Mobile manufacturing in India is slowly taking off and may soon compete with China for low cost handset production. India has become the second largest mobile handset market in the world, and has gradually realised the benefits of manufacturing in creating national wealth. As the government is looking into the possibility of making it mandatory to manufacture handsets in the country, companies may soon be asked to manufacture a certain percentage of their sales in India. Despite the fact that India is the fastest growing market for mobile teledensity in the world, not many Indian handset companies currently manufacture within the country. Local manufacturing is a key pillar for India’s economic growth, yet it has been totally neglected. Out of 125 million handsets sold in India every year, 80 million are imported.
By Sandhya Malhotra
Monday, September 20, 2010:However, for the last couple of years, domestic manufacturing scenario is changing. More than a dozen local companies are firming up plans to set up their handset manufacturing plants in India soon. In fact, according to Pankaj Mohindroo, chairman, manufacturing advisory committee and national president, Indian Cellular Association (ICA), almost all the local handset players are planning to manufacture in India.
ICA: Enabling local production
The momentum of mobile manufacturing in India started way back in 2004, when the Indian Cellular Association (ICA) took up the task of studying the feasibility of mobile handset manufacture in India. Says Mohindroo, “In early 2004, there was virtually nothing on the ground in terms of handset manufacturing. At that time, we had set out with the vision to create a robust, globally competitive mobile handset manufacturing sector in the country, for which we formed the manufacturing advisory committee, bringing on board all stakeholders.”
Moreover, every five years, the association assesses the handset market and releases its report. It launched its first report in 2004-2005, titled ‘Enabling the mobile handset and component manufacturing value chain in India’ and the second report is expected soon.
“Most of the renowned telecom companies have set up base in India, so it is essential to focus on the development of indigenous design and manufacturing capabilities to achieve higher localisation. Hence, it is a golden opportunity for Indian players to develop capabilities in the handset manufacturing value chain as components suppliers, contract manufacturers or handset original equipment manufacturers (OEMs),” says Mohindroo.
Global giants take the first step
The growth and potential of the Indian handset market has caught the imagination of global handset majors and some have already set up manufacturing bases in India. Korean consumer electronics major, LG Electronics, is one such company. It has a facility on the outskirts of Delhi and is setting up another near Pune. By 2010, LG aims to produce 20 million mobile phone units, of which 50 per cent will cater to the export market. The facility will involve an investment of US$ 60 million.
Nokia, a leader in India’s US$ 2 billion mobile phone market, has built its manufacturing unit in Chennai. This is Nokia’s tenth production facility, globally. Nokia anticipates investing an estimated US$ 100-150 million in the India production plant.
Another Finnish firm, Elcoteq, the world’s third largest supplier of handsets to OEMs, has already set up a facility in Bengaluru. It will produce about 4-6 million handsets a year in its Indian plant. Elcoteq is also trying to integrate the manufacturing process with the local supply chain. Plastics, electromechanical/mechanical parts and packaging material will be sourced from local firms. Once key components are made in India, it will achieve globally competitive costs and show the way forward for other manufacturers as well. These global companies have actually set the trend for local players to begin looking at India as a manufacturing base.
Several other companies are drawing up plans to set up manufacturing units in India. Sony Ericsson, the world’s sixth largest mobile phone maker, is also looking at manufacturing phones in India.
Motorola established its R&D facility in Bengaluru in 1991 and has identified India as an R&D base. Motorola chairman and CEO, Edward J Zander, on a visit to India, said, “We might look at setting up backend operations and assembling units, something like a semi knocked down (SKD) assembly unit in India.”
Chinese manufacturers are also eyeing India. ZTE Corp is setting up a unit to make mobile phones and DSL modems near Delhi, while rival Huawei Technologies Co is awaiting approval to manufacture handsets in India. The Haier Group and Ningbo Bird Co are also looking for an entry into the market. Using India as an export base is especially beneficial for Chinese companies, who can save 5-10 per cent on shipping. From China’s perspective, servicing Europe or Africa from India is easier as distances are shorter.
Similarly, China Wireless Technologies is planning to set up a handset assembly plant in India by 2012. Coolpad Communications, its local subsidiary, will also open research centres in Delhi and Mumbai by next year.
Singapore based companies are now exploring the option. Pine Mobiles, which recently entered the Indian market, is also bullish about local manufacturing and is waiting for government incentives that will encourage new players to get into manufacturing. “Currently, we are in the process of expanding our base and building our brand in India. Moreover, manufacturing handsets is our vision. Once we increase our volumes, we plan to start our facility in Assam,” informs Rohit Agarwal, CEO, Pine Mobiles Pvt Ltd.
Factors that can make India a manufacturing hub
The cost effectiveness of manufacturing in India seems to be the most alluring factor for handset manufacturers. The fierce competition in the handset market has created an environment where about 2 million users are coming on board every month. This, in turn, allows manufacturers to spread their fixed costs more easily, as compared to other markets.
