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Chennai emerging as a manufacturing hub

by Sabitha Rudrarju, iSuppli Corp.
Dec 28, 2006

India tries attracting more investments to new areas of the country

India's fourth-largest city, Chennai, is becoming the country's electronics manufacturing hub for many companies including Nokia, Flextronics, Motorola and Foxconn. The Indian government is aiming to increase the level of local manufacturing by providing incentives to companies willing to establish local offices in Chennai.

The Indian government enacted the Special Economic Zone (SEZ) Act in 2000 in order to boost the economic growth of the country through domestic and international investment. The government has provided several economic incentives to entrepreneurs and developers to promote SEZs. More than 180 proposals for establishing SEZs all over the country have been approved by the government.

And with the simplification of the procedures for development, the operation and maintenance of the SEZs are expected to stimulate investment and encourage industrial activity.

Though cities such as Bangalore and Hyderabad have a larger pool of technological talent, these metropolitan areas are getting too expensive to do business in - both in terms of real estate and personnel. Many companies have turned to Chennai because the city has a large reserve of technical talent and is known for its engineering expertise. Some of the other factors that have worked in favor of Chennai include its airport infrastructure, the presence of a port and the availability of manpower.

Channeling Chennai
The state of Tamil Nadu, where Chennai is located, is becoming a favorite choice of investors. Chennai alone has attracted an investment of about US$1 billion. The past two years have been remarkable in the history of Chennai, with many companies announcing the establishment of operations in the city.
 
Flextronics, a $16-billion global Electronics Manufacturing Services (EMS) provider, plans to build a manufacturing facility in the outskirts of Chennai. In the first five years, the company is planning to invest about US$70 million to US$100 million in the plant in Sriperumbudur. This facility will be selected as a SEZ and will offer services such as plastic injection molding, circuit-board assembly, distribution, logistics and repair.

Table 1:  Proposed Electronic Manufacturing Investments and Projects in Chennai, India

Name

Nature of Project

Proposed Investment
(in Millions of US Dollars)

Ericsson

R&D facility, global service delivery center

$100 in first phase

Flextronics

Telecom hardware manufacturing

$100

HonHai Precision Industry (Foxconn)

Manufacturing of mobile handsets,  components, electronic hardware and related services

$110

Nokia

Mobile handset manufacturing

$150  over 3 years

Siemens

Telecom equipment manufacturing  

$100

Motorola

Mobile handsets manufacturing

$100

TAPP Semiconductor

Production and packaging of chips

$200

Source : iSuppli Corp. | December

Nokia has been operational in Chennai since March, and has played a vital role in attracting its partners, including Salcomp and Perlos, to Chennai.

Salcomp plans to establish a mobile phone charger plant in Chennai. With this new plant, Salcomp would be one of the few charger manufacturing companies to start production in India. The new plant would serve not only Indian customers but Salcomp's customers globally.
 
The strategy of increasing manufacturing in growing markets has provoked Perlos to establish a new plant in Chennai. With this new plant, the company will be offering services to the device manufacturers investing in India and also to companies offering manufacturing services.

Several other suppliers are setting up facilities in Chennai, such as Laird and Jabil Circuit, which also will be establishing factories in the Nokia Telecom Park in Chennai. By 2008, it is expected that a total of eight suppliers will set up their manufacturing operations in Chennai, employing about 20,000 people.

Aspocomp, which manufactures high-density interconnection Printed Circuit Boards, plans to establish a PCB plant in Chennai. The facility would be India's first high-density-interconnection PCB plant.

Taiwanese electronics manufacturing company, Foxconn, is planning a SEZ in Chennai together with Motorola and a Tamil Nadu Government agency. The company plans to manufacture printed circuit boards, mobile handsets, PC and network equipment components and other electronic hardware at the new facility.

At the time when many are questioning the long-term impact of permitting the establishment of SEZs, the success in Chennai bodes well for India, which is trying to gain a larger presence in electronics manufacturing.

Sabitha RudraRaju is an iSuppli Corp. associate analyst and a contributor to iSuppli's recently-released report, Semiconductor Design Industry in India: Great Opportunities, Tough Challenges, from iSuppli's India practice. This report provides a comprehensive analysis of the current semiconductor design industry in India. For more information on iSuppli's India research, please visit: http://www.isuppli.com/catalog/L2_indi.asp

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