Over the last one year, several mobile handset manufacturers from across the globe have announced the setting up of production facilities or increase in output volumes in India. Even Indian importers now want to progressively give up on the idea of sourcing from the world's factory China. Is this an obvious 'Make in India' effect or are we missing developments behind the scene? The Dollar Business analyses
Neha Dewan | June 2016 Issue | The Dollar Business
Make in India is really happening – at least that seems to be the case in the mobile handset space! In support of the campaign, the Indian mobile sector seems to be headed for a course-change. While some handset giants have already started setting up manufacturing units in India, the rest are moving ahead fast to live the big dream. And this is going to be a win-win situation for both manufacturers and customers in the country – one makes money and the other saves it and gets greater, better options.
Mobile handset companies, be it domestic players or companies from across the border, all seem to be gung-ho about making in India – these companies are either expanding their manufacturing base in the country or are foraying into the world of manufacturing for the first time.
For instance, it was only last year when home-grown Karbonn Mobiles finally decided to invest Rs.450 crore in setting up a manufacturing plant in Hyderabad and Rs.100 crore in its assembly unit in Noida, apart from setting up an integrated facility at Tirupati in Andhra Pradesh. This is a big investment decision from a company that is currently importing 80% of its components from China and assembling 100% of its mobile phones in India; Karbonn now plans to increase production of components in India and reduce imports. And it's not a one-off case. Over the last few months, several mobile handset brands have increasingly started looking at India as a hub of manufacturing.
Sample this: Last year, Lava International announced plans to invest a total of Rs.2,615 crore over the next 5-8 years in its manufacturing plants in Noida and Tirupati. The units are expected to have a combined capacity of 18 million devices per month by 2021. Similarly, leading home-grown handset manufacturer Micromax opened a new production facility in Hyderabad this year in April. The brand has decided to pump in Rs.2,000 crore over the next 5-6 years as a part of its ambitious expansion drive.
Samsung, the leader in Indian mobile phones market, has also invested an additional Rs.517 crore last year in the expansion of its Noida facility. The Korean major already has three research labs and two manufacturing plants in India. Following Samsung’s footsteps is the Taiwanese brand HTC, which is also looking at Make in India as a lucrative opportunity. And the list doesn't end here!
Other foreign participants in Make in India campaign include Chinese phone makers such as Gionee, Oppo and Vivo, that have their eyes cast on the Indian market. Gionee for instance, will be pouring in Rs.300 crore over the next 2-3 years to set up a manufacturing plant in India.
Many companies flocking to make India their manufacturing base is a good sign of things to come, but the bigger question is – why all of a sudden? What's changed in a year that has forced their strategy heads do a hundred and eighty degree turn?
Numbers tell a taleAccording to International Data Corporation (IDC), the Indian smartphone market grew at 28.8% in CY2015, reaching 103.6 million units and catapulting India as one of the fastest growing smartphone markets in the Asia Pacific region. IDC expects this growth to continue in the near future with smartphone market in India growing at double-digit rates. What's more? India is expected to overtake US to become the second-largest smartphone market globally by 2017, just behind China.
So, it's actually not surprising as to why there is so much hullabaloo about India at present. The same research indicates that the Make in India campaign has been a major driver for pushing local manufacturing of smartphones in the country. Interestingly, while China remains India's largest supplier of mobile phones, India's overall imports of mobile phones after showing a significant growth in CY2013 and CY2014 declined in CY2015.
Further, China’s domestic smartphone market is also slowing down – year-on-year smartphone shipment growth in China plummeted to a low of 2.5% in CY2015 from 62.5% in CY2013 (IDC data). It’s this slowing curve that has also led many brands to redirect their focus to India. With lack of domestic demand, the economies of scale could be forever lost. That would have meant higher procurement costs for mass feature and smartphone brands which until recently imported a majority of their inputs and sold it in the fast-growing Indian market.
The Real ReasonChanges in the sector are immense, yet a bigger transformation is anticipated in times to come. But at this crucial moment, what remains unanswered is – are we really equipped enough to adopt wholeheartedly the theory of import substitution industrialisation in this industry?
Experts are sceptical because an efficient ecosystem that includes all components, logistics and infrastructure, remains a challenge in India. Further, it becomes all the more difficult to accomplish this task considering that the smartphone component-making industry is still in its infancy in India, or to put it bluntly – there is still no component base in India!
Agrees Sudhir Hasija, Chairman, Karbonn Mobiles, as he tells The Dollar Business, “Currently there are not many semi-conductor, LCD or battery cell manufacturing facilities in the country. Hence, there is an inherent need to import them from other markets. Unless these industries are established, it will be tough for the mobile phone manufacturers to guarantee 100% production in India.”
