Be it our collection of Hollywood classics, photographs, priceless company data, or just some Same Ol’ Plain Ol’ songs, in these times, there seems nothing more reliable a storage device than a hard disc drive (HDD). And for a land where 300 million middle class citizens reside, one whose ‘Make-in-X’ factor is unable to fulfil domestic demand, imports is the only solution!
Interview by Ahmad Shariq Khan | May 2016 Issue | The Dollar Business
With nearly every aspect of our modern daily lives relying on some form of digital technology, we are slowly becoming overdependent on technology. In fact, today’s world literally runs on computers, and, not to say, it’s data that runs these computers! So, as the world goes on creating more of it (data), we need more computers, and therefore, more storage space! And what better than hard disc drives (HDDs) to safely store our digital files for the long haul, and that too at a reasonable cost?
Although both Indian hardware and software sectors have made significant strides globally, India is still heavily dependent on HDD imports to meet its domesti
c demand. India has been significantly sourcing HDDs (HS Code: 84717020), so much so that its imports grew at a CAGR of 8.16% between CY2004 and CY2015 to reach $525 million during CY2015. While Thailand was India’s largest source of HDD imports (accounting for 39.14% share of the total imports) in CY2015, China (the world’s factory) had to be satisfied with a smaller share of 35% of India’s HDD imports.
So, what makes Thailand a preferred source over China? Sunny Oswal, a Pune-based importer of HDDs from China and Thailand, feels that the brand value of HDDs made in Thailand is higher than those made in China. “The product quality could be equal, but Thais are the best when it comes to assemble an HDD. They know the job better than their Chinese counterparts,” says Oswal.
Perhaps this is the reason that, today, this Silicon Valley of the Far East accounts for nearly 40% of the global HDD production, exporting more than $10 billion worth of computer data storage devices annually. As per Board of Investment (BOI) of Thailand, almost all HDDs manufactured in the country are meant for exports, with domestic consumption standing at a trivial 1%. This highlights the strength of the export policy that the Thai government follows.
The HDD sector in Thailand is robustly promoted by the country’s BOI, which offers investors generous tax and non-tax based incentives, supports services and import duty exemptions. All these initiatives have helped Thailand’s HDD manufacturing industry climb heights!
The Comeback Crave
However, it will be utterly unfair to completely write-off the Dragon’s capacity and capability in this segment – the reason being, except for the last two years, China’s HDD exports to India have always surpassed 
Thailand’s. In fact, China has been the obvious traditional choice for India. Despite Make in India and Digital India making a buzz across the country, it’s still the Chinese products that dominate our markets. And the data storage device segment (including HDD) is no exception. If you need proof, pay a visit to any of the wholesale/retail markets for IT products in Delhi or for that matter, any other city in India. For instance, owners at ‘Cost to Cost’, a leading IT retailer at Nehru Place (one of the biggest wholesale/retail markets for IT products in Asia), tell The Dollar Business, that about 75% of their items in their product catalogue today are being imported from China. And in the case of HDDs, the import share is 100%, on which they keep a margin of 8-15%, depending on the market scenario. “As long as one can extract profit, it should not really matter from where the product is being sourced,” is a notion that is also agreed upon by AVS Informatics Pvt. Ltd., another IT company and HDD importer based out of the IT hotspot in the capital.
A study by Electronics and Computer Software Export Promotion Council (ESC) reveals that the cost of production of most electronic goods in India is at least 8-10% higher than those across other South East Asian countries. And, to a large extent, this is the factor that has been responsible for India’s lopsided import growth, adversely affecting the balance of trade in this segment.
If one goes by the latest trade numbers, India’s trade balance in HDD shows a skewed disparity. The total exported value of HDD in CY2015 was just $38.4 million as against imports worth $525 million during the same year. Similar was the case in previous years. Hence, one can infer that India has not been able to achieve an in-house excellence in this segment, and there’s a large gap that needs to be filled through imports.
But then, why does India have to rely on imports when the nation has skilled IT workforce in abund
ance? Those in the business claim that the Indian electronics industry is marred by several problems. The cost of electricity and logistics, multiple state and central levies, and above all, high production costs that make the end product costlier (when compared to China and Thailand, the world’s leading exporters of HDD), are few prominent concerns.
