Dynamic India: India bans computer imports- Context from other countries

The Indian Government ban on imports seeks to benefit Make In India. The goal is for Indian manufacturing to gain strength during higher demand in the Indian market. The context and history from other countries makes this complex.

India bans imports of compute devices without a license. Make In India will be helped by this ban. Consumers and computer buyers may not be happy with higher prices and less choice. Dynamic India’s high-tech global businesses may see harms without access to the latest devices and servers.

The Japanese government shielded the automotive vehicle manufacturers in Japan against foreign imports during the growth of Japanese manufacturing methods. The eventual goal of these efforts were to grow an indigenous supply chain, design, product technology, assembly, and support chain. The longer term goal was to export this capability to build capacity in foreign markets – the USA was seen as the essential market required to be served. The current Chinese electric vehicle marketplace can be visualized in very similar patterns. The Indian vehicle market is similarly protected.

The conditions of:

1. Large domestic market to be served as a base of economies of scale

2. Indigenous technology and supply chains competitive with global manufacturers

3. Investment capital and enterprise maturity sufficient to scale for successful domestic production

The context nuances specific to the computing device market for India may cause a policy failure:

1. Limits on the growing domestic market in India has large “downstream” effects on Indian export enterprises that must maintain global competitiveness.

2. Supply chains are not technologically advanced to supplant foreign semiconductors, systems integration, and manufacturing capabilities.

3. Capital requirements (startup and running cashflows) at scale place difficulties for Indian capacity. Semiconductor ‘fab and packaging’ will take some years, at best, to become competitive with the spend required outside of current Indian capacities.

Comparisons to EU and North American limits on Chinese networking equipment, smartphone manufacturing, and computing devices also illustrate nuances and context.

1. EU and North America control key semiconductor, communications, and cryptologic component intellectual properties and design know-how. (Chinese capabilities are at least one generation behind.)

2. Assembly of networking and smartphone equipment are dependent on components imported into China. (China operations require global supply chains from external capacities.)

3. Capital formation driving manufacturing employment and downstream revenues are dependent on external pools. (External pools drive production equipment, ‘fabs’, and sales/leasing finance.)

4. “Reshoring” initiatives favor domestic production in other markets – not exports from India.

Successes for the Make In India policies for smartphones also sees nuances and context:

1. The unit growth in the Indian market suits local production. Changes from feature phones to smartphones did not see an obvious transition of Indian manufacturing capacity. Apple and Chinese brands see advantages to local production in new factories.

2. Apple sees one-time unique reasons to migrate some assembly (and exports) from China to India. These are not conditions that can be simply replicated in other devices.

3. Production incentives and employment incentives match current generation preferences for high-employment assembly methods. Compute devices see highly automated production methods.

Favorable linkage and comparisons with vehicle manufacturing for India also ignore the economic contributions and controls for: (seeing unavailability or capacity or know-how)

1. Deep supply chains for raw materials (EV batteries, rare earth minerals, aluminum production, specialty chemicals)

2. Sophistication of capabilities and capacities for intermediate assemblies/components: batteries, electronics boards, large scale castings, global scale production robotics

3. Export financing infrastructure (carrying trade, currency, and rapid rule-of-law adjudication)

In this short series EkaLore will look at the likely results of the Indian Government ban policy.

For additional analysis and notes on a Dynamic India please see http://www.ekalore.com/india-business