India may learn industrial policy lessons from Tata and Vedanta

 India may learn industrial policy lessons from Tata and Vedanta

Vedanta should begin with labor-intensive industries like testing, packaging, and assembly rather than the increasingly chaotic chipmaking industry. It may follow in Tata's footsteps and get into product assembly, an industry ready for further Indian investment as international firms want to lessen their need on China.

One day, the $125 million Tata Group acquisition will be used as a case study for Indian industry policy. By forcing its way into the iPhone manufacturing business, the conglomerate has a good chance of succeeding and teaching other giants, such as the mining firm Vedanta Ltd., a lesson about the wiser course for industrial progress.

The Taipei-based manufacturer of computers, servers, and cellphones, Wistron Corp., is gradually getting out of the business of putting together Apple Inc.'s flagship product. It sold Luxshare Precision Industry Co. a Chinese iPhone manufacturing plant two years ago for 3.35 billion yuan, or $457 million. The sale of the item of Wistron InfoComm Manufacturing (India) Private Ltd., often known as WMMI, to Tata Electronics Private Ltd. was announced on October 27.

Since the parties had been in communication for more than a year, many people anticipated this deal. According to Wistron's annual report, WMMI's sales and operational income are increasing, although the division still had a post-tax loss. Despite the present downturn in the global smartphone industry, Tata should be able to bring the company back to break even in a few years. The simple thing is that.

Taiwan's Foxconn Technology Corporation and Pegatron Corp, both of which are growing in India, provide fierce competition for Tata. There's a reason why Wistron found it difficult to gain traction in Apple's supply chain. Both of the bigger competitors are more skilled at a wider range of manufacturing processes, such as assembling partly assembled electronics subsystems and components that go inside.

Tata has, at least, gotten off to a good start. Tata Electronics describes itself as a "Tata group venture with expertise when producing goods precision components." As the most profitable segment of the electronics manufacturing industry, this is the foundation upon which Foxconn was founded thirty years ago; now, the Taipei-based business assembles more than seventy percent of Apple's iPhones. Tata's acquisition of a high-end facility from Wistron to enter the assembly business is a positive sign for the company's future and is not a radical change.

In contrast, billionaire CEO Anil Agarwal of Vedanta hopes to make a shift into semiconductors. The business announced that Foxconn will be a partner in its ambitious ambitions to establish a new semiconductor facility in Gujarat a year ago. The project is now much less cohesive than it was before the figures weren't making sense.

The semiconductor industry, which is capital-intensive but employs relatively few people, does not align with the initial estimates of around $20 billion in investment and 100,000 employment. In comparison, Taiwan Semiconductor Manufacturing Co., the biggest chip manufacturer in the world, employed merely 73,000 people as of the end of the previous year. Vedanta's strategy featured flat-panel displays and the less technologically demanding industry of chip testing, but in actuality, the numbers it released seemed more suited for government officials in charge of disbursing subsidies than any feasible plan.

Foxconn withdrew its sponsorship within a year, which was not shocking given that it had only promised $119 million and had only signed a memorandum for comprehending a few days before Vedanta had to submit its grant application to the government.

The choice made by Vedanta to diversify away from mining and resources is not flawed in and of itself. After establishing Nanya Technology Corp. in 1995, Taiwan's Formosa Plastics Group went on to become one of the largest memory-chip manufacturers worldwide. However, it was only after it used its dominant position in the plastics industry to turn into a major supplier of fiberglass-made printed circuit boards. Meanwhile, another business began with PC sales before branching out into computer assembly. Other industry titans in electronics, like Nintendo Co. (playing cards) and Nokia Oyj (pulp and rubber), have more conventional roots.

Rather, Vedanta made a grave error by pursuing lucrative, attention-grabbing ventures like chip manufacturing before thoroughly understanding the fundamentals. It has a variety of commercial options at its disposal, including designing and producing its own chips, producing goods for outside customers, or even venturing into the expensive memory market. There is fierce rivalry on all paths, and there is no evidence that Vedanta is superior in any of them. Even if it manages to carve itself a niche, nationalism remains a greater issue.

New TSMC facilities in Europe, the US, and Japan have been funded by governments due to political pressure and worries about national security. Tokyo is also investing in the establishment of Rapidus Corp, a local competitor, and is financing the construction of a new facility owned by SBI Holdings Inc. and Taiwan's Powerchip Semiconductor Manufacturing Co. Meanwhile, Beijing is still prioritizing semiconductor independence in its policies.

Vedanta should take it carefully and start in more labor-intensive industries like testing, packaging, and assembly instead of plunging headfirst into the more turbulent chipmaking industry. This is similar to what US memory chip giant Micron Technology Inc. is planned for Gujarat. Alternatively, it may follow in Tata's footsteps and get into product assembly, an area that is prime for further Indian investment as international firms want to lessen their dependency on China.

For Indian businesses, diversification and revitalization are the best course of action. However, sensible policies should take precedence over sensational ones when formulating industrial strategy.