Editor Note: China take notice, the 2469 acre Sriperumbudur SIPCOT SEZ and other SIPCOT SEZ's are well on their way to challenging Shenzhen as the world's manufacturing hub. The location's citizens are far more educated and the majority speaks English. The Chennai Government is pro-business and respects intellectual property laws. The India Street predicts the area will be an equal competitor to Shenzhen within 5 years. Once infrastructure is fixed including more rail, roads and the new Chennai Airport, this area has all of the important logistical ingredients to become the top industrial manufacturing area in Asia.
How Sriperumbudur is emerging as India’s telecom manufacturing hub.
By ANUP JAYARAM
Flextronics plant in Sriperumbudur
The sprawling lime green building is visible from a great distance. As you come close, you see workers in white hard hats and luminous orange jackets swarming all over like ants on a giant carcass. Spread over 250 acres, this site will house a massive integrated manufacturing complex for the $15.3-billion Flextronics Industries, a Singapore-headquartered manufacturer of electronic products. Its general manager and director (India operations) Gururaj A. says some 1,500 are employed on the site currently, trying to make sure the complex will be ready by September.
T. Murugan, 35, a contract labourer has some idea of what’s actually going on. “Inge naraiya velioor company factory podaraanga,” (Many foreign companies are setting up factories here), he says. Last year, he had worked on the $150-million Nokia project, a few kilometres away. And he has heard that soon some other velioor (foreign) companies will also start work. He hopes to find employment there. His news is correct. The manufacturing units of both Motorola and Foxconn are slated to come up over the next few months.
It was barely 15 years ago that Sriperumbudur shot to fame. It was India’s Dallas, where its young, 47-year-old ex-PM was assassinated. The horrific images of death had seared the nation’s consciousness. Yet, it is perhaps a fitting tribute that the town where a PM who had spoken of India’s role in the 21st century, modernised the telecom infrastructure and believed in the transformational powers of IT, and laid down his life, should emerge as ground zero of electronic manufacturing in India.
Gururaj A. general manager and director (India operations) Flextronics Industries |
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Consider that by October, Flextronics will begin to make a million mobile phones a month from the Sriperumbudur complex. (Nokia already makes 2.5 million phones a month.) It will also make base stations. That’s just the beginning. By year end, a second building will be ready that will make set-top boxes, DVD players, automotive components and PCs. By December 2007, at least 10 component suppliers who are part of Flextronics’ global supply chain will have their plants up and running in the campus.
Says Gururaj: “We will use the land discreetly. The idea is to ensure that all the key suppliers, both Indian and international, have a presence here.” This campus will provide jobs to 7,000 people by December 2007. According to officials in the Department of Telecommunications, by 2008, over $1 billion will be invested in Sriperumbudur for telecom manufacturing facilities alone. Of this, around $250 million has already been invested, mainly by Nokia ($150 million) and Flextronics ($100 million). By end 2007, all the new companies will provide jobs to over 50,000 people.
There are three types of operations coming up at Sriperumbudur. One, the OEMs like Nokia and Motorola. Then the EMS’ like Flextronics and Foxconn, who supply to OEMs around the globe. Finally, there are the component suppliers who work either with the OEMs or the EMS’. They include Aspocomp (global turnover euro 154 million; printed circuit boards), Salcomp (euro 156 million; chargers), Perlos (euro 667 million; mechanics) and Sanmina-SCI ($12.2 billion; network components).
Each of these outfits will be housed within an SEZ. Apart from them, Velankani Information System (which has set up an IT park in Bangalore that houses Siemens, Elcoteq and Patni Computers) is setting up an ITES SEZ that will house a 5 million-sq. ft manufacturing facility for another set of 20 global telecom suppliers (see ‘Feeding Into The System’). Says Rajiv Kochhar, CEO, Avista Advisory, a financial services group: “Today, all the key plots in Sriperumbudur are gone.” It is already beginning to look like a patchwork of SEZs.
