Mobile phone manufacturing in India: A success story

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India’s mobile phone manufacturing industry is on a roll and is perhaps the most successful example of the government’s Make in India drive. Huge domestic consumption of mobile phones and policy reforms are expected to drive domestic value addition too, which remains a concern. This can also create a demand for electronics manufacturing services specifically for the Indian mobile manufacturing industry.

By the ComConnect Consulting research team

The Indian mobile handset manufacturing market, which includes smartphones and feature phones, continues to grow. According to the India Brand Equity Foundation (IBEF) knowledge centre, India is today the second largest mobile phone manufacturing hub after China. At the current pace, India is expected to overtake China in the next few years as the country’s mobile handset market is expected to grow nearly five times faster than the world’s largest smartphone market, China, where growth has decelerated.

According to the International Data Corporation’s (IDC) Asia/Pacific Quarterly Mobile Phone Tracker, India saw the highest ever second quarter shipments of 36.9 million smartphones in the second quarter of 2019, with a 9.9 per cent year-on-year (YoY) and 14.8 per cent quarter-on-quarter (QoQ) growth. A total of 69.3 million mobile phones (smartphones plus feature phones) were shipped to India in Q2 of 2019, up 7.6 per cent over the previous quarter.

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The burgeoning mobile handset market in India presents an attractive opportunity to manufacturers. Most global corporations are looking at India as a regional hub for manufacturing and sales — to cater not only to the Indian market, but to the SAARC, the Middle East and African markets as well. The government of India’s recent notification on the Phased Manufacturing Programme (PMP) to promote the indigenous manufacture of cellular handsets has provided a fresh impetus to this sector.

Figure 1: The changing mobile phone buying pattern in India: Locally manufactured vs imports (Source: IIM-B and Counterpoint Research)

Opportunities galore
According to ICEA (Indian Cellular & Electronics Association), the manufacture of mobile phones in India has grown quite rapidly in the past few years with the total production reaching 225 million units in 2017-18, as compared to 60 million units in 2014-15.
As per ICEA, the total value of mobiles made in India was US$ 20 billion in 2017. The industry is mainly focused on making mobile phones for domestic consumption. Out of the total output in 2017, only a small fraction amounting to US$ 100 million was exported.

Reportedly, the potential for mobile device manufacturing in the country is expected to grow and reach a turnover of US$ 230 billion by 2025. By that year, it is anticipated to become an export-oriented industry, creating 4.7 million jobs in India.

India’s large domestic market is an attractive option for global manufacturers looking for an alternative market. In China, the widespread design and manufacture of low-end electronics seems to be drawing to a close as the cost of engineering and labour is steadily rising. On the other hand, India has a high availability of skilled manpower at much lower wages.

Figure 2: Forecast on the total local value addition in electronics manufacturing under the Phased Manufacturing Programme (Source: IIM-B)

Today, India has 268 units manufacturing mobile phones and accessories, as compared to the two units in operation in 2014. This accounts for the fact that 93 per cent of the mobile handsets currently sold in the country are made in India. This is one industry where the Make in India drive has really worked on the ground.According to a study conducted by IIM Bangalore (IIM-B) and Counterpoint Research, the market share of locally manufactured mobile phones (versus imported) is estimated to reach 96 per cent by 2020 (Figure 1).

Domestic value addition
The introduction of various policy incentives such as the Phased Manufacturing Programme (PMP) and the huge domestic market will help promote the domestic manufacture of mobile phones. The government will also be providing tax relief and other incentives on the components and accessories used for the devices.

However, the level of maturity in manufacturing realised till date is restricted to manual semi-knocked-down (SKD) level assembly. True local value addition in manufacturing and sourcing components is still not satisfactory (Figure 2).

India can truly emerge as the ‘mobile manufacturing hub of the world’ only if the domestic value addition (which includes local sourcing, assembly, etc) can reach at least 50 per cent within the next few years. It is worth mentioning here that localisation of components in China is more than 70 per cent.

