In April 2020, the Indian Government amid Covid-19 instituted a Production Linked Incentive (PLI) scheme to amplify domestic manufacturing in the Indian Electronic Manufacturing Service (EMS) Industry which had a market size of approx. $6bn in FY20 and was expected to reach $40bn by the year 2025, registering a significant CAGR of 47% over 2020-25. The PLI scheme provided incentives up to ₹410bn over the next five years. The Governmentdecided to give incentives of 4% to 6% on incremental sales over the base year for goods manufactured in India for a period of 5 years (base FY20).On 6th October 2020, contract manufacturer Dixon Technologies India Ltd emerged as one of the beneficiaries as Padget Electronics, a wholly-owned subsidiary of Dixon was one of the five domestic company among the global total of sixteen, who was rewarded one PLI. This award for Padget was under mobile manufacturing. India’s quest for self-reliance turned out to be the best time for Dixon. Dixon was the largest EMS player in India and was integrated as multiple end-user segments with a diversified product mix of Consumer Electronics (48% of sales mix), Lighting (26%), Appliances (9%), Mobile Phones (12%) and Security Systems (5%).
In terms of mobile phones for which Dixon was awarded one PLI, it currently manufactures feature phones, smartphones, and PCBA for mobiles with a backward integration framework. Dixon follows 100% Production under the Origional Equipment Manufacturer(OEM) model for all major brands like Samsung, LG, Gionee, Panasonic, Karbonn. Dixon had a manufacturing capacity of 40 million mobile per annum with revenue of 5.4 bn, operating profits of ₹191 mn, operating margin of 3.6%, Capex 310mn.
The articleintends to encourages discussion among students about the supporting factors for and key drivers for Dixon viz 1) Rising manufacturing costs in other countries; 2) Tendency of bigger Original Equipment Manufacturer (OEM)s to outsource manufacturing instead of building their own infrastructure; 3) Incrementally, companies focusing on branding & distribution, while outsourcing manufacturing; 4) Growth in end-user segments consumer electronics, home appliances, mobile phones and LED lighting products. 5) Government policies such as PLI schemes for Mobiles/electronics was a strong push for the sector, with a view to 1) increase domestic manufacturing, 2) lower import dependence, 3) boost exports and 4) build a conducive business environment.
The new leanings due to challenges faced by Dixon and encourages decision making on ways to Scale-up production for mobile phones amid Covid-19 as Dixon’s current top-line revenue from mobile phones was only 12% and other factors like 1) Weak end-consumer demand post-COVID-19 leading to slowdown in manufacturing orders. 2) Significant proportion of revenue and profitability was dependent on key customers. 3) Raw material volatility.
Lastly, it is important to focus on the china+1 strategy which will gain prominence for more global players. Recent issues between the US and China were set to increase the adoption of China +1 as many global majors might look at diversifying away from China. Although China remains the world’s largest manufacturer with more than 50% share and has strong supply chain advantages, global manufacturers were looking at other alternatives given the rising labour costs in China which were 2‐3x of India. In addition, India has a large underpenetrated domestic market which would work in its favour against other competing countries.
Prof. Dipti Periwal
Assistant Professor,
DR V N BRIMS, Thane
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