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Feature | May 2010
Lower demand from SEBs hurting the wires and cables
industry

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While India’s wires and cables industry continues to grow, it is not exactly by leaps and bounds, as one would
expect given the government’s ambitious targets for infrastructure development, particularly power generation, writes
Jagdeep Worah


From power transmission to domestic lighting and cable TV, wires and cables are an integral part of modern life.
They form a critical infrastructure segment on which the socio-economic development of a country depends. But
unfortunately the sector has been largely neglected by policy-makers.

A whole range of world-standard cables are today manufactured in India - including PVC FRLS cables, XLPE cables,
submarine cables, aerial bunched conductor cables, telecommunication cables such as jelly-filled cables and optical
fibre cables.

The cables sector is the largest component of the electrical equipment industry, contributing about 25 per cent to the
turnover of the sector. It can be broadly divided into four segments: house wiring (up to 440V), LT (1.1 to 3.3kV), HT
(11 to 66kV) and EHV (above 66kV) apart from automotive wiring.

But while there is a definite upward movement in technology with many foreign tie-ups, consumption has fallen by
more than the rate of growth. Belying the government’s aims of rapid increase in power generation, industry body
IEEMA (Indian Electrical Equipment Manufacturers’ Association) says there is a distinct slowdown in demand from
the State Electricity Boards (SEBs), which are the principal customers in this segment.

About 125 wire and cable manufacturing companies in the country come under the aegis of IEEMA while smaller
companies are engaged mostly in domestic wiring and control cable sectors. In 2008-09, the size of the industry was
estimated to be around Rs 11,600 crore – down from Rs 12,500 crore in 2007-08.

The power sector is the mainstay of cable companies. According to IEEMA data, the electrical equipment industry in
general grew at a dismal rate of 2.73 per cent in 2008-09, 1.24 per cent in the first quarter of 2009-10, and 2.21 per
cent in the second quarter. The corresponding figures for the first and second quarters of 2008-09 were 11.79 per cent
and 8.98 per cent respectively.

The electrical cables industry in particular slumped from 14.96 per cent growth in April-June of 2008-09 to minus
2.01 per cent in the corresponding quarter of 2009-10. Having implemented huge expansion projects, manufacturers
are faced with idle capacities, shrinking margins and increasing costs - both of commodities as well as interest costs.

There is some rise in domestic demand, especially for cables above 33 kV. However, the demand for railway
signalling cables has reduced sharply. On the other hand, the LT (low tension) cable and domestic wiring segments
have shown a moderate increase in growth due to the construction boom.

Wildly fluctuating foreign exchange rates are adding to the woes of the industry. Also, cheap imports of cables from
outside the country, especially China, Thailand and other FTA countries, have hit the industry.

The industry has decried the fact that Indian users (mainly power utilities) have adopted procedures which debar the
participation of Indian manufacturers who have developed technology indigenously or through technical collaboration
with world leaders – unless they have previous experience.

As a result, foreign players are gaining ground in the Indian market and Indian players are unable to compete. Having
developed the technology, they are left with no scope to market their products, thereby threatening their very survival.

At a cable industry conclave organised by IEEMA in Mumbai last December, speakers noted that GDP growth will
falter if the electrical industry does not grow. The government outlay for the power sector in the ongoing 11th Five-
Year Plan is Rs 1,000,000 crore while for the 12th Plan it is Rs 11,35,083 crore, with the maximum increase being in
the distribution segment.

Speakers at the conclave, which was attended by senior government officials, heads of cable manufacturing
companies, consultants and R&D staff among others, noted that a major cause for worry is the achievability and
implementation of plans.

It was also noted that standardisation or reduction in the number of sizes and having common specifications in utilities
across the country is another area that needs dedicated work from the industry as well as from users.

OFCs on growth path

The demand for optical fibre cables (OFCs) is expected to grow at a compounded annual rate of 17 per cent to 1.8-2.4
million fibre kilometres over the next three years, as producers report healthy order books on the back of increased
demand for broadband deployment.