Predictably, the comparison with Shenzhen has already begun. In 1979, Deng Xiaoping used it as a test-bed for free market principles. It was then a town of 300,000 people, outside Hong Kong. Close to 80 per cent of Shenzhen’s revenue then came from agriculture. Today, Shenzhen covers 2,020 sq. km, much bigger than Delhi’s 1,483 sq. km, and has a population of 4.05 million.
This year, Chinese companies and global players like Foxconn, Philips and Samsung are expected to make 100 million mobile handsets in Shenzhen. That will account for close to 10 per cent of the mobile phones made globally.
NO BUREAUCRACY HERE: Jukka Lehtela director Nokia (India) |
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Going by calculations, during 2007, Sriperumbudur should make close to half of what Shenzhen will make this year — 50 million handsets, of which more than 30 per cent will be exported, much like what happens in Shenzhen.
Sure, Shenzhen isn’t about handsets alone. A whole range of items like computers, set-top boxes and laser printers are made there. Over the last two decades, it has seen investments of $30 billion. Moreover, it accounts for 9 per cent of China’s GDP. (SEZs collectively contribute 35 per cent of China’s GDP.) Clearly, therefore, it will be a while before Sriperumbudur can reach those levels. However, as Gururaj argues: “It has everything in place to emerge as India’s answer to Shenzhen in the next few years.”
Towards end 2004, shortly after he had taken over as communications and information technology minister of the UPA government, Dayanidhi Maran had persuasively argued with BW that while IT did put India on the global economic map, it was manufacturing that provided the jobs. Maran also figured that telecom and other allied electronic goods companies would perhaps be most open to persuasion given the opportunity India provided.
Consider that in 2005, Indians bought electronic goods worth $22 billion, making it the world’s seventh largest market. Again, during 2005, Indians bought 36 million mobile phones. That makes India the third largest market after China and the US for mobile phones. This year, demand for mobiles is expected to touch 50 million.
Little wonder, one of the first things Maran did as minister was convince Nokia’s then CEO Jorma Ollila to set up the company’s tenth bulk manufacturing plant in Sriperumbudur. Though by then Nokia had decided to set up a plant in India given the roaring business it was doing here, it hadn’t decided on the location. Maran was instrumental in convincing Nokia to choose Sriperumbudur over Bangalore, Hyderabad and the National Capital Region (NCR).
While this helped Maran politically — his constituency happens to be in nearby Chennai, barely 40 km away and Sriperumbudur has begun sourcing a lot of talent from there — Nokia did emerge as the pivot around which many of the other investments were centred. (The first ever investment in Sriperumbudur was Hyundai setting up its factory there in 1999, but between then and 2004, little else happened.)
Maran did a few other things. One, he made it a precondition for all equipment suppliers that were keen on participating in the big BSNL and MTNL expansion tenders to manufacture 30 per cent of the order in India. This would force them to manufacture in India, he reasoned. Companies like Nokia and Motorola have already participated in BSNL’s 60-million line expansion tender worth $5 billion.
He was also able to align the interests of the Tamil Nadu government with his own. Though till early this year, Tamil Nadu was ruled by the AIADMK, political opponents of Maran’s DMK — after the 2006 elections Maran’s uncle M. Karunanidhi was voted back to power — Maran was able to convince politicians (and therefore, bureaucrats) of the benefits of positioning Sriperumbudur as an electronics manufacturing hub.
Indeed, one of the reasons most companies say they have invested in Sriperumbudur is because of the state’s bureaucrats. Says Jukka Lehtela, director (India operations), Nokia: “The entire process from start to finish in Tamil Nadu was much faster than expected.” Nokia, which identified Chennai as its plant location in April 2005, had it up and running eight months later in January 2006. That compares with the best anywhere in the world.