Huge domestic consumption and policy reforms, such as effective duties on key components along with attractive incentive structures, will drive domestic value addition through component sourcing and create a demand for electronics manufacturing services in India. The IIM-B and Counterpoint joint study estimates that local sourcing of Level A components and sub-components, as well as the localisation of assembling/manufacturing services, will result in greater value addition— more than 30 per cent by 2020, with a potential to increase this figure by as much as 50 per cent thereafter (Figure 2). This will result not only in significant savings in foreign exchange and in creating over a million direct and indirect jobs, but will also boost the entire ESDM ecosystem.

In the next five years, greater investments in industrial design, PCB design and SMT line assembly will help drive this growth, although many of the major silicon components will continue to be sourced from overseas. However, complete localisation of the major sub-components of chargers, batteries and cameras is possible soon.

TechTalk
Innovative technologies for mobile touchscreen displays

By Vivek Ghewari, business development manager, ViscoTec India Pvt Ltd
Mobile handsets these days have to be highly compact and light in order to fit inside a pocket. These handsets are a complex assembly of several components like the display, PCBs, processors, microchips, the battery, cameras, the sound system and the electronic components necessary for Internet connectivity. Thus, a high level of sophistication and complex manufacturing processes are required to ensure an amazing audio-visual experience for the end user. Some of the innovative processes used for this are mentioned below.Optical bonding and the ‘dam and fill’ process for LCD displays: A typical mobile display is a sandwich of several layers – the glass screen for protection, the touch panel which makes it possible for users to browse or select options, and the liquid crystal display (LCD) which shows the content on the mobile screen.A combination of high-viscous sealants and optically clear adhesives (UV curing) is used to fill the space between these layers. Optical bonding is a process of filling optically clear adhesive material between the glass screen and LCD or touch panel. Whereas, dam and sealant applications allow the clear adhesive to spread between the different layers properly while maintaining uniform thickness. These manufacturing steps ensure clear content visibility, as well as protection of your mobile screen from dust, humidity, water leakage or other external influences. It is quite critical that the liquid layers between these parts are bubble-free and uniform in thickness. If not, external light or backlight could internally reflect and affect the readability of content displayed on the mobile screen.
Conformal coatings to protect PCBs: Conformal coatings protectively cover PCBs with polymer based spray materials. Usually, various kinds of low- to high-viscosity UV cure masking and coating agents are sprayed on the surface of PCBs. These layers protect the PCBs from dust, mechanical and thermal stresses, humidity, corrosives and other environmental factors. In the past, the PCBs were immersed or covered completely using potting compounds to protect them from external influences. But to avoid unnecessary weight and to facilitate compact designs, the conformal coating process is being used more and more these days.Micro-dispensing process for camera modules: The high resolution cameras assembled at the front and back of the mobile have to be highly compact, lightweight and effective in capturing high quality photos. These cameras are built using several extremely small components. In order to glue multiple parts together, very small dosing quantities (in µl) of 1-component or 2-component adhesives are required.


Market trends

Large multinationals are choosing India as their secondary manufacturing base apart from the one they have in their respective nations and in China. Apart from this, India has also become the point from where they transport these phones to African and other Middle Eastern countries. This logistics edge that the country offers, along with all the other factors, is making big companies think about India, both as a market and a manufacturing base.

The intense competition among the mobile phone manufacturers is driving down the price of mobile phones, which is helping these devices to further penetrate the local market. Sales of smartphones are expected to overtake that of feature phones soon.

Figure 3: Indian smartphone market watch Q2 of 2019 (Source: IDC)

Interestingly, online sales have now outpaced traditional sales avenues. IDC recently released a report titled, ‘The Indian Smartphone Market Registers Highest Second-Quarter Shipments in 2019’ (Figure 3). “Despite the efforts towards multi-channel retailing by almost all vendors, the online channel continued its growth momentum, fuelled by multiple new launches, attractive offers and affordability schemes like EMIs and cashbacks. This resulted in YoY growth of 12.4 per cent for the online channel with an overall share of 36.8 per cent in Q2 of 2019,” says Upasana Joshi, associate research manager, client devices, IDC India.

