New manufacturing hub for smartphones

New manufacturing hub for smartphones

India is one of the world’s fastest growing market for smartphones as other major markets around the world are witnessing a slowdown. This coupled with the strategic push by the Indian government through various policies and incentives for manufacturing in India, we are seeing a rapid growth of mobile manufacturing in India.

Mobile phone manufacturing in India, till now, has been about just assembling the semi knocked down (SKD) mobile phones rather than the end-to-end manufacturing of mobile phones such as in countries like China. This is done by importing mobile phones as SKD kits with most components already soldered to the main circuit-board of the handset.

These kits are brought in as components at low duty and then simply assembled into devices. At least 25 smartphone vendors are engaged in assembling SKD mobile phones in India currently. On the other hand, if the mobile phone companies import completely knocked down (CKD) kits, it pushes the local value addition to 7-10% as this requires more labour and a proper assembly line.

Government Push

With the government determined to promote local manufacturing in 25 sectors including electronic equipment, around three dozen new mobile phone assembling units have been set up by various companies in less than two years in India, as part of Prime Minister Narendra Modi’s “Make in India” campaign launched in September 2014.

 According to Indian Cellular Association, India, today, has an annual mobile phone production capacityof around 250 million, up from 100 million in 2015 and 68 million units in 2014. Additionally, these units have also generated employment for about 40,000 people and are all set to make India as an emerging manufacturing hub for Mobile Phones in the next few years.

According to International Data Corporation’s (IDC) Quarterly Mobile Phone Tracker for first quarter of 2016, more than two-thirds of the smartphones shipped in the quarter were assembled within the country and some of the companies, which are currently assembling mobile phones locally, are likely to start manufacturing components and accessories like batteries, chargers, and data cables, owing to the support extended by the government and investor-friendly policies adopted by various states.

In the initial phase Samsung and Indian vendors had started local assembly to take advantage of time to market and quality control.

Big contract manufacturer Foxconn was building devices for Nokia and later expanded to contract manufacturing for China-based vendors, giving these new entrants an alternate to avoid high import duties. India is becoming the focus market for many Chinese Original Design Manufacturers (ODMs) and they have invested heavily in setting up their distribution network and building their brand in India.

One can expect these vendors to invest more on setting up their house manufacturing in India. Support from state governments such as Telangana and Andhra Pradesh are helping them emerge as the new hubs of mobile manufacturing.

Other initiatives by the government like ‘Digital India’ and ‘Skill India’ also perfectly complement the ‘Make in India’ movement. ‘Digital India’ is aimed to ensure that the government services are made available to citizens electronically by improving robust internet connectivity infrastructure, countrywide. This would spur demand for affordable smartphones to enable consumers to fully reap the benefits of the connectivity and internet. ‘Skill India’ programme has been initiated with an objective to have 400 million skilled manpower base by 2022. Mobile phone manufacturers can definitely benefit from this huge human capital base being developed.

Opportunities and Challenges

‘Make-in-India’, ‘Digital India’ and ‘Skill India’ coupled with huge untapped domestic demand for mobile connectivity seem to bode well for making India a mobile phone manufacturing hub. China is gradually losing its low cost advantage due to which mobile manufacturers are struggling to maintain the margins. India can become an attractive alternate to China as a manufacturing base for the companies, with its massive domestic demand offering the volumes which can justify setting up the manufacturing facilities in India and this can feed the growing demand from South Asian markets as well.

However, in comparison with current mobile phone manufacturing hubs, like China, some work remains to be done on the fronts of relatively poorer infrastructure, rigid land-acquisition rules, supply chain limitations, cost of finance, power and water (key to electronic manufacturing).

There is almost no component manufacturing base currently in India, which means high freight costs for component import. Also, the ecosystem of semiconductor fabs, component suppliers and design houses are still missing which can really make India a global manufacturing hub.

Win-Win for everyone

Make in India is a great step for encouraging mobile phone manufacturers to set up the units in India.

Various initiatives such as reduction in import duties and increase in the number of Special Economic Zones (SEZs), among others, taken by the government are proving to be beneficial as evident in the growth of the mobile phone manufacturing capacity in last two years.

Although, still in its initial stages, it will be great to see how are these manufacturers able to meet the domestic demand with quality devices at affordable prices, how soon and how much of this manufacturing can go as exports, how will this benefit entrepreneurs looking to set up ancillary units for these manufacturers, how soon will the entire mobile phone component manufacturing ecosystem such as camera, chipset, memory module be set up and readiness for manufacturers to go for end to end manufacturing of the mobile phones.

Ultimately, both, mobile phone manufacturers and consumers can benefit immensely from this. Non-Indian mobile phone manufactures will be able to make devices at lower cost thereby increasing their reach to the price conscious rural markets, if they pass on the cost benefit to the consumers. Indian vendors will be forced to compete with global vendors by innovating in the device technology.

(The author is Senior Research Manager-Channels,  International Data Corporation and is based in Gurgaon)

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