But at the same time price realisation for OFCs will decrease due to competition from global players because custom
duties have been abolished from April 2005.

Large-scale deployment of wireless services is also expected to limit the demand for wired services, which will
adversely affect the demand for jelly-filled telecom cables (JFTCs). The demand for JFTCs declined at a compounded
annual rate of 11 per cent between 2003-04 and 2006-07 and will eventually be restricted to replacement and
maintenance demand. IEEMA says that intense competition will continue to strain the margins of JFTC producers in
the medium term.

The abolition of customs duty on JFTCs and OFCs in the Budget is expected to have a negative impact on domestic
producers. However, the reduction in customs duty on raw materials like copper, polyethylene and polypropylene
could partly offset the decrease in the duty on finished goods.

Cable manufacturers feel that the cost of raw materials (aluminium, copper, and XLPE/PVC compounds which
account for nearly 60 per cent of production costs) are exorbitant.. Due to this, Indian cable makers lag behind global
competitors. Also, raw material prices were at their peak in the second quarter of the fiscal, impacting business
margins and lowering domestic demand.

IEEMA had raised the red flag for the electrical equipment industry as early as the last quarter of the year 2007-08.
Although most of the product groups showed a decline in growth, some products like conductors and power
transformers bucked the trend and showed remarkable growth of 33.6 per cent and 30.6 per cent respectively.

The Indian electrical industry is hoping for an urgent stimulus from the government to spur domestic demand. This
would need faster implementation of ongoing projects to augment power generation, transmission and distribution
systems like RAPDRP (APDRP II) and RGGVY. Whereas the funded projects may not be affected, the non-funded
and BOT projects are likely to be impacted with the squeeze in money supply and cautious approach of project
builders and investors.

IEEMA speakers said that the emerging scenario after the global meltdown must be closely monitored since a further
slowdown in domestic and export demand would result in more idle capacities.

On the flip side, the recent reduction in prices of major raw materials like copper, aluminium, steel, fuel and polymers
could stimulate demand with a reduction in project costs. A strong dollar would also help exporters, especially those
whose value-additions are high and who do not depend largely on imports.

So it could be said that the cables and wires industry has the potential to grow exponentially – but for this, a great deal
depends on the central and state governments, which need to get ing on power generation projects as well as framing
suitable policies for the sector.
Power Today, Wires & Cables, Government, Infrastructure, Development, Power,
Generation, Transmission, Telecommunication, Fibre Cables, Electrical, Equipment, EHV,
IEEMA, Sebs, Foreign, Exchange Rates, Imports, China, Thailand, FTA, Technology, GDP,
Mumbai, R&D Staff, Ofcs, Jftcs, Customs Duty, Budget, RAPDRP, RGGVY, BOT
Problems in hydel power projects
Problems in hydel power projects
Recovery rate 100 per cent
Recovery rate 100 per cent
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A “Performance Driven Professional” with hands on experience of over 19 years in Strategic Planning
encompassing Production, Process Enhancements, Value Engineering / Cost Reduction and Team
Management.

 A keen strategist with expertise in managing entire manufacturing/project operations with key
focus on top line & bottom line profitability by ensuring optimal utilization of resources.
 Proven abilities in enhancing production process operations, optimizing resource and capacity
utilization, escalating productivity as well as operational efficiencies.
 Adept in managing erection & commissioning activities involving resource planning, in-process
inspection, team building and co-ordination with internal / external departments.
 Experienced in preparing and implementing cost saving measures; well versed with conducting
root cause analysis and resolving persistent and critical maintenance problems.
 An effective communicator with excellent relationship management skills with and strong
analytical, problem solving & organizational abilities.
Interested in new project development and enhancing productivity of existing plants.

