Cisco's intent to manufacture in India will take time

Networking products giant Cisco on Thursday said that it would begin manufacturing its gear in India, although its plans are still nascent. The company is taking the "first steps" towards this end.

Cisco's outgoing CEO John Chambers and CEO designate Chuck Robbins on Thursday said that they were committed to "Make in India", the Modi Government's agenda to increase manufacturing's contribution to India's GDP - manufacturing's share in the country's overall GDP has been shrinking, from a high of 16.28 per cent in 2011/2012 to 14.94 per cent in 2013/14. The government wants to boost that to 25 per cent of the GDP.

Both the executives met the press after a meeting with the Prime Minister in New Delhi.

Cisco's intent is good news for the government but it is going to take time. The supply chain required for hi-tech manufacturing is non-existent in India. Cisco first has to convince its suppliers to set up the base in the country. The company said it would organise a "Cisco design and Innovation Conference" in Bangalore in February next year to bring together 75 of its suppliers. That is one of its first steps.

Whenever Cisco begins to manufacture, it would be for the domestic need initially - Chambers said it would be around broadband and products that go into defence.

The economics of hi-tech manufacturing do not yet work in India's favour. The component base is missing, so manufacturers would be slapped with higher freight costs. Plus, the cost of finance, power and water, which are key to electronic manufacturing globally, is lower in many other Asian countries.

So, is the government coercing multinationals with domestic market interests to manufacture locally? India's burgeoning electronics imports bill, for instance, has been needling a few in the government. According to the India Electronics & Semiconductor Association, the Indian electronic system design and manufacturing (ESDM) market will grow from $76 billion in 2013 to $94 billion in 2015.

The industry is expected to touch $400 billion by 2020. However, local production and services is estimated at only $100 billion. This implies a demand-supply gap of $300 billion.

In a response to Business Today's query at the press briefing, Chambers denied any coercion. Cisco, he thinks, can build the hi-tech manufacturing ecosystem in the country, which even his rivals can then emulate.

"We are taking a bet. We are betting on India as a manufacturing powerhouse," Chambers said.

Cisco, particularly Chambers, who has been the CEO of the $47-billion company for 20 years, has always prided himself on catching market transitions early.

He seems to think India is transitioning now - to a more robust manufacturing economy. That makes this a right time to talk manufacturing. We will have to wait and see what comes out of this 'Make' commitment, nevertheless.