Bureaucrats like Tamil Nadu industries secretary Shaktikanta Das say that presentations by potential investors are attended by an inter-departmental group of secretaries. Typically, Das convenes these meetings. They are attended by secretaries from the departments of finance, IT, energy, water supply, and taxes, along with officials from State Industries Promotion Council of Tamil Nadu
(SIPCOT) and the Industrial Guidance and Export Promotion Bureau. “At one meeting the investor gets a clear idea of all that needs to be resolved. The same panel also does a review meeting every month. All this makes things a lot easier for the investor,” says Das.
Bureaucrats like Das, unlike investors like Gururaj, haven’t yet begun comparing Sriperumbudur with Shenzhen. But they do buy into the idea that if properly managed, Sriperumbudur could turn out to be something really big.
Investor Friendly: Shaktikanta Das Tamil Nadu industries secretary |
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Das points to fresh investments being made to develop the state’s infrastructure, which he believes will keep the FDI flowing in. Though Tamil Nadu is one of the few states with surplus power (current installed capacity at 10,011 MW, higher than maximum peak demand of 8,600 MW) close to 2,000 MW of fresh capacity will be commissioned over the next three years. This includes 1,000 MW at Tuticorin and Jayakondam.
Luckily for Das, private entrepreneurs have also spotted the Sriperumbudur opportunity, and have begun pitching in. Consider that real estate prices there have gone up by 20 per cent in the last one year — a rise that is comparable to Chennai’s. Two leading Mumbai-based builders are looking at housing projects there and have already begun asking Nokia and Flextronics on salary details of their executives. Again, global hotel chains from the US are looking at properties there, which should be up by next year. Says a consultant: “What hotels are looking at is to provide affordable rooms. It will save them the bother of commuting up and down from Chennai daily.”
Nokia’s Lehtela argues that Sriperumbudur will need to ensure that it stays easily accessible. (Currently, there is a four-lane highway that connects it to the nearest port and international airport in Chennai.) “The nature of the mobile phone business is such that you need very good logistics. It is not just the flow of goods into the factory that matters. Equally important is the flow of finished goods from the factory to the rest of India and abroad,” says Lehtela.
Telecom analysts say that for India to be seen as an alternative to China in telecom equipment manufacturing, costs have to be at least 4 per cent lower here. (Margins in this business are wafer thin.) Typically, materials account for 80-85 per cent of costs. Companies like Flextronics and Nokia, therefore, prefer to either have their vendors within the same compound (as is evident in Sriperumbudur) or manufacture in locations where it is logistically easy to source components.
BY all accounts, Sriperumbudur is showing the signs of an industrial cluster in the making — a few pioneer investors at first, a somewhat rough and ready ecosystem to support them and then the others start coming in, in a virtuous cycle of events. Also, the fact that the state churns out 2.5 lakh engineering graduates is a big plus.
While it is still premature to draw lessons from Sriperumbudur, it will still be worth watching how events unfold there. After all, there aren’t any high-tech manufacturing clusters in the country — and this one could just be the beginning of a new wave.
Chennai is a blend of historic and modern, traditional and advanced urban elements co-mingled in a unique way. The growth of Chennai into one of the major cities in India is attributed to its exceptional geographical location at the seaboard of the palar delta. The main factors, which account for its growth, are the extent of its surrounding area, its easy accessibility from the sea route along with far-reaching railways. Chennai has developed as the largest commercial and industrial center in South India, with an extensive network of transportation facilities including the largest seaport in South India, an international airport (soon to have South Asia’s largest), some well-laid roads and rail facilities.
Chennai has several inherent advantages for real estate development and the city is poised for a quantum leap. There has been an unprecedented growth in demand for real estate across all markets making the exercise dearer. This is attributed in no small measure to the vibrant economy, robust growth and the resultant housing demand-exceeding supply. 
Ascendas Industrial Park 1.0 million sq. ft.
Mahindra Industrial Park 0.2 million sq. ft.
Ambattur 0.2 million sq. ft.
City 7.3 million sq. ft.
Ramavaram 3.5 million sq. ft.
Old Mahabalipuram Road 19.3 million sq. ft.
