Contract manufacturer Incap expands in India
Contract manufacturer Incap expands in India
Finnfund is one of the institutions financing Incap’s rapid expansion of its contract manufacturing operations in India. The plant in Bangalore produces devices related to energy efficiency, among others.
Contract manufacturing of electronics products in Asia has been growing at an accelerating rate. Alongside China, India has assumed a major role in the past few years.
Incap began to chart the business potential of India at the start of 2006, when it established a sales office in Delhi. Market research revealed excellent growth prospects for a contract manufacturer like Incap.
“India has major global corporations and smaller local family firms but there are still no companies of our size in the Indian market,” says Incap's President and CEO, Sami Mykkänen.
Ready customer relationships as a bonus
Incap began contract manufacturing in India in June 2007, when it took over TVS Electronics, the contract manufacturing unit of India's TVS Group. As part of the deal, TVS's production facilities in Tumkur and its related planning operations in nearby Bangalore were acquired by Incap's Indian subsidiary, Incap Contract Manufacturing Services Pvt. Ltd.
The purchase included land at the Tumkur plant and its building and equipment.
“The plant has been operating in Tumkur for 15 years so its operations were already established. Acquisition and development has been an easier route than greenfield investment,” Mykkänen notes.
As a bonus, the contract provided Incap with ready customer relationships. The Tumkur plant has a fine reputation in India as a first-class contract manufacturer.
“It was also easier to obtain new customers because TVS is a valued and respected contract manufacturer in India. Meanwhile, Incap's good reputation in Europe helps in the Indian market. Our joint projects with our customers stretch back a long way, so we have excellent references.”
Apart from India, Incap has operations in Finland and Estonia. Consolidated turnover in 2007 was 83 million euros. The group has about 730 employees.
Many potential customers nearby
Some 230 people work in the plant at Tumkur, which has a production area of 6000 square metres.
The location is excellent. The Bangalore region in southern India is known as the Silicon Valley of the subcontinent. Apart from IT, it contains many other advanced technology companies.
A large industrial site is being planned for Tumkur and a new international airport is under construction nearby.
As part of the deal, it was agreed that TVS Electronics would construct a new factory building for Incap near the existing plant. The new production lines are due to be completed in the first quarter of 2009.
In terms of floor space, the new building is the same size as the existing plant but it is designed so that it can be enlarged later to as much as three time the area.
Design services a competitive advantage
Incap's operations in India stretch from electronics manufacturing and assembly to materials purchasing, distribution, logistics and maintenance. The product line focuses on complete products for energy technology and industrial electronics.
“Among the products we make in India are back-up power sources, inverters and power supply units. Many of the devices we make are related to energy efficiency,” Mykkänen points out.
In autumn 2008 three new customer relationships advanced from the prototype and ramp-up phases to volume manufacturing. Incap currently has about ten customers in India.
Mykkänen believes that more customers will be signed up as production capacity grows.
“One of our strengths is that we can also handle materials purchasing for customers. Smaller competitors can't offer this service. Designing is another feature that sets us apart from our rivals.”
Incap has a 12-person design service team in Bangalore, which can offer sheet metal, electronic and circuit board design services within India and also to customers abroad.
In India, Mykkänen feels, the challenges and risks are largely the same as elsewhere in the world.
“Price competition is tough here, too. The greatest risks are on the commercial side and relate to matters like the market success of the customer's products.”
Finnfund finances growth
To finance the new investments in India and provide the necessary working capital, Incap and Finnfund signed a financing agreement at the end of November. Under the agreement Finnfund is making a two million euro equity investment in Incap's Indian subsidiary.
”Successfully implemented, this project contributes to India’s development, internationalization of Incap and also political climate targets through energy saving. In our opinion the equity investment supports the progress of the project and suits well our role as a development financier,” says Jaakko Kangasniemi, CEO of Finnfund.
Sami Mykkänen is pleased to have Finnfund involved in developing Incap's business.
“Finnfund financing will allow us to invest and expand our business in India in response to demand, in line with our company strategy.”
He also expects Incap to be able to benefit from Finnfund's broad understanding of the Indian market and its competence in environmental and social responsibility questions.
“Finnfund is a partner that brings us extra credibility.”