India’s low wage costs compared to several countries in Asia and Europe is another key factor. India also offers a demographic profile that few countries can match. About half the population, which forms the prime low cost working group, is below 25 years. The buying trends in India, however, are different. In developed countries or even in South East Asia, handsets are changed every six months. In India, people do not change their handsets so often. The challenge, therefore, is to produce more robust handsets at a lower cost or to produce handsets that are cheap enough for people to change at least every one and half years.
Manufacturing—a wiser decision
India scores high in terms of potential demand and a low cost manufacturing proposition. The fact that several players have announced handset manufacturing plans in the last six months indicates that Indian business base is fundamentally sound. It is up to the government to seize this opportunity and ensure that India is in a position to attract a significant part of the capacity addition in the next few years.
Lately, there have been several security issues with Chinese handsets that do not have an international mobile equipment identity (IMEI) number, as well as other issues with telecom equipment companies, which resulted Chinese handset imports facing the axe. This is not the end. If one looks at the export market in terms of growth in neighbouring countries, manufacturing in India looks very attractive.
According to a new research by Gartner, mobile phone production revenue in India is expected to reach $13.6 billion by 2011, up from $4.9 billion in 2006, a CAGR of 26.6 per cent. Mobile phone production in India is expected to grow from 31 million units in 2006 at a CAGR of 28.3 per cent to reach 107 million units in 2011.
Challenges in supply chain
Presently, very little component sourcing is happening in the country. Only electrical and mechanical parts are being sourced, whereas electronics components are all imported. Having successfully sold India as a destination for telecom manufacturing to OEMs and EMS players, the policy makers should not rest on their laurels. Now, they have to make an extra effort to see how component suppliers can set up base in the country (either in industrial parks or in other facilities) at the earliest. This will help in lowering the cost of procurement, thereby making mobile phones cost effective not only for Indians but also for exports. But for this to happen, India has to look at 75-80 per cent component sourcing within India, either through existing companies or bringing in a whole lot of companies who have been partnering with vendors and EMS players abroad.
On the manufacturing front, India is planning to catch up with China. So it has to provide an atmosphere that’s similar to what is available in China. “India’s manufacturing base is not as developed as that of China, although the cost of manufacturing is competitive. But at the same time, India is incomparable in its software development skills,” says Vikas Jain, business director, Micromax Informatics Ltd.
“Considering that India is one of the fastest growing markets in the world for mobile phones, local manufacturing must be encouraged by the government with all supportive policy initiatives required. Local manufacturing would provide substantial additional employment opportunities and considerably reduce the capital locked up in inventory. A taskforce should be set up with representatives from both government and industry, to accelerate the process,” says Ramesh A Vaswani, executive vice chairman, Intex Technologies (India) Ltd.
Potential market for EMS, SMT and component players
With handset OEMs being the key stakeholders, handset manufacturing is an interplay between design houses, component vendors and manufacturers. The value chain constitutes handset design, four component categories (ICs, passives, modular components and plastic parts) and three manufacturing steps (PCB assembly, box build assembly, and testing). Hence, handset manufacturing will eventually contribute to the growth of other electronics segments as well, says Mohindroo.
As mobile phone companies push for indigenisation, companies like Okaya Power Group have started tapping this opportunity by entering the branded mobile phone battery segment with the launch of its brand ‘Joos’— lithium (LiON) mobile phone batteries that will be compatible with all popular branded handsets and smartphones in the market. Industry experts also feel the creation of hardware manufacturing parks and clusters to house the entire value chain for a particular product group, or accessories for cellphones, will be very beneficial. Such clusters can be housed in exclusive zones that cover the entire manufacturing chain, from components to the final assembly, and can facilitate a low cost competitive environment for mobile manufacturing.
THE AMBITIOUS PLAYERS
At present, barring a few like Nokia, LG and Samsung, not many handset companies manufacture in India, even though there are close to 12 million new subscribers being added every month. However, several Indian handset companies have already announced their plans to establish manufacturing bases in the country. Some of these ambitious players are Spice, Micromax, Lava, HTC, Zen, Pine, Wynn Telecom and Karbonn.
“Presently, most of these companies depend on China and Taiwan to manufacture their handsets, mainly owing to better infrastructure, stronger supply chains and a cost effective workforce. However, with most local companies seriously considering manufacturing in India, the country seems to be emerging not only as the second biggest EMS location but also a mobile handset manufacturing hub,” says Rajiv Khanna, chairman, Movil Mobile.
No doubt, most of the Indian handset firms have ambitions to start manufacturing in India, but before embarking on this path, they are trying to establish their brands in the local market, build up distribution networks, scale up their operations and build up sufficient sales volumes, which is essential to justify local production. However, according to industry experts, by next year, many companies will put up their facilities in India.
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine