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Why We Need to Near Source Electronic Components

Why we need to Near Source Electronic Components

The past two years have offered some harsh lessons to all in the PCBA industry on the value of inputs. For a long time, the cost paid was the only consideration. The supplier might be located on the other side of the world, but if the cost was marginally lower, the choice was clear. But the pandemic changed all that. The cost of logistics / transport that used to be negligible ballooned beyond expectations. And for some parts – no matter what cost we were willing to pay – the availability just did not exist.

PCB Assembly

PCB Assembly

In India, we import more than 90 percent of the components required for assembling PCBs locally. These imports come from 4 countries – China, Taiwan, Vietnam, and Malaysia. A break down at one source country, as we saw in 2020 and 2021, drives up the cost of doing business for all.

Here’s our experience with supply trends for some of our major inputs:

Bare PCBs:  

Bare PCBs are the stronger point in our supply chain. We have seen reliable suppliers of Bare PCBs based in Tamil Nadu and in Gujarat. We (and many of our customers) have been able to source Bare PCBs in the past 18 months with no major issues. Supply lead times have remained consistent and price increases have stayed within tolerable limits.

Assembly Machinery: 

Machinery needed for PCBA is mostly manufactured outside India by majors like Yamaha, Fuji, Panasonic, and Siemens. While prices have stayed stable, lead times have increased considerably. What used to be available in 4 weeks now takes 4 months to get delivered. We’ve had to plan and order earlier than ever before for any capacity enhancements or repairs and replacements.

Other Components / Services: 

Integrated Circuits (IC’s), their component resistors, capacitors et al, solder paste etc. are mostly imported and have all seen prices and lead times zoom up. 52 weeks is now the new normal! Companies like Micron, TI, Cypress, Infineon, Latis, NXP have factories based in China, Taiwan, Malaysia, and Indonesia. When supply and manufacturing centers were shut and major ports slowed down, component shortages have visibly hit every industry from automotive to computers and mobile phones. Even stocks held by major distributors Avnet, Future, Arrow, or online suppliers like Digikey, and Mouser could not tide the industry over for long.

This is the area where India needs to attract investment and build manufacturing capacity. 

What Next:

The government has already recognised the need for building an electronics components manufacturing ecosystem. It is doing its part by offering Production Linked Incentive programs and other sops to encourage manufacture of components in India. It is now up to us in Industry to pick up the challenge and partner in building a strong local eco-system for components. 

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Access to capital: the Msme money maze

Capital Access that looks easy on paper is difficult in practice

The government’s Make in India strategy demonstrates how important MSMEs are to India’s growth story, but capital is still hard to get. If you are considering launching a startup, here are some things to keep in mind:

KEEP FRIENDS, FAMILY AND FOREIGN FUNDS CLOSE

Most credit schemes are aimed at MSMEs that are at least three years old. If your company is newer, informal sources like family and friends must be part of your fundraising strategy. Quite often, this means looking abroad for help. Even if you are looking at a VC / PE funding, the Indian ecosystem is in its infancy and you are likely to go beyond India’s borders. But this can lead to a problem. Indian financial institutions need at least 75% Indian ownership to qualify you for most of their loan products. This is intended to encourage Indian entrepreneurs, but as a startup that might be considering all options for support – make sure foreign investors hold less than 25%.

CAUTION: COLLATERAL AHEAD!

Typically, financial institutions ask for collateral that equals (or exceeds) the loan amount. This can be a term deposit or a mortgage on your home. Indian financial organizations are very cautious about lending. Read the loan terms carefully and include all supporting documentation with your application. 

PLEASE MIND THE GAP

The Small Industries Development Bank of India (SIDBI) was established to bring MSMEs and capital together. This is excellent news for MSMEs but the execution is not perfect. Rules can be unclear and confusing. Decision-making does not always follow the on-paper criteria. If your application is rejected, you may not know why.

Government schemes to support MSMEs working on Covid-19-related projects face similar challenges. Companies that qualify for credit on paper may still be rejected without an explanation.

