Expanded distribution is critical
In order to tap semi-urban and rural demand, companies are expanding their distribution networks in these areas. The move has positively impacted sales for companies opting for rural expansion. However, rural consumers have not been as brand-conscious as their urban counterparts. Due to the lower prices of unbranded products, rural consumers have been inclined to buy these products, although they often have poor quality.

As the awareness among rural consumers rises, they are expected to show a preference for branded products. This is reflected by the fact that established players are reporting higher sales of products in rural areas.

Domestic manufacturing to expand
iSuppli expects domestic manufacturing to be a key characteristic of this growth in the years to come. Although electronics production has remained a miniscule portion of overall Indian manufacturing for a long time, the trend is gradually changing.

The government has been focusing increasingly on developing the manufacturing sector by developing infrastructure, rationalizing duties and creating export-promotion zones. This is in alignment with India figuring into the plans of several companies that want to cater to the domestic and export markets.

Domestic consumption is reaching significant size to trigger manufacturing in the electronics sector. India also is assuming a significant place in the global plans of several major electronics manufacturers, thereby positioning it also as an export base.

Furthermore, fabless companies are suitable to cater to such development because they can assist in moving the industry up the value chain by creating design-service opportunities for the Indian market. EMS and ODM companies in India have been associated with several design companies, although such relationships represent an extension of their global relationships. However, some local partnerships also are appearing, such as Flextronics’ deal with inSilica for the development of System-on-Chip (SoC) devices.

Currently, such instances are few and far between. As the local market gains size, these associations will become more common.

Significant challenges remain
iSuppli believes that there are still challenges facing the India consumer electronics industry as the sector tries to realize its full potential. These include:
Declining margins for many players
Inverted duty structure
Expansion of distribution reach: Infrastructural bottlenecks (roads, power, etc.) have hindered the reach of the distribution network in India
Creating awareness about new technologies and products
Low affordability level of consumer products among the rural masses

However, these challenges are gradually being addressed. And looking ahead, iSuppli believes that India will continue to grow as an important market for the global consumer electronics industry. The future of India’s market is indeed bright.