Nearly three decades ago, Sunil Vachani borrowed $ 35,000 so he could start producing 14-inch TVs in a rented warehouse outside New Delhi. It was an unconventional choice, given that India, although famous for software and services, had long lagged behind in production.
Today, the start of Vachani has become an extended electronic empire. Its Dixon technologies boast a market value of over $ 2.5 billion and the capacity to produce approximately 50 million smartphones this year. It is an early indicator of the country’s opportunities and challenges in building a sophisticated manufacturing sector, a top priority for Prime Minister Narendra Modi.
While 52-year-old Vachani struggled in his early days, his company’s shares rose 824% from its initial public offering in 2017. Sales and profits increased with domestic demand for smartphones, along with plans India’s ambitious plans to develop its own local industry.
“This is just the beginning,” Vachani said in a telephone interview. “We are changing the mindset that global production can happen in India.”
The founder and his brothers are now in the league of billionaire families in India. Vachani, which controls a third-party stock worth about $ 900 million, has just bought one of the country’s most extravagant homes – a $ 20 million mansion in New Delhi’s Tony Lutyens district.
[Bloomberg]India has been plagued by decades of difficult infrastructure, heavy taxes and crushing bureaucracy. The Modi administration has tried to change the dynamics through a series of policies and incentives, in order to create jobs and economic growth. Along with strong tariffs on products such as imported smartphones, the country launched a cash incentive program in October last year to encourage local producers.
This helped kick-start the construction of new factories from its own device manufacturers such as Dixon and global contract manufacturers such as Foxconn Technology Group and Wistron Corp. The effort took on a new urgency with rising tensions between the US and China and the coronavirus pandemic, which disrupted supply and highlighted the risks of concentrating production in one place for phone manufacturers such as Apple Inc.
India lags far behind China, producing about 330 million smartphones annually, compared to 1.5 billion in its larger Asian neighbor, according to the Indian Cellular Association. However, Dixon is an example of how fast India is changing: it has increased production capacity from about 2 million smartphones a month last year to about 4 million units after the government’s stimulus program began, with more planned next year.
“India is well qualified to be a global alternative to China’s supply chain,” said PN Sudarshan, a partner at Deloitte India. “Once component manufacturers move, vibrant manufacturing clusters will form.”
Vachani comes from an entrepreneurial family. His father and siblings started a business that produced electronic and household appliances under the Weston brand. They made the first color TVs and video recorders in the country – and operated a series of video game parlors on the side. Vachanis are Sindhis, a small community in India with a reputation for business acumen.
After studying business in London, Sunil chose to go his own way in 1993, rather than join the family business, a decision that quickly led to difficulties. He ran out of working capital and found that banks would not lend to him without collateral. He eventually landed bank financing backed by an export contract.
Sunil Vachani and his brothers are now in the league of billionaire families in India [File: Bloomberg]
He was so desperate for business earlier this year that he agreed to make 14-inch color TVs for $ 1.50 each. He later made Sega game consoles, Philips video recorders and mobile phones with buttons for Bharti Airtel Ltd., the country’s leading mobile operator. Dixon’s fortune began to improve in the 2000s, when a regional political party awarded the company a contract to make televisions for free distribution.
Vachani tried to persuade the federal government to do more to build a domestic production sector – especially without success. “All I heard from policy makers was that India’s future is about software,” he said.
Smartphone assembly at a Dixon factory in Noida [File: Bloomberg]
And investors were skeptical at first. During the Dixon show before 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 manufactures TVs for Xiaomi Corp., washing machines for LG Electronics Inc. and lighting products for Philips. It began producing mobile phones in 2016 for brands such as Panasonic Corp. and Samsung Electronics Co.
Phones are becoming a substantial growing market. India’s smartphone users are expected to grow from 468 million in 2017 to 859 million in 2022. For Dixon, mobile devices could account for 44% of revenue in the next fiscal year, up from 12% last year.
The government finally turned its attention to domestic production a few years ago, with the aim of reducing a massive electronics import bill and creating much-needed jobs. But progress has been slow. Production accounted for 17.4% of gross domestic product in 2020, almost the same as 15.3% in 2000, according to McKinsey & Co.
Wistron, Apple’s first iPhone maker in India, ran into trouble last year when workers revolted over wage delays. Apple has put the Taiwanese company on trial and said it will stop supplying new orders.
Modi has refined its “Make in India” policy to include financial incentives and simplified infrastructure policies. The country has said it wants to create 100 million new jobs in the manufacturing industry by 2022. It aims to increase phone exports from the current $ 7 billion to $ 110 billion by 2025, according to the Indian Cellular Association .
A smartphone comes out of the Dixon assembly line in Noida, India [File: Bloomberg]
Dixon is positioning itself to achieve a major share of this by producing and exporting globally for big brands, Vachani said. Motorola, now owned by Lenovo Group Ltd. of China, has contracted Dixon to produce devices for the US market. HMD Global in Finland, which holds a license for the Nokia brand, recently signed a similar agreement. By next year, the company plans to produce about 75 million mobile phones and expand into categories such as tablets, laptops and portable items.
“This is the golden moment for electronics production,” Vachani said. “In the end, India is where you need to be.”