WHAT CAN CHANGE

Podrain’s experience has taught us that patience is key. It also helps to have an experienced, trusted financial advisor or mentor who understands the options and provides guidance on processes and documentation. Some signposts and directions from financial institutions will make navigating easier.

MSMEs should be able to quickly and easily understand what each regulator is responsible for. Clearly stated eligibility rules for each scheme and a simple explanation of the risks and benefits of each option will help entrepreneurs who are not always financial experts make the right choice. A single-window approach to clearances will make MSMEs’ search for capital much easier. Regulators can also help to match MSMEs with the right funding source for their needs. We can then rely on financial institutions and their lending officers for guidance on the right capital products and schemes. 

Financial institutions also need to look beyond traditional collateral-based criteria. Very often these show only the borrower’s existing financial strength and not the intent to repay. To help new MSMEs get started, lenders may consider performance-based criteria to approve loans. For example, whether a startup pays its employees’ salaries, its taxes, and its statutory dues (GST, PF, etc.) on time is a good indication of its intent to pay. Market-based criteria used by PE/VC funds may also be used with modifications that reflect the lower risk appetite of the lender. These forward-looking strategies are consistent with the idea of financial institutions as partners in the Indian MSME growth story.

By adopting a partnership mindset, financial institutions can make capital more easily accessible to MSMEs who want to Make in India.

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Automotive

Increasing Share of Electronics in AUTOMOBILES

Many recent news articles have pointed out the effect of semi-conductor chip shortages on automobile output. There will be 7.7 million fewer vehicles produced and over $210 billion in revenue lost in the year 2021 according to some reports.* This has taken many consumers – who don’t realize the extent of shift in automotive technology – by surprise. 

 Cars now contain more electronics than ever and their share is only growing. According to this research report from McKinsey & Company, software and electronics have become the focus of most automotive companies.  Power Electronics, growing at 15% , sensors at 8% and ECU’s /DCU’s growing at 5% plus will drive the global size of the automotive electronics industries to $469 billion by 2030. 

At Podrain Electronics we are working with automotive OEM’s and other players as they ride the wave of change. 

Automobile OEM’s are shifting gears into electronic mode:

Automobile components that were previously electrical or mechanical systems are now getting an electronic layer.  For example, we have worked with a major Indian automotive manufacturer on the prototype “anti-pinch” window sensors for their new range of SUV’s.  The electric motor, which operates the power window is fitted with a sensor that can sense any obstacle and stops the winding action. Parents of fidgety children who like to put their hands out of a window or pets who like to stick their noses out into the breeze can drive easier, knowing this technology will keep them safer.  

This example is the tip of the iceberg. Sensors are being used in engine, power, steering, braking and acceleration systems converting automobiles from electro-mechanical machines to electronic & software devices. For examples, a tire manufacturing OEM client of ours is integrating electronics to create a Tire Pressure monitoring system that will enable them to optimize tire pressure based on weight of the load, road and environment conditions.  The ability to remotely monitor the performance of their products opens up new opportunities to provide extended support , warranties and differential pricing for them.This is only one example of an OEM whose product and commercial model are changing to suit the times. 

Fleet Management & Allied Services need electronics in automobiles: 

We have supported clients for GPS and Vehicle Tracking Systems manufacture – another growing space of automobile electronics. There are several use cases for Fleet Management Solutions. They help track on-time arrival and departure of vehicles, fuel consumption, route monitoring and modification, safety tracking etc. Fleet management solutions and Asset Tracking are often done by other businesses and not by the Original Equipment Manufacturer. According to Mordor Intelligence this will be a USD 22 billion in 2026** and we certainly expect to help many of the companies in this area. 

The future of mobiility – whether you choose a traditional fossil fuel vehicle, an electric one or a hybrid – certainly involves electronics! 

If you are looking for electronics manufacturing services support for your company contact us and we will get back to you at the earliest.

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