Making it in India

The race is on to develop a 100% Indian smartphone. But what's the driver, really?

“If you go back seven years, the mobile industry never belonged to China,” reveals an incredulous Rajesh Agarwal, co-founder of Micromax, the homegrown mobile phone giant. The dragon grabbed the world’s smartphone factory title because of its manufacturing prowess and tremendous local market. “It made sense to localise everything from design to fabrication to accessories to take advantage of cheap labour and economies of scale. But now it is time for that to move to India as it is the third largest market for phones,” he says. And it’s not wishful thinking as apart from local players like Micromax, Intex, Lava etc, even Chinese players like Xiaomi and Gionee have set up a handset assembly line in India. “A year ago we didn’t expect even assembling to happen in India,” says Karthik J, senior market analyst, IDC.

Lava International has earmarked 50 acres near Yamuna expressway for the northern market and Tirupati for southern market and has invested a total of Rs.50 crores so far. “We have put up an assembly plant in Noida with an installed capacity of 1 million phones per month. By next month, one more plant in Noida with 1.5 million capacity is coming up,” informs Sanjeev Agarwal, chief manufacturing officer at the Noida-based company. Micromax is not far behind and has committed Rs.300 crore to get its Rajasthan and Andhra Pradesh plants rolling this year.

Trust the Chinese to keep up. Handset maker Gionee rolled out its first assembled set in India in October last year. “By mid-2016, all our manufacturing will be done in India and we plan to invest $50 million over the next two years,” says Arvind Vohra, CEO. Gionee along with Xiaomi and Asus have tied up with Foxconn to roll out India-assembled phones from the contract manufacturer’s facility in Andhra Pradesh.

Cheaper play

The second stage will be when accessories (battery, charger) makers set up shop in India. Agarwal of Micromax is sure about it. “One year down the line, entire ecosystem around accessories will come to India, may it be battery, charger, earphones or other components.” Agarwal of Lava claims that they have already entered the second stage. “We have already started making chargers and batteries. We have a localisation target of 70% in the next four years,” he claims.

But government initiatives apart, what are the advantages of manufacturing handsets in India? Agarwal of Lava explains, “The labour costs we are incurring are 1/3rd of China and quality control is much better.” For years the Chinese ruled the roost due to being low cost and a competitive currency. But over the past three years, wages in China have increased by a fifth and the renminbi too has strengthened. Hence, net margin of manufacturers and suppliers have been falling in China.

Along with rise in demand volume, companies are also betting on technology upgradation to 4G. 9.3 million smartphones were shipped in India in October 2015, and 4G ready-devices accounted for more than half of it. As per IDC, India is expected to become the second largest smartphone market in 2017, overtaking the US. At present, China is the largest market. Vohra sees a logical sequence with respect to suppliers too “Component suppliers are also competing with each other, just as we (phone companies) do. Gionee is now in India. Same would happen with suppliers,” he says.

The third and ultimate stage of manufacturing is the arrival of chipset, fabrication, screen panels makers etc. “We are not sure when that would be. The Foxconn and Flextronics of the world will have to see great volumes in order to set up factories in India,” says Karthik. Agarwal of Lava sounds a little bearish on the chipset front though. He feels chipset manufacturers will be the last to arrive, if at all.  “That entails a massive investment of $5-6 billion. Even in China, it is only now that chipset makers are moving from Taiwan and Japan,” he says.

Agarwal continues to be optimistic, “At least two fab manufacturers, one is Foxconn and second is AUO, both from Taiwan, have shown their interest in investing in India. I think they are in final stages of discussion. The Vedanta group is talking to AUO, and are doing a market survey. They have even approached us as a supplier”. Sterlite which belongs to the Vedanta group is planning to manufacture touch screen panels in India. If what Agarwal says comes true, we could move closer to seeing a Made in India smartphone soon.