The offline channel registered an 8.5 per cent YoY growth driven by the new launches in the Samsung Galaxy A series, marketing activities by Vivo during the IPL (Indian Cricket League) and Xiaomi’s growing multi-channel distribution.

The ASP (average selling price) of the mobile devices sold was US$ 159 in Q2 of 2019, with 78 per cent of the market falling in the “under US$ 200” price segment. However, the fastest growing segment was US$ 200-300 with 105.2 per cent YoY growth. This was mainly due to the demand from customers looking to upgrade their phones, fuelled by China based brands which are bringing innovations and flagship product like designs into the mid-priced segments.
Joshi adds, “The US$ 400-600 bracket was the second-fastest-growing segment with 16.3 per cent YoY growth in Q2 of 2019. OnePlus led this segment with a 63.6 per cent share, on the back of the newly launched OnePlus 7 series. In the premium (US$ 500+) segment, Apple bettered Samsung for the leadership position with an overall share of 41.2 per cent in Q2 of 2019, as demand for the iPhone XR increased after the price drop, aided by heavy promotional activities.”

The feature phone market continued to decline with 32.4 million unit shipments, registering a drop of 26.3 per cent YoY in Q2 of 2019. This was due to lower shipments of 4G feature phones, that fell by 40.3 per cent YoY in Q2 of 2019. The 2G feature phone segment also declined, in the face of challenges faced by Indian brands as well as other small players owing to duty hikes on imports.

From a technology perspective, the market will be defined by emerging trends such as:

  • Advanced devices enabled with 5G, Internet of Things (IoT) and augmented reality
  • Automated manufacturing processes utilising real-time analytics and robotics
  • Digital product design and advanced production using innovative casing materials through 3D printing
  • Advanced touchscreen technologies
  • Fast charging capacity with long battery life
  • Flexible mobile phones with folding capabilities
    These trends have the potential to take the Indian market for mobile devices to the next level.

The challenges
Despite being referred to as an emerging industry, there are some challenges and bottlenecks in the mobile manufacturing domain. Some of these are listed below.

Low value addition: The value addition by domestic manufacturers is comparatively low at present. This could be because they have to import a major part of the components used in manufacturing. There has been a rise in the number of mobile companies entering the Indian market. This, combined with the manufacturers’ dependence on imports, means that the government should also support and encourage the manufacturing of components and equipment under the Make in India initiative.

Lack of investment in R&D: The patent holders of indigenous mobile technology do not believe in investing more money in R&D as they feel that they do not get good returns. The royalty yield declined between 2013 and 2016, even though the sales of smartphones increased in volume and value over this period. However, research and development is necessary for any industry to grow.  On the other hand, manufacturers have also voiced their concerns over the high royalty fees to be paid for using licensed technologies.

Lack of a component ecosystem: With so much being done to boost the manufacturing industry in the country, India still has to go a long way in terms of producing world class components. One of the main reasons for this, as cited by the industry players, is the 10 per cent duty levied on PCBs, which is making it difficult to establish a manufacturing unit in the country.

Many non-electronic as well as electronic components are required to make a smartphone. Out of these, the primary and most vital components are the main board and the sensor flex cable. These two components make up 58 per cent of the cost of the materials used in making a mobile phone. The display, camera and battery account for another 30 per cent of the billing. A major part of these important components is imported today, as they are not being manufactured locally yet.

Due to the lack of a balanced ecosystem with respect to electronic components manufacturing in the country, India imports these from China.

Inverted duty structure: This is a major drawback for mobile phone manufacturers in India. As per this structure, the import duty levied on the final product is low in comparison to that imposed on the spare parts and components required to make mobile phones. Hence, locally manufactured devices are more expensive and cannot compete with the cheaper imported devices. So local companies struggle to make their mark in the market or beat the competition.

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