FROST

& S U L L I VA N

Indian ESDM Market (2011-2015)

An ISA - Frost & Sullivan Report
EXECUTIVE SUMMARY

Executive Summary
Only a few economies have exhibited the strength to weather the harsh conditions prevailing in the global environment. Such
economies are especially remarkable since they are vulnerable to headwinds given the significant size of their GDP. India, despite
its temporary slowdown in the last year, has not only withstood the adverse environment, but has also been witnessing green
shoots of recovery. The Electronics Systems Design and Manufacturing (ESDM) sector ranks high among the various segments that
have contributed to creating this bulwark. The ESDM industry in India has continued to chart its journey northwards. While the
industry may not have achieved the exponential growth forecast by experts, its performance in the last few years can be termed
an achievement in view of the overall slowdown of the Indian economy.
The ESDM industry is expected to grow at a Compound Annual Growth Rate (CAGR) of 9.9 percent between 2011 and 2015
resulting in an industry size of $94.2 billion by 2015.

Indian ESDM Industry: Revenue Forecasts Split by Product and Services (2010-2015)
Indian
ESDM Industry: Revenue Forecasts Split by Product and Services (2010-2015)
94.20

100.00

Revenues ($ Billion)

90.00

84.16

80.00
70.00
60.00
50.00

59.01

68.31

64.61

13.68
12.08

10.72

9.15

7.79

40.00
30.00
20.00

15.46

75.61

55.45

57.58

63.53

2011

2012

2013

70.48

78.74

2014

2015

51.22

10.00
0.00
2010

Product Industry Size

Services Industry Size

Source:
ISA-Frost
& Sullivan
Source: ISAFrost
& Sullivan

Although the electronics product market is growing a very fast pace, ironically most of the demand is being fulfilled by imports.
The growth potential of the services component will be determined to a great extent by Indias ability to undertake higher valueadd activities and cost competiveness.
Resolute focus on the ESDM industry and favorable policies to incentivize investment, adoption of new technologies, catalyzing
innovation & entrepreneurship, enhancement of skills and addressing the disability cost of developing ESDM products domestically
are the key ingredients to elevating India to a leading player in the global arena.
Key Drivers and Challenges for Indian ESDM Industry
The positive factors far outweigh the challenges that impact the Indian ESDM industry. The growth of the product markets is one of
the key drivers where mobile devices, consumer electronics and IT/OA products continue to script some of the high growth rates
globally. Financial inclusion programs and rising standards of living have generated demand for new products besides increasing
customer-base of existing ones. India is also recognized globally as a key source of high technology skills which are leveraged by
global corporations for generating value.
The global economic downturn has had a profound impact on the ESDM industry in the past quarters. This is expected to be
temporary, and given the strong domestic growth potential, is expected to be overcome over the next two quarters. Our continuing
reliance on imports is impeding growth of domestic manufacturing, which in turn is a major hurdle to the creation of a viable
domestic ecosystem. The high cost of developing products including duties, taxation, capital and infrastructure are leading to a
slow pace of investment in this sector.

ISA - Frost & Sullivan 2011 - 15

CONFIDENTIAL ISA COPYRIGHT

Indian ESDM Market (2011-2015) 2012

In a developing economy like India, where the government is driving force through its role of policy maker and facilitator, new and
evolving policies for ESDM are anticipated to spur the industry into a higher growth mode. The recognition of the ESDM industry
as a key contributor to the GDP is a major step forward. The national policies on telecom and electronics have the potential to
bring about a major change in the domestic industry. Quick implementation of these policy initiatives will positively impact the
development of the domestic product design and manufacturing industry.
The ESDM industry in India comprises of the following four key segments:
1.

Electronic Products

2.

Electronic Components

3.

Semiconductor Design Services

4.

Electronics Manufacturing Services (EMS)

Of the above, the first two represents products, while the others highlight the manufacturing services and design services
opportunities in the market.

Electronic Products
The market for electronic products comprises of domestic demand and products manufactured for exports. This market is expected
to grow from $52.4 billion in 2011 to $74.6 billion in 2015 that includes exports of $10.5 billion in 2011 decreasing to $9.7 billion
in 2015. Declining prices and increasing affordability are anticipated to propel domestic demand. To understand the domestic
demand and supply situation, the following chart analyzes the total domestic consumption, total domestic manufacturing and
high value add manufacturing.

