Toshiba Answers India's Call

Toshiba Corp. (Tokyo: 6502) has announced plans for a major expansion of its manufacturing operations, sales, and brand-marketing program in India, responding both to rising demand for digital products in the country and also to recent appeals from the government for local production of high-tech equipment in the world's second-most populous nation.

Over the next nine months, the Japanese company intends to nearly double its retail outlets in India to 6,000, from 3,500 currently, and plans to begin local production of LCD TVs, in addition to opening a new R&D center in the country. The goal of the design center is to "support product localization and development and advance innovation in unique products deeply reflecting local needs," Toshiba said in a press release.

That objective is in line with what the Indian government has been advocating for years now. The government wants high-tech manufacturers to increase their investments in the country, although this time it wants them to focus on design, R&D, and manufacturing both for local demand and export. Recently, the government offered financial incentives to high-tech companies interested in establishing a semiconductor fabrication plant in the country. (See: Will Chipmakers & Investors Respond to India's Request for Local Fab?)

I am not sure if chip makers will establish a fab in India; there are too many constraints, and the financial incentives offered by the government may not be attractive enough. However, it is obvious that India's push for localized production is getting a warmer reception from many electronics manufacturers. Toshiba's recent move is only the latest in a growing line of expansion plans that high-tech companies have introduced in recent years for India, although many of these have been in the area of software and R&D, rather than manufacturing.

One reason why India is becoming more attractive to high-tech manufacturers is the relatively low level of penetration in the country and the potential for huge sales growth. Unlike in many other parts of the world, Indians are still swapping their cathode ray tube (CRT) TVs and PC displays for digital alternatives. Also, while Indians have eagerly embraced mobile phones, manufacturers now consider the country a potentially huge market for smartphones as average selling prices for the product decline.

Toshiba admitted in its press statement that it wants to increase investments in India because of the potential for sales growth in the country. The company further justified its decision:

India's economy continues to surge and key markets are recording dynamic growth. The laptop market will enjoy a compounded annual growth rate (CAGR) of 20 percent from fiscal year 2010 to fiscal 2013, growing from 3.8 million units to 6.5 million, and in TVs the figures are even more impressive: a CAGR of 59 percent from fiscal 2010 to fiscal 2013, with unit sales climbing from 3 million to 12 million units. This huge advance will be fueled by the transition from traditional cathode-ray-tube TVs to sleek LCD TVs.

According to Masayuki Ito, the vice president of Toshiba's digital products & services business unit, the expansion in India would help the company consolidate its presence in the country and help increase its local share of the LCD TV market to approximately 15 percent by 2013.

I believe Toshiba's moves will be beneficial in the long run for the company. Until now, most foreign OEMs in India have treated the country more or less as a sales outlet. They sell products there and do some basic R&D work, but manufacturing and critical design services are done elsewhere.

The Indian government initially signaled its displeasure with this approach rather quietly by simply touting the advantages of local manufacturing. However, the government has lately been loudly insisting electronics OEMs and even component suppliers should establish manufacturing plants in India. It has, in fact, indicated this might soon be a requirement for the sale of high-tech equipment in the country.

OEMs that fail to heed the growing clamor for local content (components or production) for information technology products sold in India may find themselves locked out of what could turn out to be a highly profitable, large-volume market.