Reuters Summit: Flextronics eyes second India plant

TOKYO (Reuters) - Flextronics International Ltd, the world's top contract electronics maker, will invest an initial US$30-US$50 million to set up a second factory in India and pump in another US$300-US$500 million over the next 10-15 years, a senior company executive said on Wednesday.

"We would like India to be another China, if possible, but that's going to take a lot of work as India does not have a lot of trained resources to work in factories," said Peter Tan, Flextronics' president for Asia Pacific.

"The growth of manufacturing in India would be much more challenging compared to the growth of manufacturing in China," Tan said at the Reuters Technology and Telecoms Summit in Tokyo.

Tan said the second factory site, in Tamil Nadu, was on about 150 acres (60 hectares) and would make telecoms equipment.

An agreement will be signed soon, he added.

Singapore-based, Nasdaq-listed Flextronics already has a manufacturing plant in Bangalore and a logistics centre in Chennai, also known as Madras.

"In the announcement, we will probably announce (an investment of) between US$30-US$50 million," Tan said.

"If things work out well, we can put in an investment of US$300-IS$500 million over a period of 10 to 15 years."

The investment plans are a shot in the arm for India's efforts to attract as much as US$1 billion of foreign direct investment in telecoms manufacturing by some time next year.

Asia's third largest economy is the world's fastest growing major mobile market and has become a hot spot for global handset and equipment makers.

Flextronics has more than 11 million square feet (1 million sq metres) of factory capacity in Asia, including China, Hong Kong, Singapore, Malaysia, India, Japan and Taiwan. It employs 73,000 staff in the region, with about 47,000 in China.

Focus on Asia

The company is keeping its target of increasing Asian sales by more than 20 percent to US$9.02 billion in the business year to next March, Tan said.

Flextronics posted revenues of US$1.95 billion from the Asian region in its first quarter ended 30 June. This accounted for half of global sales of US$3.9 billion for the quarter.

Europe contributed 28 percent to group revenues and the Americas 22 percent.

Flextronics competes with US-based Solectron Corp, Sanmina-SCI and Jabil Circuit, Taiwan's Hon Hai Precision Industry Co Ltd, and Singapore's Venture Corp. Ltd.

It makes mobile handsets for Sony Ericsson and Motorola, printers for Hewlett-Packard and digital cameras for Japan's Casio Computer, as well as Microsoft's Xbox game console.

Tan said the company was still looking at Vietnam as an alternative for manufacturing, but that this was "a long shot" because of the logistical difficulties of operating in Ho Chi Minh City, which is not on the coast.

"We will continue to cautiously invest in China, and continue to use Malaysia, India and Vietnam as alternatives," he said.

Flextronics said in July it would invest 1 billion ringgit (US$263 million) over the next 10 years to build an integrated 1.2-million-square-foot industrial park, adjacent to the Port of Tanjung Pelepas, Malaysia's fast-growing container port.

It will invest another US$30 million over the next six months in its Changzhou factory in China to boost production of telecoms infrastructure equipment, Tan said.

Labour costs rising

To date, Flextronics has pumped about US$500 million into China, where it has a total of 7.5 million square feet of manufacturing space.

Tan said that apart from inflating labour costs, the recent revaluation of the Chinese yuan has had little impact on its Asian operations.

"...The increase in our labour costs is much higher than in the other parts of the world we operate, not to mention that China has one of highest inflation rates globally," he said.

On the company's plans to buy out the remaining shares in its India unit, Flextronics Software Services Ltd, and delist it, Tan said the rising stock price was a stumbling block.

"It all depends on how fast we can buy the remaining equity and at what price. We wouldn't do that at any price," he said, adding that he would not be concerned if the unit remained listed.

Flextronics said in May it planned to pay US$137 million for the remaining stock in its Indian unit to give it more operating flexibility. It owns 69.7 percent of the subsidiary.