BS Manthan: India natural choice for manufacturing, says Dixon's Vachani

The component and electronics industry is set for a ‘Y2K’ moment, and the world continues to look for an alternative location for setting up its manufacturing units, Sunil Vachani, the founder and chairman of Dixon, said. 

 

“India is a natural alternative. We have the largest market for some of the products we manufacture, a large pool of labour, and we can excel in design and manufacturing. We have shown that our manpower can be the most productive in the world compared with many other countries if given the right inputs,” Vachani said, speaking at the second edition of Business Standard Manthan.

 

 

Of the total $140 billion worth of electronics products consumed in the country, domestic units make products worth $110 billion. Information and communication technology (ICT) products are also the third-largest category of goods in India's export basket, with the country expected to export ICT products worth $40 billion, including mobile phone exports of $20 billion, he said.

 

“Now the question that needs to be asked is: when do we deepen manufacturing? What will happen to the value addition in all the products? When do we start designing these products? I think these are the questions to ask now,” he said.

 

The 56-year-old chairman and managing director of Dixon Technologies, which is among the largest home-grown white-label electronics manufacturers, believes that the component manufacturing ecosystem will also come to the country over time with the patience of the electronics industry.

 

“I wasn’t around at that time, but I am sure the same question was asked when Maruti started manufacturing cars for the first time in India. Many would have said that this is only assembly for now, and asked when the component ecosystem would arrive. But today, about 40 years later, the auto components sector exports products globally,” Vachani said.

 

The American College London graduate started Dixon in 1993 with money borrowed from his father. By his own admission, the senior Vachani gave him not just the money but also sent Atul Lall, a trusted lieutenant, along with his good wishes.

 

The debate around value addition, especially for mobile phones, is somewhat misplaced, he said. For example, while some say that domestic value addition in India is only 20 per cent, even in countries like Vietnam, where mobile phone production is much higher, the total value addition is only about 25 per cent.

 

Similarly, in China, which is the world’s largest producer of both feature phones and smartphones, the value addition is only about 50 per cent, Vachani said.

 

“We at Dixon have also announced our project for manufacturing display modules, eventually setting up a display fab. We are also entering the manufacturing of camera modules and mechanicals,” he said.

 

The company’s journey from a rented manufacturing facility in Noida to 24 facilities across the country today has become a poster story of the prowess of domestic manufacturing in India.

 

Dixon initially started by assembling cathode-ray tube (CRT) televisions for Lucky-Goldstar (now LG) and has now expanded its portfolio to include televisions, smartphones, feature phones, telecom equipment, refrigerators, smartwatches, washing machines, and security and surveillance systems such as closed-circuit television (CCTV) cameras, along with information technology hardware.

 

“So we are confident that in the next couple of years, we will increase value addition from 20 per cent to about 30-35 per cent. That is a big deal for both the country and the company,” he said.

 

Though Dixon has proven itself in the electronics manufacturing industry by quickly becoming one of the top white-label product makers in the country, there are aspects such as backward integration, scale, product design, and digital transformation where domestic companies can still learn from Taiwan's electronics manufacturing powerhouses, Vachani said.

 

The company was listed on stock exchanges in 2017 and recorded a turnover of Rs 12,192 crore in 2022-23, a growth of over 90 per cent year-on-year. A champion of the government's Make in India initiative, Vachani’s Dixon was one of the first companies to receive approval under the flagship production-linked incentive (PLI) scheme for mobile phones.

 

From a modest 80,000 mobile handset units, the company has grown to a capacity of producing over 70 million handsets annually. The company will begin production of the first display modules in October this year, which make up about 8-10 per cent of a mobile phone’s bill of sale value.

 

Apart from that, the company plans to launch another plant for manufacturing camera modules, which account for 7-8 per cent of a mobile phone’s total value, he said.

 

The expected changes in tariff structures imposed or likely to be imposed by the United States on China and some other nations present India with an unprecedented opportunity, Vachani said.

 

“The US imports LED televisions worth about $10 billion. They also import mobile phones worth almost $60 billion and IT hardware worth nearly $80 billion. If Indian companies were to capture even a fraction of this market, we would not be able to set up enough capacity to meet this kind of demand,” he said.

 

Though this surge in demand could be disruptive for the domestic electronics manufacturing industry, India must also resolve the issue of reciprocal taxes and sign free trade agreements (FTAs) that cover Indian products,” Vachani said.

 

Industry groups and associations are in discussions with the government on reciprocal taxes and have suggested that India delay reciprocal tariffs until FTAs are finalised, he said.

 

“I am confident that for products like IT hardware and laptops, where even Taiwanese companies are slowly moving up the value chain to servers, there exists a huge opportunity for Indian companies—not just in manufacturing but also in design and components.”