Dixon Technologies, arguably the most successful Indian electronics manufacturer of all times, said it has decided to float a 40:60 joint venture with its customer and Japanese electronic components maker Rexxam to target both Indian and international markets. The two companies have inked a memorandum of understanding and will begin the work of thrashing out a detailed agreement.
The JV will produce printed circuit boards for air conditioners.
PCBs, often green in color, are the main ‘boards’ on which various semiconductors such as chips and transistors are attached inside electronic devices.
Very few Indian firms produce PCBs, as most of these are imported from China.
A key reason for the partnership seems to be the new Indian government scheme of providing incentives under the Production Linked Incentive scheme or PLI.
Under the scheme, the government gives a ‘cash back’ of around 5-6% of increased sales to any company that sets up or expands its manufacturing capacity in India.
Rexxam is into a large number of products and areas, such as medical equipment, lab equipment, industrial robots, fertilizers and even beer.
Dixon, on the other hand, started out as a contract manufacturer for TVs and has, in recent years, diversified into manufacturing washing machines, LED lights and mobile phones.
“We share a long standing relationship with Rexxam as we have been manufacturing AC-PCBs for their Indian partner for more than 7 years. We are confident that our relationship with Rexxam will further deepen its roots with this strategic partnership,” said Dixon Technologies MD Atul B. Lall.
Even though Dixon will hold only 40% of the equity, the key advantage for the company is that the new company will target not just the Indian market, but Rexxam’s clients outside India.
“Under this JV, we will not only be serving to Indian customers of Rexxam but shall also be serving International Clients. We highly anticipate that a significant part of revenue under the JV Company will come from exports. We are extremely confident that this venture will be well positioned and shall be a contributor in strengthening India’s electronics manufacturing sector.”
The move has to be read in the context of Japanese conglomerates like Hitachi and Toshiba being urged to reduce their dependence of China, a country with which its neighbors, including Japan, increasingly have fraught relationships.
Having a manufacturing base in India is considered prudent for Japanese companies from a geo-strategic viewpoint.
With the Indian government too offering substantial support and incentives to new manufacturers, the country has been able to attract more and more investments in electronics and related manufacturing in recent years.
For Dixon, the partnership also offers the chance of expanding into other electronics components besides AC-PCBs. It also bolsters Dixon Technologies’ reputation as a potential partner for international manufacturing companies eager to establish a manufacturing base in India to tap into the considerably lower cost of production.
On the downside, India suffers from poor infrastructure — particularly roads and ports — as well as higher levels of government corruption and bureaucracy. However, the governments have tried to address these issues in recent years, realizing the growing dependency of the country on China.