Is India The New Mobile Manufacturing Hub?
Established international players along with new domestic & overseas mobile phone manufacturers have set up shop in various parts of the country. And they’re here to stay
Mobile production in India has already crossed the 100-million-units mark, and is set to touch 500 million in the next two years. Thanks to the ‘Make in India’ initiative propelled by Prime Minister Narendra Modi, we produced 11 crore mobile phones worth Rs 54,000 crore in FY15-16, up 186 per cent from 6 crore in the previous year. Five crore feature phones worth Rs 49,000 crore and 6 crore smartphones worth Rs 5,000 crore were manufactured during the year compared to 1.7 crore feature phones (worth Rs 1,400 crore) and 4.3 crore smart phones (worth Rs 17,500) in FY14-15.
According to minister for electronics and information technology Ravi Shankar Prasad, India has attracted investment from 37 mobile manufacturing companies in the last one year. Many foreign as well as domestic players are building new capacities in India.
For instance, Chinese companies such as Gionee and Xiaomi are making their handsets at Foxconn plant in Andhra Pradesh, while Apple India is all set to start its Bengaluru manufacturing unit Peenya, but a official word on the launch is still pending. According to sources, Apple is in talks with the Indian government to provide it with some tax relief for manufacturing in the country. But apparently, the government hasn’t yet agreed to give any concession in terms of duties and tax benefits to the international brand.
Last year, South Korean multinational Samsung — India’s largest phone seller —spent Rs 500 crore to add capacity at its Noida plant, while homegrown Micromax started a new plant in Uttarakhand and is planning investments in Telangana, Rajasthan and Maharashtra. Anothe Indian company LAVA International invested Rs 50 crore to build a facility in Noida to assemble one million units a month. A second unit, with an investment of Rs 1,200 crore and a capacity of 10 million units a month, is also on the anvil. Other domestic manufacturers such as Celkon Mobiles, Spice Mobility and Karbonn are also planning new capacities.
Chinese phone maker Gionee plans to invest Rs 300 crore over the next three years, while the big daddy of mobile phone manufacturing, Taiwan’s Foxconn, is planning to build no less than seven to eight new units in India.
According to data from the Indian Cellular Association, India has a capacity to assemble 270 million phones a year, compared to China’s 1.1 billion. Because of its economies of scale and presence of a full-fledged ecosystem, production cost for mobile phones in China is the lowest in the world. The question, therefore, is — why should anyone make in India, especially when there are too many gaps in the country’s ecosystem? First, there is no component base here, which means high freight costs that adds to the overall cost of manufacturing. Second, the cost of finance, power and water — key to electronic manufacturing — is high in India compared to other Asian countries.
Back in 2011, when KPMG compared manufacturing competitiveness of Indian and Chinese mobile handset manufacturers, it found the landed cost of materials was 10 per cent lower for China. And while Indian manufacturer needed to import 80 per cent components, KPMG said the Chinese would need only 5 per cent. Plus it said Chinese labour was found to be 1.8 times more productive than Indians and power cost there was 20-30 per cent lower and water was 30-35 per cent cheaper.
The study showed that a mid-sized Chinese manufacturer with a capacity of 20 million-units-a-year would have a profit margin of 9 per cent, where as an Indian company would have a margin of 2.6 per cent only.
That said, in the last three to four years, labour costs in China have risen by 20 per cent, eroding th advantage of Chinese manufacturers to some extent. Besides, availability of manpower is also becoming an issue for Chinese manufacturers. With the country having moved up the value chain, there are not enough people in China willing to do manual low-paying jobs. This may result in some amount of manufacturing shifting out of China.
Another trend that may push manufacturing of feature phones out of China is that local Chinese are buying more expensive phones.
So now, with China’s competitiveness getting hit, handset manufacturers are struggling to maintain margins. Many leading mobile phone manufacturers from developed countries are thus looking at shifting production to India or other Southeast Asian countries.
What makes manufacturing in India viable is the fact that India has a large domestic market. So for global manufacturers looking to de-risk in an alternative market, India can be the best option. In fact, many international palyers have already opened their manufacturing units in India.
So what triggered the growth of mobile manufacturing in India?
Says Kim Ki Wan, managing director, LG India, “We realised that the time is right to start making in India. The demand for smartphones is growing exponentially here. Our local manufacturing will contribute handsomely to the growth of our company and to the nation as well.”
According to LAVA chairman and managing director Hari Om Rai, “The closing stages of low-end electronics design and manufacturing in China is evident now as the cost of engineering and labour is steadily rising there. On the contrary, India has a large consumption base, low labour wages, minimal skill-sets required in electronics manufacturing and large pool of software engineers. This puts India at an advantageous position to become the global hub for electronics manufacturing.”
Then there are other factors working for India such as the ease of doing business, growing infrastructure, beneficial policies under upcoming GST and lower income tax proposals. No wonder, many large mobile manufacturing companies have made India their second manufacturing base after China, and also the hub to export products to Middle East and African countries — due to India’s logistical advantage.
Chinese company Gionee, for instance, set up its office in India in 2013. Arvind R. Vohra, CEO and managing director, Gionee India, says, “We plan to set up around 550 exclusive service centres to ensure optimum quality of service and will be doubling our strength of sales representatives to 20,000 for better presence in the market,” adds Vohra. According to him, Gionee is bringing in not just smartphones, but ancillaries also, be it hardware suppliers, design houses and R&D to India.
