The excitement at Dixon Technologies' factory in Noida, on the outskirts of Delhi, is palpable. The employees of the Rs 500-crore (Rs 5 billion) consumer electronics contract manufacturer are on a high as they have managed to ship the first lot of a bulk order for colour televisions in record time.
Last November, Dixon turned out to be the lowest bidder for the Tamil Nadu state government's tender for 14-inch televisions (to be distributed free to the electorate in the state) and won a contract for making 900,000 TV sets. Dixon's bid was 5 per cent lower than its nearest competitor, Videocon, which also won part of the order.
That's precisely been Dixon's single biggest achievement in the contract manufacturing sector -- to offer quality at a very low price. "Our vision was to be the cost leader -- and we have succeeded in our goal through our strategies," says Atul B Lall, CEO, Dixon Technologies.
Last week, the company also won the best quality vendor award from LG Electronics India. The company is a major supplier of air conditioners -- window and split -- to LG and also makes CTVs and microwaves for the Korean consumer durables giant. Philips, however, is its biggest customer (35,000 units a month) for CTVs.
The TN government contract has boosted employee morale at Dixon for two reasons. One, the company beat multinationals such as LG and Sanyo as well as a host of Chinese manufacturers to win the order. "Besides, the contract will help us double our production from 1.2 million CTVs a year to 2. 3 million," adds Lall.
Dixon has already added a couple of new assembly lines in its Noida factory and hired 200 more workers. The order will push Dixon's turnover up from Rs 500 crore to Rs 800 crore in this financial year. And with the TN government slated to float another tender in July, the future looks especially bright.
Vision and will
Life was not always so hectic for India's largest contract manufacturer of DVD players and CTVs (some branded players like Videocon make more CTVs than Dixon but Lall claims they are not OEMs -- original equipment manufacturers).
The consumer durables industry was in the throes of a churn when Dixon Technologies was born 14 years ago -- rising from the remains of Weston Electroniks.
Rewind to 1993. Armed with a management degree from London, Sunil Vachani, 22, son of Weston Electroniks' promoter Sundar Vachani, returned to Delhi to see his father's electronics business disintegrate. Vachani Senior's popular Weston TV brand had crumbled under competition from new players like Onida, BPL, Videocon and others. The company's export business, too, crashed with the collapse of the USSR.
The younger Vachani trained briefly at the ailing Weston TV factory and its music cassettes unit before the businesses shut down. And despite the grey picture all around, he wanted to make -- surprise -- televisions.
"I was determined to be on my own," recalls Vachani, now 35, and the company's CMD. "If you have the vision, things fall in place." However, before they fell in place, things were not easy. Although his father supported the idea of setting up a new contract manufacturing unit for televisions, banks and financial institutions were wary of funding the venture.
Eventually, with a Rs 40-lakh (Rs 4 million) loan from Vachani Senior, Dixon Technologies set up a small unit in Noida with the goal to become the cost leader in the OEM space. "The diktat -- to be the lowest-cost manufacturer -- was clear. It was the only way multinational companies would come to us for work," says Lall.
To keep its manufacturing tabs low, Dixon chose the location of its units with care. It set up its factories in tax-free zones. While Parwanu, Jammu and Dehradun are excise-free, Mohali is VAT-exempt. "In the highly competitive OEM industry, tax exemptions help," says Lall.
VAT-exempt locations contributed in saving about 8 per cent on cost, while excise-free zones turned in a benefit of about 5 per cent.
Second, the company acquired scale to become a low-cost leader. In the past 10 years, the company has increased its production capacity from 100,000 television sets a year to 1.2 million sets. It now has an over-10 per cent share of the 13-million units CTV market.
This year, it will also make 1.6 million DVD players, which accounts for almost 27 per cent of the 6 million DVD players manufactured in India. Dixon-made DVD players are also sold under the Onida, Philips, Bajaj and TCL brands.
Lall claims that creating a common infrastructure for different product categories helped generate volumes. "It helps that we are able to assemble the DVD players, recorders and CTVs at the one unit." In addition, the company's facility is such that with little investment it can even manufacture personal computers and hand-held phones from the same unit.