According to Electronics and Computer Software Export Promotion Council (ESC), India’s electronics equipment production in FY2015 was estimated at $31 billion, which is only 1.5% of the global production. “We have everything that is required to manufacture quality HDDs. What we lack is somebody taking the initiative. Trading has always been our comfort zone, hence, nobody wishes to give manufacturing a shot. If right efforts are made along with adequate government help, then we can obviously manufacture HDDs in the country and export in large volumes as well,” says Oswal.
Considering the need to accelerate production and exports of electronics goods from the country, ESC recently presented a wish list to the government. It speaks of critical needs such as access to quality raw materials, equipment, technology, and skills to speed up production in a relatively shorter timeframe, along with a well-regulated scheme of fiscal incentives for promoting IT manufacturing in the country.
“The government must encourage electronics manufacturing and provide the much-needed preferential tax treatment, land subsidies, financial incentives etc., and improve the infrastructure,” says D. K. Sareen, Executive Director, ESC. He also wants the government to create a level-playing field for domestic manufacturers vis-à-vis importers. In his opinion, granting a ‘physical exports status’ to all domestic tariff area (DTA) sales of electronics items from the SEZs and EOUs, and a ‘deemed export status’ to all suppliers to the domestic manufacturers will certainly eradicate the inverted duty structure that the industry is plagued with at the moment.
With ever-increasing demand for PCs and laptops, the potential for IT hardware industry growth in the country is enormous. Buoyed by the digital boom, demand for data storage devices is bound to shoot upwards around the world and India will be no exception! In fact, according to Gartner, India is one of the fastest growing markets for IT services, products and hardware. This means there is definitely a market for HDDs in India, not to speak about the handsome and alluring profits. “With everything going digital in India, there is a big scope for importers and manufacturers of digital storage media in the country,” agrees Oswal.
However, in the coming times, Indian suppliers and traders will need to find the right approach, not just to market but also to source their products and maximise their ROI. Having said that, it’s an industry where by all accounts, imports will rule the roost for years to come. Well, many might find it inappropriate in the light of the government’s thrust on making in India, but importing HDDs continue to make profit sense.
Sunny Oswal PROPRIETOR, LAPS N COMPS
TDB: How has been your experience in importing HDDs?
Sunny Oswal (SO): I would say it’s been quite a learning and an exciting experience. It was in 2007 when we first started importing HDDs – we saw a growing demand for hard disc drives. So, we explored China, Thailand, and other foreign markets and figured out the right sources. Since then we have been providing a wide range of imported hard disc drives to our consumers.
TDB: India imported HDDs worth $525 million in CY2015. Do you see its imports growing in the near future?
SO: Regardless of some challenges, I believe, the future is very bright in this trade. The demand is ever increasing, and the technology is ever evolving. With everything going digital, the demand will only grow further. Year-on-year, our imports are increasing as consumption has been increasing steadily as well.
TDB: Competition from China is hurting domestic players in this segment. How can it be countered?
SO: China is a major threat and will always be – everyone is well aware that they are the manufacturing giants. Right from quality to quantity, they master it all! Of course, the threat can be countered if we learn from other manufacturing countries. And with initiatives like Make in India, there is a high possibility of the same, but it’s still an uphill task.
TDB: But then Indian HDD importers still prefer Thailand over China. Why?
SO: Thailand is a pioneer in high-quality low-cost HDD manufacturing. It’s because of this reason the brand value of HDDs made in Thailand is much higher than the ones made in China. The product quality could be equal, but Thais are the best when it comes to assemble an HDD. They know the job better than their Chinese counterparts. Further, there has been a long established trade line between India and Thailand with government benefits at both ends. This also makes Thailand a preferred source.
TDB: Do you think the government should promote domestic manufacturing to reduce dependence on imports?
SO: We have everything required to manufacture quality goods but we lack initiative. I believe, trading has always been our expertise and that is what we’re good at. However, we have found a comfort zone in trading, and, hence, we do not wish to give a shot in manufacturing. But, if right efforts are made along with adequate government help, then obviously we can manufacture HDDs in the country and export as well.
TDB: What are the major challenges faced by you as an importer of HDD?