Perhaps taking a cue from the simmering discontent, the Central Board of Excise and Customs (CBEC) partially rolled back duties imposed on imports of key mobile phone components such as such as batteries, chargers and headsets (CBEC Notifications 30/2016, 31/2016 & 32/2016; dated May 5, 2016). The Budget 2016-17 had proposed to withdraw exemptions on Basic Customs Duty (BCD), Countervailing Duty (CVD) and Special Additional Duty (SAD) on mobile phone chargers, adapters, batteries, wired headsets and speakers used in the manufacturing of mobile handsets including cellular phone – a move that did not go well with the industry. However, the CBEC issued its notifications that eased some nerves in the industry. It reversed removal of exemptions on BCD and SAD. Hereafter, importers of key above-mentioned mobile handset components will be required to pay only a CVD of 12.5%. No doubt, this rollback comes as a really pleasant surprise to Indian manufacturers of mobile handsets. But then, the question remains – why would somebody make in India when he can import the product at a lesser cost from the world's factory China?
Perhaps, not anymore! Over the last few years, factors like rising labour costs and erratic movement of yuan have eroded some of Dragon's competitive advantages. While labour cost in China has increased by about 20-25% in the last 3-4 years, its currency has strengthened a lot against the US dollar. This has hit the country's competitiveness hard and handset manufacturers are struggling to maintain healthy margins. On the other hand Indian rupee continues its downward move against the US dollar. Result: Several handset manufacturers from the West are now looking at shifting their production base to India, and the Indian companies that were importing from China are setting up their own plants in the country. Not to say, a weak currency aids exports!
Though it may be a tad early to comment on the future of Indian handset manufacturing industry, insiders predict that India is on its way to becoming an epicentre of sorts. Fingers crossed.
Smartphone penetration of less than 30% in India makes it an attractive market.
Sudhir Hasija, Chairman, Karbonn Mobiles
TDB: You have been in the market since 2009. How would you describe the journey so far?
Sudhir Hasija (SH): Started in 2009, Karbonn is one of the leading provider of smartphones in the Indian market, with cutting-edge mobile phone technologies that are innovative and user-centric. An expertise in bringing latest technology innovations at price points that define 'value-for-money' is the hallmark and brand attribute of Karbonn. In a span of seven years, we have come out with the latest technologies incorporated in our products. And in the process, we have established a strong footing in the market by catering to specific wants. We recently ventured into virtual reality and plan to keep up with the pace in the future as well.
TDB: What percentage of components do you import from China?
SH: We are currently importing approximately 80% of the components from China, but all Karbonn Mobiles are 100% assembled in India. We expect the imports to go down with the success of ‘Make in India’.
TDB: In your opinion, is India capable of producing 100% made-in-India mobile handsets at the moment?
SH: Make in India is an initiative which is an ongoing process, but we cannot make it a success overnight. Currently, there are not many semiconductor, LCD or battery cell factories in the country, hence, the need to import from other countries. So, unless these industries are established, it will be tough for the mobile phone manufacturers to guarantee 100% production in India.
TDB: Karbonn is investing big time in two plants, in Noida and Hyderabad. What would be their production capacities? And how long will it take to recover investments made?
SH: We can expect about 1.5 million units from these plants every month, and our target is to recover investments over a period of three years.
TDB: What impact will these two new manufacturing facilities have on the market price of your product?
SH: Prices of mobile phones will certainly decrease to an extent, once manufacturing in India reaches a significant level. The price range will vary between Rs.1,000 and Rs.15,000, depending on specifications of the product. Having said that, the parts and components ecosystem is still at a very nascent stage in India, and hence we will continue to import them from China.
TDB: What kind of numbers are you aiming at in the next growth cycle?
SH: We are looking at producing approximately 1.5 million units in the upcoming cycle. We are also in the process of setting up an integrated facility at Tirupati. The facility should be operational by the end of this year and will have a production capacity of about 5,00,000 units a month.
TDB: How has Budget 2016-17 affected the mobile handset sector?
SH: With Karbonn’s focus on supporting Make in India initiative, we have invested in building manufacturing plants. However, the withdrawal of Basic Customs Duty (BCD), Countervailing Duty (CVD) and Special Additional Duty (SAD) exemption on mobile phone chargers, adapters, batteries, wired headsets and speakers is disheartening for manufacturers. The move is likely to stifle the growth of Indian smartphone players and impact their price competitiveness.
TDB: How do you plan to compete with other homegrown players?
