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issue: May 2005 APPLIANCE Magazine

New Delhi Report
Can India Emerge as the World's Cellular Handset Factory?


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By Adite Chatterjee, India correspondent, APPLIANCE

India is fast emerging as the preferred launch pad for many international marketers of white goods. What’s more, some of the latest product innovations are being tested out in the Indian market ahead of even the U.S., Europe, or Japan.

Take for instance, Hitachi. After introducing its TV models in Singapore, India was selected as the second country for the launch of its 32- and 42-in plasma TV models. Similarly, Samsung introduced its Pleomax range of information technology consumables in India soon after the launch in its home country, South Korea. Electrolux chose India to premiere the first-of-its-kind “talking’” washing machine, Washy-Talky. LG, Samsung’s South Korean white-goods compatriot and ace rival in the Indian market, has also announced that it will bring its top-end products directly from its home country. For these white goods makers, India is emerging as a top priority market because sales of products in some product categories are growing at a spectacular rate. Plasma and LCD TVs, for instance, are growing at 300 percent in India.

One of the key sectors in which India is emerging as a strong player is in the production of mobile or cellular phones. Cellular phones have a huge potential not only in India, but the country could well emerge as the world’s handset factory. LG has announced plans to manufacture 20 million cellular handsets (GSM as well as CDMA) by 2010 at its facility in Pune, in the state of Maharashtra. It will be investing U.S. $60 million initially and nearly half of the handsets that it manufactures would be exported to the Middle East and Africa.

Nokia has plans of investing $150 million over a 4-year period to manufacture GSM and CDMA handsets in India. The first batch of handsets is expected to roll off the assembly lines by the end of this year. The handset manufacturing industry is expected to cross the $7 billion figure in sales revenues by 2010 while attracting investments of more than $400 million over the next 2 years.

The Indian cellular phone market, valued at $2.2 billion, is roughly as big as the color television market. However, while the Indian CTV market has taken almost 20 years to reach that size, the cellular phone industry has done it in barely a decade. The handset market is expected to grow at the rate of 35 percent annually until 2010. By the end of 2005, nearly
37 million handsets worth $4.2 billion are likely to be sold in the country. That will make India the third-largest mobile handset market, after China and the U.S. By 2008, handset sales are estimated to touch 50 million, making India the second-largest market in the world.

The rush by global players to invest in Indian manufacturing facilities is largely due to the fact that production of consumer electronics, computers, network equipment, and automotive electronics is already in place. That means the technology as well as talent pool are already available. Apart from software skills, engineering capabilities—which are critical for such operations—are easily available in the country. LG, which manufactures 24 million handsets in Korea and 8 million in China and Brazil, is hoping to produce the same number of handsets in India as it would in China by the year 2010.

There are, however, a few barriers that India will have to clear before it can emerge as the world’s handset factory. Currently, the biggest barrier is the poor infrastructure in the country. To emerge as the front-runner in the handset manufacturing game, it would need to ensure that millions of components are moved across local markets and also to international markets without delay. China, which is currently the cheapest manufacturer of handsets, could tweak its duty structure to ensure that Chinese handsets continue to be cheaper than Indian handsets. Today, India’s image is that of a key player in software products. But with global companies shifting their manufacturing facilities to India, the country could well acquire a new image—that of a manufacturer of high-tech hardware products.

 

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