SO: Import of HDDs has never been a simple job. It starts right from managing currency fluctuations to handling of logistics and, of course, managing the unending documentation process. An importer has to always stay on his toes in this trade. Even finance is very important. You also need to be equipped with proper infrastructure to handle storage and dispatch of your product.
TDB: Give us a sense of the margin involved in HDD import business?
SO: With regards to HDD imports, profit margins fluctuate as it depends on many factors. Sometimes the reward is high, while at times the margin can be painfully low, owing to cut-throat competition. The primary factor affecting profit margins is currency fluctuation followed by delays in shipment and clearance, amounting to price changes at the manufacturing end. However, the profit margin has to be above 5%. The risk-reward ratio backfires a lot of times, but that’s how businesses operate. If one is skilled and smart, he can definitely make money in this trade.
D. K. Sareen EXECUTIVE DIRECTOR, ELECTRONICS AND COMPUTER SOFTWARE EXPORT PROMOTION COUNCIL (ESC)
TDB: A major portion of India’s hard disc drive demand is fulfiled by imports from China. What’s the reason?
D. K. Sareen (DKS): Undoubtedly, India is a huge market for Chinese hard disk drives and this is expected to continue for a while. And the reasons are quite obvious. First and foremost, it’s the price difference – no other country can compete with China when it comes to the price of a hard disc. Industry experts say that Chinese hard disc drives are 10-70% cheaper than their Indian counterparts. Even South Korea and US, other major exporters of hard disc drives to India, know that their products cannot compete with Chinese goods since the latter can resort to much deeper price cuts.
Trade analysts are of the opinion that in many instances the Chinese manufacturers take umbrage under an opaque dispensation, where evidence to prove dumping can be difficult to trace. Also, some of the hard discs imported from other countries, including China, are intermediate goods which go into the manufacturing of the final goods. These industry segments in India may like cheaper intermediate import goods to hold the prices of the final goods.
Bilateral trade between India and China has witnessed a meteoric growth since 2001. China, triggered by a booming economy, is registering consistent double-digit growth for quite some time now. In fact, its global exports of electronic goods alone is as high as India’s total global exports.
TDB: How can India counter competition from China?
DKS: It is a fact that competition from China is hurting indigenous manufacturers. But, to counter this, we have a policy in place – Make in India, to make India a low-cost destination for manufacturing in general, and electronic goods in particular. One of the ways to beat China in terms of cost could be to develop electronic clusters in the country like the one that is developed in Bhiwadi. It’s an electronics park spread across 100 acres and caters to every possible need of a manufacturer, such as uninterrupted power supply, waste disposal mechanism, training, lodges for the workers, water treatment plants, etc.
Also, persuading global majors in electronics to set up their manufacturing bases in the country is another way to counter the Chinese competition. Elimination of project delays, expeditious clearance of projects, providing opportunities for tapping finances, framing sustainable policies, rationalisation of labour laws, etc., can help in attracting foreign investments into the sector.
TDB: How do you think we can promote domestic manufacturing and reduce heavy dependence on imports?
DKS: Before answering your question, let me share an interesting statistic. By 2020, the domestic demand for electronic goods in the country will perk up to about $400 billion, and the domestic manufacturing will grow only to about $100 billion, leaving a huge gap of $300 billion to be plugged.
We face many handicaps and that’s stopping us from becoming a strong player in electronics. Lack of quality raw material, particularly for manufacturing of semi-conductors, chips and other components of electronic items, are definitely a limiting factor. Nevertheless, we have to overcome these shortcomings.
We need to invite major global players to set up their bases in India. Thankfully there are some corporations that have already invested in India, while there are some that are strategising to invest in India. Further, it is equally important to create an ecosystem that attracts investments from Indian companies as well.
TDB: Do you think government initiatives like Make in India and Digital India will really be of some help?
DKS: These programmes are the need of the hour and can create a strong digital and manufacturing ecosystem in India, which in turn can help Indian manufacturers realise their true potential. Thanks to these initiatives, many global companies are now setting up their manufacturing base in India. This can considerably increase demand for raw materials, intermediate goods, machinery, equipment, etc., used in the manufacturing of IT goods in the country. Since many of these goods have to be sourced from abroad, this will also support our IT goods importers in a big way.
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