RoCE, Global, 2019-2021
Indian EMS Industry

The Indian EMS industry is relatively young, with nearly three decades of experience. The EMS industry has grown in
prominence over the last decade, particularly in the last five years. The Indian market opportunity is driven by the
expected geographical diversification by global OEMs of their manufacturing needs to reduce dependence on China and
the availability of government incentives and other schemes, among others.
Industry structure
Chart 6.5: Industry structure of EMS market in India, FY22
There are more than 30 organized companies in the EMS industry ranging from large, medium-sized, to small players
and categorized by global and domestic players. Major global companies are Bharat FIH, Flex, Wistron, Pegatron, Jabil;
large Indian companies include Dixon, Amber, Cyient DLM, SFO Technologies, Syrma, Elin, Avalon Technologies etc. The
competition concentration is moderate as the top 3 companies account for ~ 30% of the market. EMS companies in India
have matured from being mere contract manufacturers to end-to-end support partners today. Ambitious expansion
plans and capacity augmentation of indigenous EMS players to capitalise on favourable policy initiatives ensure that the
EMS sector in India will witness heightened growth in coming years. Cyient DLM has one of the highest margins in the
Indian EMS industry. It also has an industry leading order book. Cyient DLM’s position as one of the few EMS companies
in India offering electronics solutions for safety and mission-critical applications in highly regulated industries acts as a
significant entry barrier to new entrants.
83
Business analysis of key Indian companies
Chart 6.6: Company background of key EMS companies, India, FY22
Chart 6.7: Service offered, Focus end-user segments, Strategy and Future outlook of key EMS companies,
India, FY22
84
Financial benchmarking of key Indian companies
Chart 6.8 (a): Profitability ratios – Operating Revenue, Material Margin, EBITDA margin, India, FY20-H1FY23
85
Chart 6.8 (b): Profitability ratios – Net Margin, RoE, RoCE, India, FY20-H1FY23
86

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CYIENT DLM LTD.

“Market Assessment for India EMS Industry” (the “Report”)

It is a type of contract manufacturing that refers to the process of manufacturing

Real GDP for key regions

Impact of Covid 19 pandemic on different economies

Geopolitical situation and their impact

E) Global Trade War

Per capita consumption of electronics in major economies

Global electronics manufacturing market split between in-house and EMS

Key parameters considered for in-house vs EMS

Evolution of the global EMS industry

Range of services offered by EMS companies globally

EMS market segmentation by services

Chart 2.9: Advantages and Disadvantages of ODM and CM

EMS market segmentation by HVLM vs LVHM

Size of the Box-build split by cost components

EMS market segmentation by the manufacturing locations

EMS market segmentation by outsourcing geographies

EMS market segmentation by end-user industries

Trends, challenges, and entry barriers in Global Electronics Manufacturing

Challenges/market restraints hindering the growth of Global EMS industry

Entry barriers in the EMS industry

Government incentives and programs

Trends on alternative locations for manufacturing to China

B. Labour market comparison

Consumer Price Index (CPI) and Inflation

Index of Industrial Production

Per Capita Income

Indian Electronics Industry

Comparison of Indian domestic electronics production vs consumption vs exports

India for India and India for Global

Key challenges for the electronics industry in India

Indian EMS Industry Size and Growth Outlook

Indian EMS market segmentation by ODM vs CM

Indian EMS market segmentation by B2B vs B2C

Indian EMS market segmentation by B2P Vs B2S

Size of the Box-build split by cost components

Indian EMS market segmentation by end-user industries

Electronics outsourcing – comparison between India and other key economies

Indian Defence Electronics Market

Increasing contribution of India to the global EMS industry

Investment by Global and Domestic EMS players in India

Key restraints for the industry

Global EMS market size India EMS* market size

Business analysis of key Global companies

Financial benchmarking of key Global companies

Indian EMS Industry

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