India - A preferred destination for low cost mobile handsets manufacturing
From a slow start, mobile manufacturing in India is beginning to take off and may soon rival China as a base for low-cost handset production. According to US research group Gartner, in the last 12 months alone, the number of units produced in India has soared by 68%. The subcontinent is forecast to have the highest growth in mobile manufacturing again this year.
The first factories for mobile phones were not established in India until 2005. Since then however, growing demand at home coupled with a relatively cheap labour force, has seen production increase dramatically. In 2006, Gartner reports that India produced nearly 31 million mobile phones, with a street value of US$5 billion. For 2007, it has forecast that handset production will increase by 68% in units to nearly 95 million handsets and 65% in value terms. Over the next five years Gartner says that the Indian market will see a compound annual growth rate in terms of mobile phone production of 25%.
The first factories for mobile phones were not established in India until 2005. Since then however, growing demand at home coupled with a relatively cheap labour force, has seen production increase dramatically. In 2006, Gartner reports that India produced nearly 31 million mobile phones, with a street value of US$5 billion. For 2007, it has forecast that handset production will increase by 68% in units to nearly 95 million handsets and 65% in value terms. Over the next five years Gartner says that the Indian market will see a compound annual growth rate in terms of mobile phone production of 25%.
The rampaging growth of demand for mobile connections in India is driving the demand for home-based mobile manufacturers. India is the fastest growing mobile market in the world, with a further 6.57 million mobile subscribers signing up for services last month alone. At the beginning of June 2007 the sub-continent was home to 178 million mobile users. Over six million users are being added every month and there is a captive local market for mobile manufacturers. Low mobile penetration and favourable government policies are driving mobile phone original equipment manufacturers to set up manufacturing facilities in India. Nokia started its unit in Chennai in January 2006 and produced a record 25 million handsets in the first year of operation. The vendor is also exporting mobiles from India to Sri Lanka. Motorola and electronics manufacturing service vendors (EMS) like Foxconn and Flextronics have also set up plants in India.
Gartner said though the world's top five handset makers will retain a major share of production volume, it expects local manufacturers to capture up to a fifth of India's overall mobile phone production volume by the end of 2011. It is believed that growing demand for low-cost and ultra-low-cost mobile phones and the need for EMS vendors to reduce their revenue exposure to Nokia, Motorola and Sony Ericsson, for whom they are now manufacturing in India, will contribute to the growth of local-brand mobile phones in the Indian market, said the report.
Another key challenge will be to keep handset prices low, as Indian consumers are very price sensitive. This will be achievable by gaining access to low-cost, feature-rich and local-specific chip designs, as well as a strong distribution network. Key stakeholders in the mobile phone industry value chain can provide this, so local manufacturers must look to form alliances and partnerships with them in order to succeed, it said.
In April 2005 Finnish company Elcoteq was the first company to set up a telecoms manufacturing unit in Bangalore. Korean giants LG and Samsung quickly followed suit, before market leader Nokia also got in on the act in 2006. However, Nokia has begun to export mobile phones from its plant near Chennai (Madras) to the Gulf States and Africa. In addition there are a few locally branded phone vendors and manufacturers such as Spice, Usha Lexus, and BPL that are either manufacturing locally or import the handsets.
A recent MacKinsey research report says "India leads the market in offshored back-office services, but as a manufacturing center it lags behind China, Thailand, and the rest of Asia. The reasons are well documented: multinational companies operating in India must overcome erratic electricity supplies, poor roads, and gridlocked seaports and airports while contending with government policies that discourage hiring and hold back domestic demand for goods in many sectors. Such obstacles can be considerable, but they haven't stopped some multinational manufacturers from setting up shop in India."
The research report further says "already just over half of all offshore manufacturing by US companies involves skill-intensive sectors, and that figure could rise to 70 percent by 2015. With high-skill sectors accounting for almost 40 percent of the manufacturing output of India, it is in a good position to absorb some of that increase. For one thing, the country offers abundant engineering and technical talent: every year, it produces 400,000 graduate engineers, second only to China's 490,000. Companies might also be attracted to India (and to other developing countries) by the increasing availability of reliable suppliers, the chance to escape unrelenting price pressures at home, and the size of the domestic market. LG, for example, plans to make handsets in India to take advantage of its rapidly growing demand for mobile telephones".
It also says "multinationals willing to make the effort to source and manufacture products in India are likely to obt
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