Counterpoint Senior Analyst, Hanish Bhatia, moderated the inaugural session of SmartTech Manufacturing & Electronics: India Congress 2017, at Le Meridien (New Delhi) on December 21, 2017. Organized by Konnect Worldwide, the event focused on transition from 'Make in India' to ‘Design in India’ strategy to enhance the local value-addition of mobile handset manufacturing in India. The discussion covered key aspects of developing design capabilities in India – the existing ecosystem (embedded software and VLSI design), mobile design value-chain (PCBA, antennae, chip design, etc.), key challenges, progress of India’s own semiconductor fab, etc.

The event witnessed participation from all stakeholders of the mobile manufacturing including the government (MeitY, NITI Aayog, DoT), OEMs as well as fabless semiconductor firms. The discussion on ‘Design in India’ was joined by senior government officials and industry executives such as:

• Mr. Sanjay Kumar Rakesh (Joint Secretary, MeitY)
• Mr. Sanjay Gupta (Country Head, NXP Semiconductors)
• Mr. Sanjay Kalirona (CEO, Comio Mobiles)
• Mr. Vikas Jain (Co-Founder, Micromax)
• Mr. Kuldeep Malik (Country Head, MediaTek)
• Mr. Ankit Pal (Head of Design, Lava)

The discussion, which lasted nearly an hour, highlighted the significant progress which includes ~120 mobile assembling units set up in India, within last 2-3 years. It also highlighted that the manufacturing has been restricted to only SKD-level assembling, which means smartphone components are imported to India in SKD form and put together in India to save the cost of import duties. As per Counterpoint Research, local value addition in India is estimated to reach 10% by the end of CY 2017, driven mainly by assembling and other components like charger, cables, packaging and others. But as we leap forward, it is important to focus on design capabilities to supplement higher local value-addition within India. To begin, it involves greater investment in industrial design, PCBA design and surface-mount-technology (SMT) level assembly, although many of the major silicon components will continue to be sourced from overseas.

From 'Fab First' to 'Fab Last'

In early 2010s, India pursued an ambitious target to set up a semiconductor fab in India. This triggered high expectations within the industry which expected significant boost to the electronics manufacturing ecosystem. Although the plan for semiconductor fab didn’t work out, the industry realized the need for a mature phased approach to proceed step-by-step.

When asked about the future of semiconductor fab in India, Mr. Sanjay K. Rakesh said, “Fab plans will depend on the situation of the market and how manufacturers look at it. Earlier, two companies came in with concessions – one of them did not follow-up because of external developments, and the other one is still struggling. But fab will only come when market and ecosystem exist. Prior to fab, there are other categories that can be pulled in here. Later, it can be evaluated which type of fab has to come first.”

Leveraging the soft power of India

India has significant soft power within design, with cities such as Bangalore offering VLSI design and embedded software services to Indian subsidiaries of global fabless chip firms. Although these design services are part of basic low-end of the overall value-chain, but considering IP protection laws in India, we can expect India to leap forward with right policy framework and rise in private sector investment driven by local demand.

When asked about efforts to push forward the ‘Design in India’ campaign, Mr. Kuldeep Malik (Country Head, MediaTek) highlighted, “We are running our second three-week annual smartphone design training program in collaboration with India’s Ministry of Electronics and Information Technology (MeitY), for Indian engineers starting January 2018. During the program, Indian engineers will undergo a comprehensive training at MediaTek’s Taiwan headquarters. The training will cover theoretical as well as practical sessions on three specialized modules including radio frequency, multimedia and system design".

Adding to the discussion, Mr. Sanjay Kumar Rakesh (Joint Secretary, Meity) addressed the question on brain drain, he says, “Brain drain is a concept of 1980s. If our own resource who goes out, he/she will be the first one to come back when the situation improves. He/She will come back with international experience. It’s an asset, not a challenge”. Mr. Rakesh further added, “As of today, almost all companies have R&D centers in India. Furthermore, design issues need to be handled well”.

Need to develop the component level ecosystem

Mobile design is not restricted to few components, in fact, design is in the core of each component of every mobile device. Design addresses technical as well as spatial challenges within a mobile handset. Antennae, PCBA and APU (chipset) design are some of the key areas of mobile handset design.

Talking about the immediate areas of focus, Mr. Ankit Pal says, “It has to go in a backward integration manner. Assembly first, then design, then component localization. Start with less complex components and then move towards complex ones”. While focusing on creating intellectual property, he further added, “Whole focus on design is important, we must focus on creating a strong intellectual property in India and the innovation will follow”.

Also, providing a broader overview of long-term focus, Mr. Vikas Jain said, “We can’t stick to just one aspect and must focus on product ideation as a whole. We must take ownership of the entire design of the product. It will be the entire package.”

Adding further to the discussion, Mr. Sanjay Kalirona highlighted Comio’s progress and need for local R&D, he says, “Comio has started contract manufacturing in India within initial three months. Within a year, we will have our own manufacturing. Local R&D center will help. We can understand Indian customers’ requirements and design accordingly as per local needs”.

Limited availability of component suppliers is also one of the major barriers. While highlighting the issue, Mr. Vikas Jain added, “India on component system is lacking a bit. The easy availability of initial components is very critical for design services. Lots of manufacturers have design centers in China. This is due to component ecosystem in India being small. Introduction of new components in India are delayed by three months compared to China”.

However, as per Counterpoint Research, we can expect things to change in near future, as majority of OEMs will kick-start local SMT for PCB assembly. This may trigger Chinese component suppliers to mushroom around SMT facilities. Hence, we can expect considerable progress in PCBA design in near future. Although local PCBA design capability is expected to add an extra 0.4% to the total local value-addition, but it will create a healthy environment for ‘Design in India’ and boost of local intellectual property in India, including patents and the ensuing royalties. Investing in PCBA design and (Surface Mount Technology) SMT-level PCBA assembly are important steps towards full-scale manufacturing. There are multiple benefits for adopting in-house design and assembly, firstly, it will ensure more control over the overall smartphone design, selection of key components, greater buying power, building Intellectual Property (IP) portfolio and ensuring multiple in-house quality checks and testing as compared to importing a ready-made PCBA from a third party ODM from overseas.

Automotive to go Smartphone Way - More Electronics means more Design

While mobile phone manufacturing has been much talked about lately, India has significantly more developed ecosystem for automotive manufacturing, with strong component ecosystem. In Counterpoint Research's viewpoint, the country needs to innovate as new technologies change the way we use automobiles. Also, India has taken upon the challenge to move from IC engine cars to EVs (electric vehicles). Therefore, as we move forward, we can expect to see more application of electronics in automobile too, which indirectly means more ‘design’. NXP Semiconductors is one of the most prominent players providing chipsets to automotive manufacturers.

Mr. Sanjay Gupta highlighted the need of design innovation in automotive, he said, “The entire world is moving to a new orbit with car infotainment and integration of automobiles with other devices. IoT is driving growth in smart cities, smart meters, etc. New technologies such as electric, driverless and connected cars are expected to drive growth.”

In a nutshell, the panel discussion highlighted that India has matured in its approach towards ‘Design in India’ now, as compared to a decade ago. At present, the progress is being driven by market dynamics, hence, it is a more sustainable approach. We are moving slow but we’re making significant progressions while creating design ecosystem in India. Considering the cost advantages, existing supplementing software capability, rising local demand of electronics, IP protection laws and availability of skilled workforce – India is all set to become a global design hub sooner rather than later.