There is one more angle to being a low-cost manufacturer. Dixon bought most of its equipment from closed factories, getting the used machinery at a fraction of the original price. For instance, a single new assembly line costs $500,000 -- it picked one up for just $120,000. "This cut down on the project size and, therefore, interest rates are also low," says Lall.
However, the biggest contribution in making Dixon a cost-leader came from the loss elimination processes (read: enhanced productivity) the company followed. "Our low cost comes with great quality. You cannot have drastic improvement in productivity without improvement in quality," says Vachani.
There can be many reasons behind loss in production such as "rework" (where production does not happen right the first time), idle time, inefficient energy consumption and higher scrap generation, among others. Dixon, therefore, created separate groups of workers within the organisation that focus on each of these areas.
Minor innovations also helped improve productivity. For instance, when the company discovered that production during the first hour of the morning shift is 20 to 30 per cent lower than the average, it set about making corrections. It ensured that the buses carrying the workers reach on time, that the line machines are full and switched on. "We even gave ownership of the machines to the worker under a "My Machine" concept," says Lall.
Productivity clearly improved and if, say, one assembly line was making 250 Printed Circuit Boards (PCBs) in an hour, the number moved up to 300 within a few months. A strict scrap generation and rejections process has ensured that the company's rejection rate is also down considerably: from 3 per cent three years ago to 0.02 per cent at present, which is a best in class figure.
And while international practices such as Six Sigma are being practiced at the company, Dixon has also roped in its principal customers LG and Philip to share their expertise with its workers. Joint teams that focus on productivity and quality issues have been created, says Lall.
Dixon is among the country's best consumer electronics vendors and grew at 30 per cent last year. It hopes to scale up production to make 4 million CTVs a year, for which it will invest Rs 20 crore (Rs 200 million) sourced from internal accruals. This will fund a new, fully-integrated plant at Chennai, new PCB lines in Noida and assembling lines in Dehradun.
Dixon is thinking ahead. Other than tying up with retail chains for supplying private labels, it aims to become what Vachani calls the "EMS to the world". With an eye on tapping the export market (West Asia, Jordon, Kuwait and Europe), the company is creating a manufacturing hub in Chennai, closer to the port. Soon it will start making decoders or set top boxes for DTH and cable. Getting into the customer service centres business is also not ruled out.
What does the competition think? Dixon has two main weaknesses, says Kishore Khanna, managing director, Evershine Group, which makes CTVs, air-conditioners and kitchen appliances for various brands, including Philips and LG.
One, it may face logistical issues since PCBs are assembled in Noida and then transported to the TV assembly unit is in Uttaranchal. Then, it is not fully vertically integrated, only till the PCB assembly. "But the company's strength lies in its attitude to quality and in not being totally dependent on the OEM business. It is creating its own design," Khanna adds.
He is referring to the relaunch of the Weston brand, begun quietly three years ago in Punjab and Uttar Pradesh. Having gained a 9 per cent share of the market there, Dixon is now planning to take the television brand national on the value-for-money platform. But that plan has its detractors, especially from biggest customer LG.
Says LG marketing head Girish Rao, "Re-launching Weston will be tough as the consumer electronics market is both fragmented and cluttered." Adds vice president, manufacturing, Sanjay Arora, "Reviving Weston requires hefty investments in brand building, setting up infrastructure for sales, service and logistics. Today, people are looking up more to the multinational brands."
Lall does not agree. "The nature of the durables industry is such that slots get vacated very fast. Older brands make way for newer ones. Weston and Crown were replaced by BPL and Onida, which made way for LG and Samsung."
There is also product vacancy, he adds. For instance, companies are vacating the 14-inch TV slot, while some are exiting the 20-inch model. "But there is still demand for these and Weston can fit there," says Lall.
If doubts are being raised about the own-brand venture, there may be trouble ahead even within the OEM segment once India signs more Free Trade Agreements with other countries. "OEMs will have to become more competitive when more FTAs are signed," agrees Prasun Banerjee, Sharp India's vice president, sales and marketing.
Vachani, however, believes the bigger challenges coming up relate to cost leadership, quality and innovation. But he is confident of riding the tide. "We are as cost competitive as any Chinese manufacturer," he declares.