INTERNATIONAL and domes­tic smartphone manufacturers are taking full advantage of Prime Minister Narendra Modi’s ‘Make in India’ initiative and are unveiling plans to set up units across the country.

Several handset manufacturers have either started operations or plan to manufacture smartphones in the country to meet the growing demand. India, which today ranks third after China and the US in the smartphones sector, is likely to overtake America soon.

A recent research report by International Data Corporation (IDC) revealed 26.5m smartphones were shipped to India in the second quarter of 2015, up 44pc for the same period last year. There are nearly 200m smartphones in use in India, which has a mobile phone subscription base of about 1bn.

Chinese handset makers have tripled their shipments (year-on-year) to India and doubled on a quarter-on-quarter basis, according to IDC. “As China started to slow down, most vendors from the country have targeted India as the next big growth market for smartphones,” says Kiranjeet Kaur, research manager with IDC’s Asia/Pacific Mobile Phone team.

Four Chinese brands — Lenovo, Xiaomi, Huawei and Gionee — accounted for 12pc of the Indian smartphone market in the second quarter (April-June), doubling their share in just one year. The sharp slowdown in the smartphone market in China — which is currently stagnating — has driven these companies to increase sales to India.

Increasingly, the Chinese manufacturers are offering handsets at affordable rates, hawking even 4G compatible smartphones at rates of around $100.

According to Ryan Reith, programme director, IDC’s Worldwide Quarterly Mobile Phone Tracker, India has captured a lot of attention that China previously received and it is now the market with the most potential upside. Reith sees manufacturing moving from China and Vietnam to India, as manufacturers try to cut costs and capitalise on financial benefits being offered by the Indian government.

Though India ranks among the world’s top two mobile phone markets, manufacturers had been shy of setting up production units. One international handset maker, Nokia, had a terrible experience in India after it set up a huge manufacturing facility near Chennai in the southern state of Tamil Nadu in 2005.

The company got embroiled in a tax dispute, which resulted in its shifting operations to Vietnam. In 2013, when Nokia sold its devices and services business globally to Microsoft, Indian tax authorities froze its Chennai plant, which had to be shut down a year later.

But that bitter experience of Nokia is now forgotten, as the government is encouraging global and domestic handset makers to start operations in the country. After launching the ambitious Make in India initiative, the government is going all out to woo smartphone makers to set up units in the country.

Of course, most of the ‘manufacturing’ is actually assemblying of smartphones. Chinese, Korean, Japanese and other international companies are rushing in semi-knocked down (SKD) kits and assemblying smartphones at factories, taking advantage of the duty concessions. While the customs duty on an imported smartphone is 12.5pc, components can be imported by paying a duty of just 1pc.

THE department of electronics and IT expects demand for electronics will touch $400bn by 2020. With all the top global brands having a strong presence in India, the government wants them to set up assemblying or manufacturing units. The department expects the electronics sector to generate 28m jobs and draw in $100bn in investments over the next five years.

The government recently approved the setting up of two semi-conductor wafer fabrication units costing about $10bn. Government officials say all these policies have resulted in India emerging as one of the fastest growing handset manufacturing destinations in the world. Investment proposals adding up to nearly Rs1trn have been received in recent weeks from electronics manufacturers around the globe.

A report by CyberMedia Research noted that a quarter of smartphones sold in India between April and June were manufactured locally. The mobile handset industry has seen a growth of 30pc and in the current fiscal, its revenues are expected to touch Rs1trn.

In August, Foxconn, the world’s largest contract-manufacturing firm for consumer electronics, signed a memorandum of understanding with the Maharashtra government to invest $5bn over the next three years for setting up a manufacturing unit in the state. The Taiwanese giant contract-manufactures devices including the Apple iPhone, BlackBerry, Kindle e-reader and Playstation video game consoles.

Terry Gou, founder and chairman of Han Hoi Precision Industry Co Ltd, Foxconn’s parent company, said the company is looking for a dozen additional sites for manufacturing phones for its principals. Gou, who has become a regular visitor to India, meeting Modi and chief ministers of different states, is confident about demand for components and other electronic products.

Other major international players have also unveiled plans to set up manufacturing or assemblying units in India. Lenovo and Motorola will start manufacturing smartphones at a plant in Chennai and hope to produce about 6m units this year.

The past few weeks have seen a flurry of announcements by Chinese brands setting up units in India. Oppo, which sold 400,000 smartphones in India last year and hopes to touch 1m units this year, is in talks with Foxconn to start an assembly line for its smartphones in Andhra Pradesh.

Gionee, another Chinese smartphone maker, plans to invest $50m over the next three years to beef up its manufacturing base. The company is also partnering global firms including Foxconn and Dixon.

Xiaomi, another leading Chinese firm, recently opened its facility along with Foxconn in Vishakhapatnam in Andhra Pradesh. And Meizu, which is backed by Chinese giant Alibaba, is also discussing with Foxconn for a manufacturing facility in India.

Other global leaders including Samsung, LG, Sony, HTC and Asus also have operations or plan to set up manufacturing and assemblying units in India over the coming months. And domestic players such as Videocon, Micromax, Yu Televentures and Karbonn are also planning such facilities to meet the growing demand for smartphones.

Published in Dawn, Business & Finance weekly, September 28th, 2015

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