Monday, September 10, 2012

MOBILE MANUFACTURING: CRITICAL MASS

Mobile handset production in India has seriously lagged the Telecom Services Revolution. Current trends provide an opportunity to rectify this anomaly. Can India take it up when it matters? 

They are likely to follow the trail of the MNC giants before them and get into full fledged manufacturing. Sure enough, Micromax is expected to invest half of the money raised through its upcoming IPO to set up manufacturing in Chennai. Other players like Videocon, Lava, Wyncomm and Karbonn are planning to start manufacturing operations, while Spice has commenced trial production. In fact, even Chinese players like ZTE and Huawei feel that the 5-10% of benefit on shipping from China is attractive enough to set up operations here. “With most local companies including ourselves seriously considering manufacturing in India, the country seems to be emerging not only as the second biggest EMS location but also a mobile manufacturing hub,” says Arvind Vohra, Co-Founder & MD, Wynn Telecom Ltd.

There are major reasons for visualising India as a global manufacturing hub or production factory. Firstly, the cost effectiveness of manufacturing in India. Ganesh Ramamoorthy, Analyst, Gartner, states, “The opportunity is very high to set up manufacturing base in india. Two factors are involved for decision (to manufacture) – volume targetted by companies and business model used.” Mobile connections in India will grow by 27.3% in 2010 to reach above 660 million with revenue of $19.8 billion to be generated (mobile services). Along with this, mobile penetration for 2010 is projected at 55.9%, which is expected to reach 82% by 2014. Mobile production revenue in India is expected to grow from $10.14 billion to $28 billion at a CAGR of 18.1% (Gartner). According to Pankaj Mohindroo, President, ICA, “Around 135 million phones were manufactured in India last year, which is 11% of total global manufacturing. Out of this number, around 70 million were exported.” The plan is to take the share to 20%. There are people who contest these figures, saying that manufacturing in India is actually more of assembling.

S. N. Rai, Co-founder & Director, Lava International Ltd. admits, “In the long-run China will not be too competitive as compared to India. In order to get the ball rolling for manufacturing in India the players need to achieve a ‘Critical Mass Production and Market Base’ which will make manufacturing here profitable.” Now it’s up to the government to seize the opportunity and ensure that the local handset industry gets the required force and capability to meet the demands in future. One of the key demands of the industry is to be provided STPI as was done for the IT industry. For a manufacturing sector to grow, the most vital aspect is the ecosystem and supply chain, where China has a huge advantage. Presently, very little component sourcing is happening in India. Only electrical and mechanical parts are made here whereas electronic components are all imported. Just as handset manufacturers are showing interest, the government needs to attract component vendors to set up production here, which will help keep the handsets competitive. A thrust at this critical time can do wonders for mobile handset manufacturing in India. It is a bus we can ill afford to miss.


Source : IIPM Editorial, 2012.
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