Nearly three decades ago, Sunil Vachani borrowed $ 35,000 to make 14-inch television sets in a rented shed outside New Delhi. It was an unconventional choice as India, while well known for its software and services, was long behind in manufacturing.
Today, Vachani’s startup has grown into a sprawling electronics empire. Its Dixon Technologies has a market value of more than $ 2.5 billion and the capacity to produce approximately 50 million smartphones this year. It’s an early indicator of the country’s opportunities – and challenges – in building an advanced manufacturing sector, a top priority for Prime Minister Narendra Modi.
While Vachani, 52, struggled in his early days, his company’s shares are up 824% since an IPO in 2017. Sales and profits have soared due to domestic demand for smartphones, along with India’s ambitious plans to build its own. local industry.
“This is just the beginning,” Vachani said in a telephone interview. “We are bringing about a change of mindset that allows global manufacturing to take place in India.”
The founder and his siblings are now in the league of billionaire families in India. Vachani, who owns a third-party stake worth about $ 900 million, has just bought one of the more extravagant houses in the country – a $ 20 million mansion in New Delhi’s Tony Lutyens neighborhood.
[Bloomberg]India has been plagued for decades with rickety infrastructure, heavy taxes and crushing bureaucracy. The Modi government has sought to change the dynamics through a range of policies and incentives, with the aim of creating jobs and economic growth. In addition to high tariffs on products such as imported smartphones, the country launched a cash incentive program last October to encourage local producers.
That has helped build new factories for homegrown device manufacturers such as Dixon and global contract manufacturers such as Foxconn Technology Group and Wistron Corp. The effort has taken on a new urgency with mounting tensions between the US and China and the coronavirus pandemic. which disrupted supply and underscored the risks of concentrating production in one place for phone makers like Apple Inc.
According to the Indian Cellular Association, India is still lagging far behind China, producing around 330 million smartphones annually, compared to 1.5 billion in its larger Asian neighbor. Still, Dixon is an example of how fast India is changing: it has ramped up production capacity from about 2 million smartphones a month last year to about 4 million units after the government’s stimulus program kicked off, and next year there are more planned.
“India is well qualified to be the world’s alternative to China’s supply chain,” said PN Sudarshan, partner at Deloitte India. “Once component manufacturers are on the move, lively production clusters will emerge.”
Vachani comes from an entrepreneurial family. His father and siblings started a company that produced electronics and appliances under the Weston brand. They made the country’s first color televisions and VCRs and operated a series of side-by-side video game salons. The Vachanis are Sindhis, a small community in India with a reputation for business acumen.
After studying business administration in London, in 1993 Sunil chose to go his own way instead of joining the family business, a decision that quickly led to difficulties. He ran out of working capital and discovered that without collateral, banks wouldn’t lend him. He eventually got bank financing backed by an export contract.
Sunil Vachani and his siblings are now in the league of billionaire families in India [File: Bloomberg]
Early on, he was so desperate for business that he agreed to make his 14-inch color televisions for $ 1.50 in profit each. Later he made game consoles from Sega, video recorders from Philips and mobile phones with push buttons for Bharti Airtel Ltd., the largest mobile operator in the country. Dixon’s fate began to improve in the 2000s, when a regional political party contracted the company to produce televisions for free distribution.
Vachani tried to persuade the federal government to do more to build a domestic manufacturing sector – mostly without success. “All I heard from policymakers was that India’s future was in software,” he said.
Smartphone assembly at a Dixon factory in Noida [File: Bloomberg]
Investors were also skeptical from an early age. During Dixon’s roadshow prior to the IPO, money managers argued that India simply could not compete with China. Vachani eventually raised about 6 billion rupees, or $ 82 million.
Dixon now makes televisions for Xiaomi Corp., washing machines for LG Electronics Inc. and lighting products for Philips. It started in 2016 with the production of mobile phones for brands like Panasonic Corp. and Samsung Electronics Co.
Phones are becoming a substantial growth market. The number of smartphone users in India is expected to increase from 468 million in 2017 to 859 million in 2022. For Dixon, mobile could account for 44% of revenue in the next fiscal year, compared to 12% last year.
The government finally turned its attention to domestic manufacturing a few years ago, aimed at lowering a huge bill for electronics imports and creating much-needed jobs. But progress has been slow. According to McKinsey & Co. production represented 17.4% of gross domestic product in 2020, almost the same as 15.3% in 2000.
Wistron, the first Apple vendor to produce iPhones in India, ran into problems last year when workers rioted over payment arrears. Apple put the Taiwanese company on trial and said it would hold off on issuing new orders.
Modi has refined its “Make in India” policy with financial incentives and simplified infrastructure policies. According to the Indian Cellular Association, the country aims to create 100 million new manufacturing jobs by 2022. It is targeting a peak in phone exports from the current $ 7 billion to $ 110 billion by 2025.
A smartphone comes from the Dixon assembly line in Noida, India [File: Bloomberg]
Dixon is positioning itself to get a great deal of this by manufacturing and exporting globally for major brands, Vachani said. Motorola, now owned by China’s Lenovo Group Ltd., has contracted Dixon to make devices for the US market. Finnish HMD Global, which has a license for the Nokia brand, recently signed a similar deal. Next year, the company plans to manufacture and expand approximately 75 million mobile phones into categories such as tablets, laptops and wearables.
“This is the golden moment for electronics manufacturing,” said Vachani. “India is finally the place to be.”