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OM in the News: Will Chip Makers Locate in India?

April 20, 2013
Dell sells in India, but does not make components there

Dell sells in India, but does not make components there

India, home to many of the world’s leading software companies, wants to replicate that success by creating a homegrown industry for computer hardware. But unlike software, which requires little infrastructure, building electronics is a far more demanding business, writes The New York Times (April 16, 2013). Chip makers need vast quantities of clean water and reliable electricity. Computer and tablet assemblers also depend on economies of scale and easy access to cheap parts. When you are discussing multinational location decisions in Chapter 8, this article will highlight many of the factors that are considered in Figure 8.1.

“Nobody disputes India’s need to build up manufacturing. But the government needs to not mandate this, but create an ecosystem,” says the head of the U.S.-India Business Council. Another executive doubted that India could provide a new chip-making facility with the basic infrastructure it needed to even keep the lights on.  Dot-matrix printers, outdated in most of the world, are one of the few electronic products that India manufactures. India’s import bill for semiconductors alone was $8.2 billion in 2012, and demand is growing at around 20% a year.

The big fish the government would like to land is a factory to produce microprocessors for computers. A computer processor typically accounts for 25% to 35% of the total cost of a PC or laptop. India hopes that such a plant, which could cost as much as $5 billion to build, would help spur a bigger high-tech manufacturing industry. Spurred by a new “Buy India” government requirement, Dell, the largest PC retailer in India, explored the possibility of setting up manufacturing facilities there. “They flew in their suppliers from China and Taiwan to see if they could set up facilities. They said no,” said an industry official. “Logistically it is a nightmare.”

Discussion questions:

1. Why do manufacturers hesitate to manufacture computers in India?

2. What are the key operations concerns?

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