The Indian Electronics Landscape - Top Trends to Watch in 2020
China is currently the second-largest economy in the world and achieved an economic growth rate of 6.6% in 2018. Though its electronics ecosystem is still the strongest, the country recently witnessed an increase in labour and electricity costs, which dampened its standing as a low-cost manufacturing location. The US and China are significantly raising import duties on each other’s products. This may relocate US investment from China to India. Wooing such investors is the need of the hour, as Vietnam poses a serious threat.
Vietnam stands to benefit the most from the US-China trade war, especially because of the recent tax holiday announced by its government. Although, with less than one-tenth China’s population, Vietnam is running into skilled labour shortages, as global manufacturers rush to set up shop to avoid US tariffs. Also, it suffers from a lack of specialised supply chains. Of the 56 companies that relocated their production from China between April 2018 and August 2019, 26 relocated to Vietnam, 11 went to Taiwan, and 8 to Thailand, 3 went to India and 2 to Indonesia.
India is the sixth largest economy in the world, and its economic growth stood at 7% in 2018. The status of the Indian electronics industry is changing as electronics is now a prime policy focus area. The government’s undiluted focus on manufacturing through the Make-in-India policy is fast catching the imagination of global and domestic companies. These positive developments set the stage for India to dominate electronics manufacturing in the region. In 2020, in the light of the US-China tariff war, India should make greater efforts to position itself as an alternative manufacturing destination. The Indian government should look at tax holidays, capital subsidies, and reimbursements on investments to make India a more attractive alternative to manufacturing in China.
Online Retailing to Drive Growth in the Consumer Electronics & Appliances (CEA) Segment
Online demand for Consumer Electronics and Appliances is primarily driven by growing internet penetration, a young demographic profile, and the rise in disposable income. The growing need for essential consumer electronics and home appliances, as well as awareness of online offers and choices, is encouraging the online purchase of appliances. The market is valued at INR 99,000 crore in FY19 and is projected to rise to INR 4,60,000 crore by FY 2026.
The ‘Rurban’ market in Tier II and Tier III cities has the maximum penetration potential for online consumer products. The Western region dominates the online CEA market with 34.7% share, followed by Southern, Northern and Eastern regions at 33.8%, 19.8 and 11.7%, respectively. As for the market share of online platforms in the Consumer Electronics & Appliances segment, Flipkart has the highest market share with 36.5%, followed by Amazon, MI Stores, and PayTM Mall at 33.7%, 4.5%, and 1.1%, respectively.
The Indian Market has been adopting digital eWallets faster than the US, UK, and China. Transactions have also grown 10-fold since demonetisation. In 2018, mobile wallet transactions in India crossed INR 1 trillion. ‘United Payments Interface’ (UPI) based apps such as Google Pay and MobiKwik have also become popular. ‘Paytm’ currently has the highest market share in the total eCommerce transaction value in India. The future of the online CEA market in 2020 will be shaped by several digital payments and technology trends. Artificial Intelligence and Machine Learning will be leveraged more to assist with product recommendation engines, virtual assistants, and warehouse automation. As technologies grow and see better adoption in 2020, online retailing in Consumer Electronics & Appliances will grow further.
National Policy on Electronics, 2019 – Growing Government Focus on the Electronics Sector Development
The National Policy on Electronics 2019 (NPE 2019), formulated by the Government of India has been envisioned to create a globally competitive Electronics System Design and Manufacturing (ESDM) industry to meet the country's needs and to serve the international market. The Government of India is focussed on electronics hardware manufacturing, extending to the integrated circuit or chip level. However, the sector continues to face many challenges. The National Policy on Electronics 2019 (NPE 2019) seeks to position India as a global hub for ESDM by creating an enabling environment for the industry. Its objectives are to:
- Promote domestic manufacturing and exports in the entire value-chain of ESDM for economic development to achieve a turnover of $400 billion (approximately INR 26,00,000 Crore) by 2025.
- Promote and create a framework for a comprehensive Start-up ecosystem in emerging technology areas, such as 5G, IoT, Artificial Intelligence, Machine Learning, Drones, Robotics, Additive Manufacturing, Photonics, Nano-based devices, etc.
- Promote research, innovation, and support to the industry in the areas of packaging, interconnects and micro photonics.
- Promote research, innovation, and support to industry for green processes and sustainable e-Waste management.
- Provide incentives and support for significantly enhancing the availability of skilled manpower, including reskilling, in the ESDM sector.
- Provide fiscal incentives and support for export-led growth.
- Provide policy support and special package of incentives for highly capital intensive projects.
- Develop core competencies in all sub-sectors of electronics.
- Become a global leader in the Electronics Manufacturing Services (EMS) segment.
- Improve ease-of-doing Business for the ESDM industry.
- Encourage industry-led R&D and innovation in all sub-sectors of electronics.
- Drive indigenisation in the microchips used by strategic and critical infrastructure sectors, viz., defence, space, atomic energy, telecommunications, broadcasting, aviation, power, etc.
- Create specialised governance structures within the Government to cater to the specific needs of the ESDM sector.
- Facilitate loans to the industry at competitive rates for setting up or expansion of electronics manufacturing units.
- Encourage and incentivise Transfer of Technology (ToT) for core technologies.
If policies and programs are implemented following the NPE 2019 guidelines, it will create a supportive environment for the domestic manufacturing ecosystem in the country by 2020.
Product Innovation to Spur Demand for Smart Homes & Connected Buildings
Smart Homes include lighting control, security & access control, HVAC, entertainment, smart speaker, home healthcare, smart kitchen, home appliances, and smart furniture.
Voice-controlled technologies and products like Alexa and Siri are becoming assets for smart homes. Smart streaming devices like Chromecast, Amazon Fire Stick are becoming more accessible. Also, Smart home security, Face recognition cameras remain a growing trend.
The LED market has been disrupted by the introduction of newer technologies including PoE, IoT, and Li-Fi. All the major LED giants are beginning to tap the potential for smart lighting solutions by partnering with companies offering technology platforms.
The Smart Homes and Connected Building segment will see high interest and uptake in the coming years due to:
- The increasing importance of home monitoring in remote locations
- Rising need for energy-saving and low carbon emission-oriented solutions
- Cost reduction measures enabled by smart homes
- The rapid proliferation of smartphones and smart gadgets
- A large number of manufacturers expanding their smart home product portfolios
- The growing concern about safety, security, and convenience among people
- Rise of Internet of Things (IoT) and cloud networking
- Growing number of Internet users and increasing adoption of smart devices, and
- Increasing awareness about fitness and rise in disposable incomes.
In 2020, home automation applications will evolve due to the convergence of various technologies: smart sensors, voice-activated technology, smart lighting, robots, wireless charging, wireless communication, and wearables.
Manu Tiwari is Program Manager, Industrial Practice, Frost & Sullivan. Manu is a competent professional serving as management consultant helping clients grow their business through insights on market trends, growth opportunities, channel partnerships, Go-to-market insights, new business models, effective marketing techniques, disruptive technologies & mega trends.