Indian EMS (Electronics Manufacturing Services) firms are increasingly adopting supply chain diversification strategies and expanding their global footprint to cushion themselves against the impact of potential tariffs imposed by the United States. This proactive approach aims to mitigate risks and ensure business continuity in an evolving global trade landscape.

Diversification Strategies

Several strategies are being employed by Indian EMS companies to diversify their supply chains:

• Geographic Expansion: Establishing manufacturing facilities in multiple countries, including the US, Mexico, and West Asia, helps to reduce reliance on any single region and provides flexibility in responding to tariff changes. Zetwerk, for instance, has factory presences in both India and the US, which has helped insulate the company from tariff shocks.
• Blended Supply Chains: Creating supply chains where certain modules are manufactured in India or other locations, with higher value addition handled in the US, can help offset the impact of tariffs or protectionist measures.
• Alternate Markets and Suppliers: Identifying and developing alternative markets and suppliers is crucial for mitigating the impact of US tariffs. This involves exploring new regions for sourcing components and diversifying the customer base.
• Focus on Domestic Market: Many Indian EMS firms are primarily focused on the domestic market, which remains largely unaffected by US tariffs. Strengthening their presence in the Indian market provides a buffer against global trade uncertainties.

Impact of US Tariffs

While the immediate impact of US tariffs on Indian EMS firms may be limited, the potential long-term effects are a concern. According to a senior analyst, Indian EMS firms do not have major exposure to the US, with revenues from the US being around 5% for Dixon Technologies and 2-3% for Syrma SGS and Kaynes Technology. However, a drastic shift in the global EMS supply chain driven by the US could pose challenges for Indian firms.

Government Support and Industry Growth

The Indian government has been actively promoting the growth of the EMS sector through various initiatives and incentives. These include:

• Production Linked Incentive (PLI) Scheme: Providing financial incentives on incremental sales of goods manufactured in India to address challenges associated with the high cost of capital.
• Modified Program for Semiconductors and Display Fab Ecosystem: Approving a program with a significant outlay to develop the semiconductor and display manufacturing ecosystem in India.

Driven by growing demand for electronics, export competitiveness, and encouraging government policies, the Indian EMS sector is expected to grow significantly in the coming years. The EMS market in India is projected to reach US$80 billion over the next five years, offering growth opportunities for strategic and financial investors.

Joint Ventures and Partnerships

Strategic joint ventures and partnerships are playing a crucial role in expanding the capabilities and reach of Indian EMS firms. For example, Elemaster Group, an Italian EMS leader, has partnered with Syrma SGS Technology Limited to establish a new joint venture company focused on high-reliability electronics manufacturing in India. This collaboration aims to serve critical sectors such as railway, industrial, and medical electronics, providing customers with competitive, scalable, and high-quality manufacturing solutions.

Conclusion

Indian EMS firms are proactively diversifying their supply chains and expanding globally to mitigate the risks associated with US tariffs. While the immediate impact may be limited, these strategies are essential for ensuring long-term resilience and competitiveness in the global market. With government support, strategic partnerships, and a growing domestic market, the Indian EMS sector is poised for continued growth and is becoming a key player in the global electronics value chain.