Flextronics likely to shift some TN OPS

Hemamalini Venkatraman
The Economic Times (Bangalore edition)
Flextronics is believed to be considering a plan to shift some of its manufacturing operations from Chennai to Bangalore, people close to the situation said. The electronics manufacturing services firm, which set up operations in Chennai a few years ago after heavy lobbying by the state government, now feels that Bangalore may be a better option for manufacturing some of its components. ET learns from several people close to the situation that the $31-billion MNC has approached and briefed the state industries department of the latest development.

Asked specifically whether Flextronics plans to shift, close or relocate its plant, company spokespersons vehemently denied any such move. They staunchly refuted it, maintaining that it has no plans to shift or close down its facility near Chennai.

“As an EMS (electronics manufacturing services) provider, we constantly move capital equipment across our network of manufacturing facilities globally. If we transfer a few lines out of Chennai, it might well be in exchange of other equipment due to a shift in demand or operational strategy and should not be seen as an indication of any rationalisation or downsizing exercise,” was the email response to ET from Flextronics corporate marketing and communications, Asia, senior director Valerie Kurniawan.

Flextronics had announced that it would invest $200 million in phases at the special economic zone (SEZ), for which the state government had allotted 250 acres. Typically, shifting a SMT (surface mount technology) line involves costs of $1 million.

However, component supplies and officials in the Tamil Nadu industries and labour department say that the company is indeed considering such a move. Some vendors have been asked to stop supplies too.

They added that Flextronics is not thinking of shutting down the unit but only interested in moving the production of some components out of the state. Flextronics’ move at that time was a boost to the Tamil Nadu government’s move to attract big-ticket investments to the state. Why Flextronics is considering a move to Bangalore is not clear as yet.

At the time of announcing its entry into Tamil Nadu, Flextronics had said its plant capacity would be one million handsets per month. On its part, all the Flextronics officials whom ET touched base with have reiterated that their business units are expanding operations in India. “We have no plans to shut down the Chennai facility. We are 30 months into our operations, hence it is too early to talk about viability,” Flextronics global shared service centre (GSSC) VP-MD Ashok Dhawan said in his response to ET.

Flextronics denies closure of Chennai ops

Flextronics marketing and communications official Ho Chu Hor too noted: “As explained, we will not be shutting down our operations in SIP (Chennai). Our operations will go on as usual — in fact, we are experiencing growth at our SIP facility.”

Re-affirming that Flextronics has long-term interests in India, Dhawan said “in the recent months, we have launched Flex Power, a power chargers manufacturing unit at Chennai Industrial Park (Sriperumbudur SEZ). In addition to Chennai factory, we also operate a repair services unit at Bangalore and GSSC at Chennai. The centre has three premises and has a headcount of over 1,200 regular employees doing high-end IT and finance work mainly.”

Asked about the Puducherry unit, he said it was wound up two years ago following completion of its business with the customer. Operations in Bangalore are normal.

On whether Chinese competition has made Flextronics review its businesses, Dhawan said “China is not a factor in Indian operations.”

According to him, Flextronics had committed to invest $100 million to Tamil Nadu government. “Our investments at Chennai SEZ till date is quite close to that as of today,” he said.

Noting that FlexPower has been growing at breakneck speed in India, Kurniawan said “We have invested heavily in the country and will continue the momentum. If we have any intention to cease our investments in the country, we’ll disclose that stance to the authorities.”

When ET contacted the state labour department, a source hinted that the company is contemplating to shift a portion of the plant. Legally, according to the Industrial Disputes Act, factories employing 100 or more workers must give 90 days prior notice to government if it intends to pull down its shutters. After this, the labour department would investigate and ascertain the reasons and hear the party before passing an order.

State administrative circles are anxious over the development considering it was one of the big investment catch in the electronic hardware sector. The EMS company employs 1,400 people, of which 400 are regular employees.

About three years ago, there was a lot of fanfare to welcome Flextronics into the industrial corridor, as the state was keen on promoting it as a destination ideal for EMS and hardware business.

Industry forecast had pegged the EMS sector to touch $40 billion by 2012. India’s fast-paced economic growth, coupled with business opportunities in the telecom and automotive sectors had drawn many global corporations to the southern EMS turf. The list of EMS and original design manufacturers included Delphi, Flextronics, Jabil, Sanmina-SCI, Solectron and Wintek.