Amitabh Khurana, head of manufacturing, Intex Technologies (India) — one of the leading manufacturers in India with a turnover of Rs 6,213 crore in FY 15-16 — says, “The government’s incentives have improved the cost advantage of companies that have started moving their manufacturing to domestic frontiers.” At present, Intex has 30 per cent localisation in its products and it intends to increase it to 70 per cent in the next two years.
The big factor, according to Videocon’s head of Technology & Innovation Akshay Dhoot, that has triggered growth of mobile manufacturing in India is the volume of users here. India recently surpassed the US to rank among the world’s fastest growing mobile phone markets globally. This show the huge untapped potential in India, making it a key factor for large companies to start manufacturing here.
He adds that the Indian government has taken many positive steps and the industry is moving towards creating a domestic ecosystem for manufacturing smartphones to curb imports. “The recent announcements in the Union Budget 2017-18 underline the government’s intent to make the country a formidable manufacturing hub of electronics and technology-based products,” he adds.
Videocon, which started its smartphone manufacturing journey from its Aurangabad plant, has spread to five more locations in India now. So far, the company has launched more than 250 models in the market.
Peter Chang, regional head - South Asia & country manager, ASUS India, agrees with Dhoot. “India is one of the fastest growing smartphone markets in the world, and we have witnessed consistent growth across all our business segments. More so, the move by the Indian government to focus on manufacturing in India has opened up a plethora of opportunities for us,” he says.
“As an international brand, we look forward to bring cutting edge products for consumers who are looking for features and design sensibilities of a high-end smart phone. We started with manufacturing ASUS Zenfone 2 Laser and Zenfone Go in Sri City, Andhra Pradesh, and last year, we commenced manufacturing of Zenfone 3 Max at a facility in Daman,” he says. “By starting local production of our smartphones, we have made significant progress in our journey in India. The biggest achievement for us in these years has been the market validation and critics’ endorsement of our products,” he adds. ASUS now expects the demand and local manufacturing of its products to witness a significant increase in 2017.
Sekaran Letchumanan, vice-president of operations at Flex, says.“India is currently the second largest telecommunications market in the world and this year, the country is expected to overtake the US as the second largest smartphone market. According to some estimates, there are in excess of 1000 million mobile phone users in the country today. So volume of users is definitely a factor,” opines Letchumanan. This naturally represents a huge opportunity to an enterprise like Flex, a sketch-to-scale solutions provider with deep expertise in manufacturing mobile phones for various customers such as Huawei, Motorola and Lenovo in India.
The Strategy Going Forward
According to industry analysts, the Indian mobile industry is growing at a rapid pace and will continue to be the growth engine for the smartphone market. According to ‘India Smartphone Market Outlook,’ the market is expected to grow at a CAGR of 10.95 per cent till 2018 driven by a strong adoption of data consumption on handheld devices.
India is expected to have over 180 million smartphones by 2019, contributing around 13.5 per cent to the global smartphone market, based on rising affordability and better availability of data services among other factors.
In that case, how can mobile manufacturers tap this growing market?
“We believe that success of a product lies in consumer insights and therefore, we are committed to bring an entire line up of smartphones based on insights into needs of Indian consumer,” says LG’s Wan.
Gionee’s Vohra’s strategy and philosophy is to be different and disruptive. He doesn’t believe in following trends. “We treat smartphones as an extension of a user’s taste, personality, and daily requirements. Therefore, with changing times, the features and looks also need to change constantly. This is why our phones are intuitive, future ready, stylish and durable. We are proud to be credited with bringing in the world’s slimmest phone, the biggest battery phone, the best android camera and much more to India. Today, we are redefining ‘selfie’ smartphones with S6s and S6Pro,” he says.
Last few years, when brands were busy replicating the Western markets and propagating the online sales model, Gionee continued expanding its on-ground retailer base, and soon became one of the top offline retail smartphone brands in India. Today, over 90 per cent of its revenue comes from the offline retail model.
“We have recently clocked 1.25 crore customers in India, and are looking at expanding our retail presence in the country by establishing 500 brand stores by March 2018, from 100 stores currently. We are also looking at opening 650 exclusive service centres by the end of 2017, up from 460 currently. Globally, we will be coming out with futuristic, intuitive and stylish products which cater to our international customers,” says Vohra.
Indian company Videocon’s Dhoot banks on the trust associated with the brand name more than others in the market. “Our experience and in-depth understanding of the Indian market has given us an edge over international brands that need to understand the needs and aspirations of Indian customer,” he says.
“We are able to reach the ground level and help customer as and when required. In case of any problem, we target to resolve it within 48 hours of registration. We have also started giving customers an 18-month long warranty and 15-day replacement warranty on some of our smart phones,” says Dhoot.
ASUS believes that innovation is at the heart of everything it does. Says Chang, “All our products, across business segments are backed by thorough research and development. At our design centre, we look into users’ needs and expectations, making sure we proactively respond to the market trend via our local research and analysis. All our products are conceptualised and designed by our design centre, which wins hundreds of awards each year. We aspire to win hearts and minds of Indian consumers through our distinguished and superior offerings.”
Leading mobile technology company Swipe Technologies CEO Shripal Gandhi, says “Since inception, we are on a mission to develop feature-rich mobile communications devices, developed using global best practices, and that are sold at prices that are rational and affordable.”
Today, almost every mobile company in the world, big and small, is competing for a share of the Indian market. It is that big!