SH: Every mobile manufacturer is planning to establish a unit in India, so the market is going to be tough and competitive for us. But, this leans in the customer's favour because this will reduce the cost of mobile phones.
TDB: And what about Chinese manufacturers. How do you plan to fight the Chinese onslaught?
SH: It is definite that there is fierce competition from Chinese brands. But we are fighting back by offering more performance-oriented products, with a sound service background that will enable us to stay ahead in the competition.
TDB: How about growing exports...?
SH: We are already shipping to Mexico, Spain, UK and Central Eastern Europe. When our manufacturing units are established in India, we definitely plan to increase our global engagement with exports.
Navin Chawla, Chief Operating Officer, Lava International Ltd.
TDB: Is India capable of producing 100% indigenous mobile handsets?
Navin Chawla (NC): Government of India’s dedicated focus on ‘Make in India’ initiative has resulted in a phenomenal growth of the Indian mobile handset industry. This growth is a result of some of the key initiatives taken by the government, such as enhancing differential duty advantage in favour of domestic mobile handset manufacturers and extending the last date to file M-SIPS (Modified Special Incentive Package Scheme) application by five years, thus allowing new investments to be eligible for 20-25% capex subsidy over the next five years. Also, availability of skilled manpower at substantial cost advantage and hand-holding and availability of critical fiscal or non-fiscal incentives by key states have contributed to the Indian mobile handset industry’s growth.
TDB: Do you think the government is doing enough to enhance growth?
NC: India is well positioned as far as manufacturing is concerned and it has a capable demographic dividend. Moreover, initiatives such as Make in India, Stand Up India and Digital India are maneuvering India to the right direction. I think Make in India should continue to look at encouraging entrepreneurship and give entrepreneurs space to grow and take success to the next level. And, manufacturers should focus on linkages with the global value chain for Make in India to become a real success.
TDB: What is Lava’s contribution towards Make in India?
NC: Lava’s contribution to Make in India campaign was initiated last year, in April, when we launched our first assembly plant in Noida and started delivering one million phones per month. We plan to invest Rs.2,615 crore over the next 5-8 years, out of which Rs.500 crore will be invested in the next two years.
Going forward, Lava will be investing in two greenfield integrated manufacturing projects. The first one will be in North India at Yamuna Expressway, for which 25 acres of land has already been allotted by the UP government. The government in Tirupati has allocated 20 acres of land to us where we will have a manufacturing facility in south India, our second project.
Under the Make in India initiative, Lava is also steering the mobile phone design roadmap in India which will enable Lava to establish an ecosystem for mobile phone manufacturing in the country.
TDB: How was FY2016 for Lava?
NC: Despite witnessing a turbulent time in the Indian economy and immense competition, Lava grew significantly maintaining its market share across countries. A recent Counterpoint Research rated Lava as the fastest growing Indian brand globally. On the international front, Lava became the number one smartphone brand in Thailand and we expanded our business in Mexico and Indonesia among other countries.
TDB: Do you also plan to play the volume and price game, like others?
NC: It’s neither volume nor price game! We have a vision of empowering people to do more and be more. We are committed to delivering reliable products and services to our consumers at all times. With Lava's highly reliable products and services, our aim is to contribute to the growth of the mobile handset industry and nation at large.
TDB: What are your expansion plans?
NC: We are a brand that is growing globally. Since last year, we have ramped up production to one million phones per month through our first assembly plant in Noida. With that said, we have plans to increase our manufacturing facilities and increase production to 216 million units per annum in the next 5-8 years.
We have a stringent quality control and assurance procedure in our manufacturing process – our product failure rate (PFR) is 50% lesser than the same products made in China. At the moment, we are working on developing mobile phone manufacturing eco-system in India, and to enable that we are establishing a Mobile Phone Design Centre in India.
TDB: Isn’t the industry heading for a tough competition as more brands are speaking about establishing manufacturing units in India?
NC: As per industry reports, India which surpassed US to become the second-largest smartphone market in terms of users has continued to register strong demand for smartphones. The opportunity is massive for every player in the mobile value chain. And despite the country being the second-largest by volume, unlike the rest of the world, the market is still growing. There is competition and it will become more intense, but the differentiation will lie in ‘reliability’ of products and services.
TDB: Is the market big enough to accommodate all new and old players?
NC: The opportunities are immense! Under the Make in India initiative, there is room for every industry player to make a positive difference. As per industry estimates, more than a billion smartphones will be sold in India over the next five years. This will drive the number of smartphone users from a quarter of a billion to more than half a billion, which will still be hardly 55% of India’s total population.
Copyright @2024 The Dollar Business. All rights reserved.
