To derive benefits from PMA policy, SGST is coming up with a plant in Manesar

Cashing in on the opportunities brewing in the electronics industry owing to the new government initiatives, SGS Tekniks aims to double its turnover by 2015

By Nitasha Chawla

Monday, 10 June 2013: At a time when electronics manufacturing services (EMS) were still at a nascent stage in India, a group of four professionals took the risk to set up an EMS company. Established in 1990, today SGS Tekniks Manufacturing Pvt Ltd ranks among the top six EMS companies in India. With an annual turnover of Rs 1.4 billion in 2012-2013, the company is focused on delivering end-to-end solutions to original equipment manufacturers (OEMs).

Having established a stronghold in the EMS segment, SGST is all set to take the next leap. It has appointed a new CEO, Alok Chandna, who will be responsible for the day-to-day functioning of the company. This will allow the board members to concentrate on the strategy to take the company forward.

The driving force

Way back in 1990, four friends—Sanjiv Narayan, managing director, Ranjit Singh, director, international business, J S Gujral, director, finance and commercial, and Krishna Kumar Pant, director, JV operations—dreamt of bringing EMS into India and succeeded in their endeavours by establishing SGST.

Shares Sanjiv Narayan, “When we started SGST in 1990, we were ahead of the times as EMS as a concept was still not known in India. We had to spend the first two years in selling the concept to the industry. However, we were convinced that EMS would succeed in India as it was a successful concept globally. We were determined as we wanted a business that was futuristic, because there was no point in doing something that was already common in the market.”

All the four partners quit their jobs and developed their company with whatever savings they had. Recalls JS Gujral, “There was an economic downturn in the 90s, yet, we were determined to take the risk of venturing into a new domain. So, with a small amount of Rs 0.32 million as equity, which was our savings from our provident fund and gratuity, SGST was formed.”

Promoted by professionals with expertise in different areas, SGST doubled its turnover within three years of its inception. Ever since, it has managed to grow at a rate of 28 per cent, year on year.

A TS16949, ISO9001, ISO 14001 and OHSAS 18001 certified company, SGST, now has four manufacturing facilities in India, and a design and development centre in Germany.

Concentrating on strategic growth

The company started off with catering to the government organisations. Its first customer was the Indian Telephone Industries (ITI), for which it did only consignment work in the first year. Says J S Gujral, (“We received the material from ITI, which we converted into end products) like push-button telephones that we supplied to various units of ITI. In 1991-92, from consignment sales we migrated to turnkey business, adding customers like Xerox, Eureka Forbes and HCL.”

By 1992, SGST earned the distinction of being the only company that was approved to manufacture products for the Centre for the Development of Telematics (C-DoT) without being its licensee.

Its next achievement was to enter the private sector. Recalls Krishna Pant, “After 1993, when telecom had been opened to the private sector as well, the role of the public sector started decreasing. We had foreseen these signs way ahead and shifted our focus to the private sector. By 1996, our work for the government sector had decreased to less than 10 per cent, and is now it is zero.” SGST’s first private sector customers were Eureka Forbes and Modi Xerox, for whom they produced UV water filter cards and photocopier cards, respectively. Adds Sanjiv Narayan, “Moving away from telecom at the right time and entering new segments was the turning point in our business. We took the right decision at the right time, and were therefore not hit by the downturn in the market.” Adds Ranjit Singh that another turning point for SGST came when it ventured into the export market in 1996 by exporting sub-assemblies to a German hand tool company called AEG. Today, it exports 25 per cent of its production to countries like Germany, Italy, Spain and Australia.

Shares Sanjiv Narayan, “We have never been in a hurry to just grow our customer base. Rather, we have always focused on just a few OEM customers at a time, whether in India or abroad, and gave them quality products and services. This has been our key strategy that has satisfied our customers. The customers we had in the 90s are still with us, both from India and overseas. That is the consistency with which we have grown and continue to grow.”

Challenges encountered

Venturing into new verticals like industrial electronics and office automation was not smooth sailing for the company. SGST has had to go through a complete transition in terms of its quality standards and testing capabilities, since it was catering to the top MNCs, who demand high standards.