Indian
Electronics
Forecasts (2010 - 2015)
India Electronics
Market:
TM, TDMMarket:
Forecasts TM,
(2010TDM
- 2015)
70

64.85

60

57.14
50.61

50
40

44.81

41.91

39.21

30
22.68
20
14.67
10

4.12
10.55

17.07

15.27

15.44

3.74

3.55

3.62

11.54

11.89

13.46

19.47
3.9
15.57

4.35
18.33

0
2010

2011

2012

2013

2014

2015

Total Domesc Manufacturing (High Value Add, $ Billion)

Total Domesc Manufacturing (Low & Medium Value Add, $ Billion)

Source: ISA-Frost & Sullivan

Total Market ($ Billion)

CONFIDENTIAL ISA COPYRIGHT

ISA - Frost & Sullivan 2011 - 15

The total market is expected to grow from $41.91 billion to $64.85 billion in 2015. Total domestic manufacturing contributes only
35% of this demand and the remaining 65% is met through imported products. The anticipated decline on the share of high value
added manufacturing to 6.6% of total market is a matter of serious concern. Timely policy intervention and incentives must be
implemented urgently to increase the scope for local value addition.
Select products from the automotive and industrial electronics segments are the notable contributors to the high value addition
activities within India, although their contribution to the total market of $64.85 billion is low. However, products with significant
volumes and market size like telecom, mobile devices, consumer electronics and IT/ OA suffer from lack of investment in product
development and manufacturing.

Electronic Components Including Semiconductors

The electronic components industry comprise of semiconductors and passive components. As most electronic products are
enabled by semiconductor components, it is important to analyse the overall consumption of semiconductors, which is expected
to grow from $6.1 billion in 2011 to $9.66 billion in 2015. Although, local demand and sourcing of semiconductors is limited to
$ 2.94 billion in 2011 and increasing to $ 3.69 billion in 2015 due to import of electronic products and low domestic manufacturing.
Since currently there is no semiconductor manufacturing in country, the entire consumption is met through imports.
Continued innovation of semiconductors devices coupled with their enhanced processing capability has led its increased
consumption in mobile devices, IT/ OA , telecom, automotive and industrial sectors. The following chart exhibits the total market
(consumption) and Total Available Market (local demand and sourcing) for semiconductors over the forecast period.

Semiconductor Market Revenue Forecasts

IndianIndian
Semiconductor
Market Revenue Forecasts

9.66

10
9

8.43

7.34

7
6

6.54

6.03

5.59

5
4
2.94

2.76

2.93

2.76

3.69

3.25

2
1
0
2010

2011
Total Market ($ Billion)

2012

2013

2014

2015

Total Available Market ($ Billion)

Source: ISA-Frost & Sullivan

The domestic electronic components Industry ( Resisters, Capacitors, Connectors , wound components , PCB, Fuses, CRT , Speakers,
Switches, etc but non semiconductors) is estimated at $3.1 billion in 2011 and is expected to grow to $4.2 billion in 2015. In the
ESDM industry sizing semiconductor market size is not added as these components are imports only.

ISA - Frost & Sullivan 2011 - 15

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Indian ESDM Market (2011-2015) 2012

Semiconductor Design

Semiconductor design has traditionally been the strength for Indian ESDM industry generating revenues of $8.8 billion in 2011.
There are more than 120 companies in India focused on semiconductor design for global products. This industry has witnessed
a robust growth of 17.3 percent since 2009 and today boasts of a 5.1 percent share of the global pie. Considering the continued
growth momentum, the Indian semiconductor design market is expected to grow to $14.5 billion in 2015. The chart below gives
break down and growth trend of Semiconductor Design which is expected to grow at healthy rate in coming years.
Over the years Indian semiconductor design industry has developed significant capabilities and currently works on state-of-art
products. Growing technical competence combined with stringent IP protection environment and trend towards localization of
contents will help this segment continue to grow.

Indian Semiconductor Design Industry 2009 2012

12000

CAGR: 17.3%

In $ Millions

10000

672
558

8000

476
6000

417

4000

5319

6076

7127

8579

827

944

1108

1333

2009

2010

2011

2012

2000

VLSI design

Embedded software

Board/hardware design

Source: ISA-DIT design report 2011

Electronic Manufacturing Services

Growth of the electronic products market has led EMS companies to offer lower cost of manufacturing, faster turnaround for
designs and quicker time to market. Since the mid-nineties, many global EMS companies have established operations in India and
have become a key contributor in enhancing the ecosystem in the country. Most of them are export oriented and have encouraged
local production using the same components and services base for the Indian market. Select electronics companies utilize the
services of EMS companies to reduce their own investment and focus on their product development and marketing functions.
These companies face competition from peers in other Asian countries such as China, Malaysia, Singapore , etc.
Manufacturing policies such as the Electronics Manufacturing Clusters policy are deemed favorable to the prospects of the EMS
industry in India. The burgeoning market for local consumer electronics and select telecom products is also attracting investors into
the segment. Emerging segments like medical and aerospace/defense are also expected to the leverage the existing capabilities of
the EMS industry. The growth of the EMS industry services revenue in India is captured in the chart in the next page.

CONFIDENTIAL ISA COPYRIGHT

ISA - Frost & Sullivan 2011 - 15

EMS Services Market Forecasts (2010-2015)

1.00
0.90

CAGR (2011-2015): 27.8%

AllRevenues
values in($($Billion)
Billion)

0.80
0.70

0.7

0.60
0.5

0.50
0.40
0.30
0.20
0.10
0.00

0.4

0.3
0.2

0.3

0.1

0.1

2010

2011

0.1

0.1
2012

Domestic Market

2013

Exports

0.2
2014

0.3

2015

Source: ISA-Frost & Sullivan

The EMS industry services contribution is expected to grow at a CAGR of 27.8 percent from $ 0.4 billion to $ 1 billion in 2015.
The overall turnover in the EMS industry is estimated to be $ 3 billion in 2011. Both the conventional and emerging industry
segments are anticipated to maximize the benefits from this industry.

Global Best Practices and Learning for Indian ESDM Industry

The global ESDM industry is replete with success stories of planned development in various countries. Those who started late,
adopted an aggressive strategy to make up for lost time, and have been successful. Every country invested in the development of
ecosystem, infrastructure, manufacturing, skills, funds availability and favorable taxation and duties to encourage domestic and
foreign investment. The role of government in developing each of these elements is noteworthy. A long term vision with short and
mid-term plan has been the bedrock on which these projects were executed.
Notable gainers in the last 25 years have been China, Japan, US and Taiwan. Emerging countries in the last couple of decades are
Malaysia, South Korea, Brazil and Russia, who are attracting significant investment from around the world. All these countries
focused on creating and improving infrastructure to offer the best returns to investors over a short period of time. Many of these
countries have placed ESDM among their thrust sectors, thus ensuring every possible support in their development programs.

Focus on Industry Development, with a Sense of Urgency

The Indian ESDM industry has proven its mettle by growing against immense adversities. Despite the inherent strengths, the Indian
ESDM industry has not been able to realize its potential for a long time and has missed the opportunity to emerge as the world
leader while smaller economies went on to march ahead. With so much time lost, an urgent action plan is required to effect a
paradigm shift. Stakeholders the industry and the government have to exhibit the highest level of commitment to bring about
change immediately.
A number of factors are today working in favor the Indian ESDM industry:

Significant size of the domestic electronics product market

Design and manufacturing capabilities

Impetus to entrepreneurship

Availability of skilled and semi-skilled manpower

Global corporations exploring high growth geographies for investment

Recognition of ESDM as a key growth engine for GDP

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Indian ESDM Market (2011-2015) 2012

The above factors may be at different stages of maturity, but the ingredients are right for discarding history and move ahead. The
industry needs to ramp up its capabilities to deliver quality and choose the path of innovation to grow and compete in global
environment.
This industry also needs a strong helping hand from the government. The adoption of the national policy on electronics is a step
in the right direction. However, given the lack of focus on this industry for a long time, the forthcoming years will prove crucial to
put the Indian ESDM industry on track of quantum growth. With the right decision making and proactive assistance to the industry,
the government and industry should move in unison to help the Indian ESDM industry claim its rightful position under the sun.

Strategic Recommendations:
It is very encouraging to see increased focus on the ESDM sector in last couple of years and a significant amount of work was
done to bring out National Electronics Policy and National Telecom Policy by the government in consultation with industry. Some
of the initiatives outlined in these policies are already in process of implementation such as Preferential Market Access (PMS),
Electronics Manufacturing Clusters (EMC) and Modified SIPS. To strengthen current initiatives going further the following strategic
recommendation are suggested for immediate action.
Goal to achieve 50% of demand for high impact products met by local high value added manufacturing,
from current 9%.
Expediting implementation of National Electronics Mission to facilitate co-ordination of National Electronics
Policy implementation.
Declaration of Electronics as a Priority Sector and Provision of deemed export status to domestic products as
they are substituting imports.
Address >20% disability cost in developing domestic ESDM products thru normalizing duty structure and
cost of working capital.
Expedite EDF setup with initial focus on fabless and ESDM start ups. Encourage participation of GOI in focused
funds to develop eco-system.
Mandate preference to domestically manufactured electronic goods in all Central, State Government and public
sector units (PSUs) procurements with immediate effect.
Establishment of 10 ESDM innovation centers across the country where electronic product ideas can be taken to
prototype and end product.
India specific standards for the key products catering to domestic need.

Key findings and summary

Indian ESDM Industry on growth trajectory of 9.9% CAGR
from $64.6 Billion in 2011 to $ 94.2 Billion in 2015

65% of electronic products demand met by imports. Imports likely to grow from
$28 billion in 2011 to $42 billion in 2015 in the absence of intervention.
High value -added manufacturing to decline to 6.7% in 2015.
Cumulative opportunity loss of $200 billion during 2011-2015.
Total semiconductor market $6.03 Billion in 2011 and growing to $9.66 Billion by 2015.
Although local demand and sourcing grows from $2.9 Billion in 2011 to $3.6 Billion in 2015
due to heavy reliance on imported electronics products
Achieving 50% Total Domestic Manufacturing by 2015 will
create additional direct employment of 2 Lakhs

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ISA - Frost & Sullivan 2011 - 15

India Semiconductor Association

Head office:
UNI Building, Millers Tank Bund Road, Bangalore - 560 052 India
Phone: +91 80 4147 3250 Facsimile: +91 80 4122 1866
New Delhi office:
DBS Business Centre, First Floor World Trade Tower
Barakhamba Lane, Connaught Place, New Delhi - 110 001 India
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