Manufacturing: You've been tagged

India has never been seen as a manufacturing hub. The first RFID tag manufacturing initiative in India by Gemini Traze, therefore, invited a whole lot of skepticism even as it got a pat on its back for being the first in India. While some industry experts qualify it as a brave move, detractors find it nothing less than foolishness to try to make hay while the sun's not shining.

According to Ravi Mathur, CEO, GS1 India, "Several vendors have been looking at tag manufacturing in India, but we do not expect to see many vendors setting it up in the near future.

In the midst of applauds and brick-bats, India's first tag manufacturing initiative has, yet again, opened up the debate on India's manufacturing prowess and raised a plethora of questions: Is there a business case today to justify the significant investments required? To give an estimate, a single equipment costs in the range of few hundred thousand dollars. And, tag manufacturing is more of an automated process and not labor intensive, where India can leverage.

A majority of RFID projects in the domestic market are in the pilot stage. Any company setting up tag manufacturing in India, will be doing to cater to domestic demand or the export market or both. But, setting up manufacturing for the domestic market is not feasible at the current volume levels. A majority of RFID projects in the domestic market are in the pilot stage and the overall adoption is also not in the mainstream.

As a result, the demand volume of the tags in the domestic market at present, does not justify the kind of investment required. According to Bimal Sareen, CEO of Avaana and president, RFID Association of India, even if one saves on the custom duty by manufacturing the tag domestically, the low volumes will push up the price per tag, as the vendor doesn't enjoy the economies of scale.

On the other hand, if the companies plan to target the export market, then the demand for volume increases but the market also opens up to fierce competition. In the export market, they have to compete with large players, which already have the volumes for economies of scale, track record, proven technology and product, which customers demand. It will take some time for the vendor to stabilize its manufacturing in India, and build the expertise

Some experts feel that considering these market dynamics makes business sense for any vendor to invest into tag manufacturing in India, only if its able to procure long term purchase commitment from at least one to two customers. Companies are considering tag manufacturing in India and looking at some long term bulk deals to provide the necessary catalytic pressure. But, the purchase commitments of that order usually come when backed by proven expertise. All this, therefore, lands up the companies in a chicken and egg situation. Till one finds a way out of this vicious circle, the tag manufacturing vision will have to fall prey to the pitfalls.