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A few months into the Covid-19 pandemic, the world was in disarray. And it wasn’t just about fighting the virus. Lockdowns in China and disruptions to the supply chain hit economic activity; especially affected was the electronics industry, which was at the core of keeping people connected in those tough times.
Cut to more than two years later. There has been a rise in infections in China, and that is spreading to different parts of the world. While a majority of people are vaccinated in India and enterprises have their business continuity plans in place, what about manufacturers, more specifically the electronics industry? Industry players say that most companies should be able to hold out for a couple of months or so, owing to learnings from past experiences.
Accounting for the Chinese New Year, companies such as home appliances major Godrej Appliances have stocked raw materials in advance that will help them steer through the disruptions, at least for the January-March period. “We get some electronic items such as motors, relays, gearboxes, timers, etc., from China… [but] have not witnessed disruptions… as most of the raw material and components required for production in the March quarter have either reached [us] or are [already] in transit,” says Kamal Nandi, Business Head and Executive Vice President of Godrej Appliances.
Some companies have tweaked their strategy to deal with unpredictable situations. An example is Super Plastronics Pvt. Ltd (SPPL), the official brand licensee for Kodak, Thomson and Blaupunkt in India. “Normally, after the festive season, there is a lull. But we were focussed on capitalising on this [period]. Therefore, we increased our minimum stock level and continued purchasing,” says SPPL CEO Avneet Singh Marwah. Most companies have adopted a similar practice. Videotex International, the manufacturer of Daiwa TVs and a contract manufacturer for many other brands, says it has enough stocks and shipments on the way to endure for a month and a half, if things go south in China.
The companies are keeping a close watch on how the situation pans out in China after their festival season, which ends in early February. If the rise in infections persists, resulting in lockdowns, shutdown of factories and backlog at ports, it is likely to impact makers of televisions, smartphones, and summer appliances such as air conditioners and refrigerators in the April-June quarter.
“The new lockdown enforced in Shenzhen for one to two weeks will undoubtedly create a delay in product supply. If the lockdown is extended, the industry will suffer the consequences, with supply chain disruption creating production slowdown and the end product being delayed—because of India’s reliance on China for raw materials,” says Arjun Bajaj, Director of Videotex International.
A few companies are already looking at business being impacted. With the rise in Covid-19 cases in China leading to uncertainty and hampering the production of technology and related equipment, ViewSonic—that makes monitors—expects 25 per cent of its shipments to be hit. “There has been a shortage of panels as its production has been cut down [in China]. Additionally, the scarcity of IC components—already running on delayed orders—is likely to continue till Q2 [of calendar year] 2023,” says Sanjoy Bhattacharya, Director-Sales and Marketing, IT Business of ViewSonic India.
The Make in India Story
While the Indian electronics industry is still dependent on China for raw materials, it’s not as if there has been no impact of AatmaNirbharBharat and various production-linked incentive (PLI) schemes. Their impact is visible, for instance, in the smartphone industry. India exported Rs 45,000 crore worth of mobile phones in FY22, per the NITI Aayog; in the current fiscal, this figure crossed the Rs 40,000-crore mark till November, which is more than double the exports in the corresponding period a year ago.
“PLI has boosted the low end of the component ecosystem, including, for instance, camera modules, chargers and packaging, among others. Thanks to PLI, the local value addition in India has increased to 15 per cent. India is still dependent on China for high-end components, including high-quality displays,” says Prabhu Ram, Head of Industry Intelligence Group (IIG) at CyberMedia Research (CMR).
In home appliances, Godrej Appliances is manufacturing components such as heat exchangers, cooling and condenser coils and plastic injection moulding for air conditioner parts in-house, while some components like BLDC motors, customised design of sheet metal pressing parts, etc., are being procured from India instead of China.
While Indian electronics firms are watching the situation in China, expect prices to go up soon, because of a number of factors. One of them is the steadily rising prices of raw materials. In addition, the Russia-Ukraine conflict has put pressure on the global economy. The rupee, too, has seen its value falling to its lowest level in recent years. “As per the given scenario, prices of consumer durables such as televisions and washing machines may rise in the next [few] months due to rising raw material prices, higher freight charges, the ongoing conflict and its implications, and the ongoing war’s ripple effects. We might expect a 7-10 per cent increase in television costs,” says Videotex’s Bajaj. One can only hope that the situation in China improves.
@nidhisingal
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