Designing and manufacturing medical cables, connectors, and interfaces is done worldwide. With labor costs being less in Mexico and
even less in Asia, it may be surprising to some that domestic manufacturing is increasing as customers shift production back to the
United States.

Affinity Irvine California plant offers advantages of domestic production
Price vs. Cost
One reason for dissatisfaction with offshore manufacturing is that expected cost savings are often not achieved. When comparing
pricing from offshore manufacturers to those of domestic manufacturers, a number of factors should be considered. It is generally
accepted that there are additional costs when purchasing from offshore manufacturers, but often all of the additional costs are not
readily apparent.
Supply Chain Costs and Issues
Anything that decreases the efficiency of the supply chain will likely add cost to the product. Added costs due to supply chain
inefficiency are often hidden or overlooked when initial pricing is negotiated.
Most of our customers have implemented programs to minimize their investment in inventory. For such programs to be successful,
short lead times and reliable dock dates are required. With delays for goods to clear U.S. Customs, shipments from any offshore
manufacturer will take longer than from a domestic producer. And, when buying from an Asian manufacturer, you are faced with either
air freight shipping costs or long surface transit times.
As lead time to receive product increases, so does the need to maintain safety stock or buffer inventory. Additionally, if there is any
uncertainty over an offshore supplier’s ability to meet delivery commitments, even greater inventory may be required. The cost to hold
additional inventory can quickly cut into, or eliminate, any price advantage of manufacturing offshore.
Quality System and On-site Audits

ISO certification – an important consideration in supplier selection
An important consideration when choosing a manufacturing partner is their Quality System. If they are an ISO registered company, you
can have confidence that minimum common standards are met. However, without conducting an on-site quality audit of the prospective
supplier, the effectiveness of their quality system is difficult to gauge.
The ability to conduct initial and follow-up on-site quality audits may be an important consideration in supplier selection. An on-site audit
is typically easier and more efficient if the supplier to be audited is located in the same country. When auditing an offshore supplier,
time and expenses are increased while the effectiveness of the audit may be reduced due to language differences in verbal
communication and documentation.
Standards and Regulatory Experience and Knowledge

Affinity’s Bob Frank helped
author EC53 standard
A prospective supplier may be of additional value to you if they have experience and knowledge of recognized standards such as ANSI,
AAMI and IEC. While anyone can read the various standards, understanding how they are appropriately applied is enhanced with
experience. Similarly, experience with regulatory issues associated with the U.S. Food and Drug Administration may be of benefit and
help especially in the design and development stage of a project.
Affinity offers our OEM partners the advantage of being an FDA registered medical device manufacturer as well as having experience
obtaining a 510k for cable assemblies. We understand some of the challenges of meeting regulatory requirements. In addition,
Affinity’s Director of Engineering, Bob Frank, was a member of the AAMI committee that established EC53, the only standard that
specifically applies to medical cables. His intimate knowledge of this standard and how it is applied to medical cables often proves
valuable to our OEM partners.

Reducing labor content and
operator dependency begins at
the design stage of a project
Design for Manufacturing – Reducing Labor Content
Part of any good design process is consideration and planning for how the product will be manufactured. To some, this is more about
resources (people and machines) rather than how the product can be built with minimum labor and operator dependence.
One of the reasons that Affinity successfully competes with offshore manufacturers is that our engineering team aggressively “designs
the labor out” of the products we build. Not only does this help us compete on a price basis, but also increases throughput and
decreases lead times. Reduced labor content and improved throughput help Affinity compete on a worldwide basis.
Design Validation Testing