However, with the support from its customers, SGST was able to upgrade its quality standards to bring itself on par with the global companies. Shares Sanjiv Narayan, “Xerox taught us about what quality MNCs expect from an EMS firm, and helped us to upgrade our quality standards. Xerox gave us the opportunity to manufacture for its global locations. That’s how we started exporting through them.”

Eureka Forbes, on the other hand, enabled the development of the test and measurement (T&M) capabilities of SGST. The company wanted 100 per cent life testing on every piece made by SGST, which is when SGST decided to develop its own T&M infrastructure to keep up with the market requirements. “Eureka Forbes did a lot of hand-holding while we were developing our T&M capability, which we would not have been able to do without their support,” says Sanjiv Narayan.

Operating principles

At SGST, delegation of authority and trust in employees form the foundation on which the company operates. Its operations managers have been empowered by the company to take their respective decisions on their own. There are corporate guidelines for every plant manager, which are followed on a day-to-day basis, for taking decisions. Also, in order to control the expenditure, the company shares its financial status with the operations managers to make them aware of the costs incurred by the company. Explains Sanjiv Narayan, “We want our operations managers to understand the financial situation of the company. This motivates them to control the costs wherever possible and work within limits.”

Another practice which SGST stresses upon is maintaining transparency at all levels in the organisation while dealing with the customers, suppliers, bankers, etc. This has helped the company to earn the trust of all the stakeholders and earn credibility in the market. Says Sanjiv Narayan, “We believe in sharing the real picture of the company with our clients, vendors, and others. If we think that there will be a delay in payment from our side to a supplier, we share this information. Similarly, if our employees are facing any issues, we encourage them to discuss it with the management so that a solution can be worked out.”

Besides, SGST’s human resources and production departments conduct one-to-one interactive sessions with workers from time to time to understand their issues, expectations and also to ensure that the quality standards are being followed by the workers. The company also follows various Kaizen principles, and rewards the best Kaizen on a quarterly basis.

What SGST offers

With a focus on quality, SGST has set up modern production lines, and over the years increased its production capacity. Today, it has the capacity to produce over 500,000 PCBs every month with a capability of populating 225,000 components per hour (CPH).

The company offers complete product engineering solutions for boxed products, which include hardware designing, PCB designing/development, plastic and metal parts tool development and software development. It also provides design solutions for manufacturing services and assists its customers in taking new products to the manufacturing stage. It has a dedicated engineering team to standardise procedures to translate customer requirements into production and sourcing requirements.

Its design centre in Germany provides design support to the company’s European customers, while the India office provides back-end support. The design centre in Germany has also started taking on independent contracts.

Current marketing strategies

The company has aggressive plans to grow its presence in its major export markets in Europe. For this, SGST has added more people to its marketing department and initiated an export-development programme at its dedicated ROHS-compliant facility.

“We plan to double our exports to Europe in the next two years. Today, our exports account for Rs 250 million, and we want them to reach Rs 500 million,” says Ranjit Singh

In order to achieve its revenue targets, SGST has added the new vertical of power supplies to its export portfolio of industrial electronics and automotive electronics.

Future plans

Buoyed by government initiatives to boost manufacturing, SGST is looking forward to growing in the segments it is strong—industrial electronics, energy, lighting, water purification and power electronics. The company plans to double its turnover to Rs 3 billion by March 2015.

In order to derive maximum benefit from the preferential market access (PMA) policy, which aims to boost domestic hardware manufacturing in India, SGST is coming up with a new 8000sq m plant in Manesar, which will start operations by the end of 2013 with additional capacity of 200,000 CPH. The company plans to expand its existing production capabilities, apart from undertaking new projects in this new plant.

It will soon start manufacturing set-top boxes (STBs) as well. Informs Sanjiv Narayan, “With the new government policies, the market openings for local manufacturing are increasing. People are becoming more conscious of the fact that they have to source locally. Like in case of STBs, a lot of opportunities will come up, with the custom duty being increased from five per cent to 10 per cent.

Therefore, we are seriously evaluating the prospects of the STB market. We want to become a manufacturing partner of a company that is currently supplying in India and looking to now manufacture here.”

Another focus area for the company is to bring in the best in terms of technology, for which it will be identifying good technology partners for setting up a JV. The company is strategically working towards this goal.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine