World’s Fastest-Growing Smartphone Market Could Become a Manufacturing Hub

Indian Prime Minister Narendra Modi has now has an alluring incentive for technology companies to build more plants in his country: the fastest-growing smartphone market in the world after having struggled in his campaign to bring more manufacturing jobs to India.

According to a joint study by Counterpoint Research and India’s leading management school, the Indian Institute of Management in Bangalore, the contribution of the value of phones sold in the country through local manufacturing or assembly could rise to more than 30 percent in the next five years even as India currently contributes only about 6 percent of the value of phones in that category. The study said that manufacturers that will make higher-value components, such as batteries, cameras and semiconductors, should be drawn by the government which should make use of the surging domestic demand to draw manufacturers.

India is projected to generate a billion smartphone sales in the next five years as it overtook the U.S. this year to become the world’s second-largest smartphone market by users. Yet, according to the research, compared with other countries like China and South Korea, where 70 percent and 50 percent of the work is done domestically, the value added through local manufacturing is paltry. Modi wants more of those jobs if his country is providing such a lucrative market and has made the Make in India program a centerpiece of his economic policy.

“India can potentially be world leader in mobile phone manufacturing ecosystem and this has to be done in a phased manner,” said Aruna Sundararajan, secretary at India’s ministry of electronics and information technology. To learn about product design and customer needs, the government is sending close to 100 design engineers to Taiwan, she said.

As growth in the U.S., China and other markets slows, Apple Inc., Samsung Electronics Co. and Xiaomi Corp. have been stepping up their efforts in India. Apple has been lobbying for the right to set up its own retail stores and its CEO Tim Cook made his first trip to India in May. If companies like Apple want to operate their own retail outlets, they need to procure 30 percent of their components in India, under current rules.

Up from the current $11 billion, the value of the components of the smartphones and feature phones sold in India over the next five years will together be than $80 billion. The researchers said that the domestic contribution could be taken to 32 percent by 2020 if the country can move up the value chain from simple assembly to more complex manufacturing.

“The greater amount of localization and investment in R&D encouraged with good government policies will significantly boost the Indian economy and our global brand equity,” said Amitabh Kant, chief executive officer of the government think tank Niti Aayog, in a statement.

By raising import levies on components and devices, India is also encouraging local manufacturing of components. Apple has so far not committed to local manufacturing and is still contemplating India’s retail requirements. However, according to local media, Apple’s leading manufacturing partner, Foxconn Technology Group, has been exploring factories in India for Apple.

(Adapted from Bloomberg)

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