Affinity offers its OEM partners
complete Design Validation Testing
When selecting a supplier, domestic or international, evaluating the value of the supplier’s additional capabilities can be important.
Many OEM’s have gone through restructuring resulting in internal resources being reduced. A supplier that can write and execute your
validation protocol may save a great deal of time and expense. Few foreign suppliers have the resources and knowledge to assume the
validation responsibility. This is a service that Affinity commonly offers our OEM partners.
Understand OEM Partner’s Business
We constantly hear from our OEM partners how important it is that we not only know how to manufacture their products, but also
understand their business. Because we understand their business and how the products we design and manufacture will be used, we
often are able to offer a higher level of assistance than other suppliers can.
Affinity’s sole focus is designing and manufacturing medical cables, connectors and interfaces. Each member of the Affinity
management team has several decades’ experience that is applied to providing unique interconnect solutions to our OEM partners.
Understanding how medical cables are intended to be used, and, how they are typically used, allows us to provide additional value by
shortening design time, anticipating potential user problems, and reducing risk.
Control of Intellectual Property
Some projects that we participate in are highly confidential and any disclosure of the nature of the product could be detrimental to our
OEM partners. Some within the industry have expressed concerns that safeguarding intellectual property may not be viewed with the
same degree of importance by offshore manufacturers as it is with domestic producers.
Besides the obligations and restrictions covered by Non-disclosure and Confidentiality agreements, we guard our customer’s intellectual
property because our reputation and future business depends upon it.

Communicating across a dozen
time zones can be difficult
Time Zone Issues
Collaborating on the design and specifications for a medical cable assembly or custom connector generally requires a great deal of two-
way communication. Communication is more efficient when there is no language barrier. Communication is easier to schedule when
the normal business day of all parties is similar.
Communicating with technical resources as far away as Asia is particularly problematic. Asian countries start their workday after the
U.S. workday has ended and the U.S. workday begins and ends during their night. While Asian manufacturers often try to minimize the
impact of the time difference, communication without advance scheduling is often difficult.
Supply Partner – Not Competitor
For some OEM’s, an important consideration is whether or not a prospective manufacturer competes for the same business. Some
domestic and offshore manufacturers produce interconnects for OEM’s, but also sell the same or similar products to end users or
distributors. Competing with our OEM partners is not something that we do at Affinity. Our sole focus is on helping our partners be as
successful as possible.

Affinity plant in Irvine California
Proud U.S. Manufacturer
Affinity Medical Technologies is proud to manufacture in the United States and we’re proud that we offer good jobs to our hard-working
team members.
Besides being proud that we manufacture in the United States, we are very successful at manufacturing domestically. Our success
reinforces our belief that we made the right decision by strengthening our design and manufacturing capabilities here, rather than
developing those capabilities offshore.
“Thanks to our customers, Affinity’s business has been strong and we have been hiring all year,” said Manufacturing Manager, Kevin
Kom. “With unemployment at record levels, we feel very fortunate to be able to offer good jobs to good people.”
Affinity Asian Partner
For some high volume products with high labor content and locally available raw materials and components, manufacturing in Asia may
make sense. Because a handful of our products fit these parameters, Affinity has an Asian manufacturing partner. Each of our
products manufactured in Asia was first developed, validated and put into production in the U.S. Only after we have successfully
manufactured the product in our Irvine plant have we considered transferring manufacturing to Asia. When it has made sense to
transfer a product to Asia, we have been successful in maintaining the same level of quality, lead times and logistics for our OEM
partners.
Balancing Quality, Lead Times and Price
One of the reasons our business is strong is that many of our new customers have decided to buy domestically after experiencing
problems sourcing in Asia. There is a saying in the industry that seems to be proving true. Offshore manufacturers can offer a good
price, high quality and fast delivery – pick one. At Affinity, we do our best to offer our OEM partners all three and it seems to be paying
off. We continue to take on new projects that had previously been transferred to Asia.
Summary
When deciding whether to develop your interconnect project domestically or offshore, it will benefit you to consider all of the advantages
and disadvantages of either strategy. If you have gone offshore and are not enjoying the expected savings or are experiencing service
or quality issues, the Affinity team is ready and willing to help. Contact us at +1 949-477-9495 or at customercare2@affinitymed.com.
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