(Yicai) Aug. 17 -- India’s smartphone sector is going from strength to strength and many multinational and Chinese companies are setting up factories there to ensure a foothold in the country's huge market. However, an incomplete industrial chain and poor infrastructure mean there is still a way to go before India can replicate China’s success.

The Indian government is urging smartphone makers to move production to India, Shilpi Jain, senior analyst at Counterpoint Research, told Yicai. The US’ Apple and South Korea’s Samsung have increased their manufacturing capacity in India considerably in the past two years. Chinese firms such as Xiaomi, Oppo and Vivo also have factories in the country.

As a result, India’s mobile phone imports plunged to 3.77 million in 2022 from 200 million in 2014, according to data from India customs. And imports from China have plummeted 98.7 percent to 2.19 million.

India’s output of Apple’s iPhones is expected to reach 7 percent of the California-based company’s manufacturing worldwide, whereas in 2020 it only accounted for 1.3 percent, according to Counterpoint data. And Bloomberg expects new capacity expansion plans to boost India's share of the iPhone assembly market to between 10 percent and 15 percent.

And India is now making the latest technology. It is exporting the latest iPhone 14 series, whereas two years ago it was only making old models. Over 70 percent of India’s cell phone exports are to the US, the UK, the United Arab Emirates, the Netherlands and Italy.

Many young people work in industrial parks in Noida, Haryana and other parts of the country assembling mobile phones for different brands. These handsets are then exported to other countries, such as the US and UK.

Noida is the biggest mobile phone industrial cluster in India, followed by Gurgaon and Chennai, Yang Shucheng, the secretary-general of the India-China Mobile Phone Enterprise Association, told Yicai. Xiaomi, Transsion, and parts makers all have factories there. 

Huge Potential

Chinese mobile phone firms are attracted to India by its huge market potential. With a population of 1.4 billion people, India offers a massive customer base that no handset maker can afford to ignore.

But a weak local supply chain is hindering the growth of India’s mobile phone manufacturing sector. And many Chinese companies are building factories in India to help fill the gaps in the mobile phone industrial chain.

As of the end of 2020, there were 200 Chinese companies in the smartphone supply chain that had set up factories in India and 500 supporting firms, such as material suppliers, installation companies, logistics firms and tax consulting agencies, according to data provided by India-China Mobile Phone Enterprise Association. Around 100,000 of their employees travel between the two countries each year.

High tariffs are another factor which put pressure on Chinese mobile phone manufacturers to set up factories in India. India hiked its import duty on smartphones to 20 percent in February 2018 from 15 percent, industry insiders said. It also imposed a 10 percent tariff on electronic components such as circuit boards and camera modules in April.

Big Challenges

But India will find it challenging to emulate the success of Made-in-China in the short term, a mobile phone company executive who used to work at one of Xiaomi’s overseas plants told Yicai. The efficiency of their Indian plant was only 60 percent of that of those in China. Technical work requires the guidance of Chinese workers and local employees are reluctant to work overtime, unlike in China.

Poor infrastructure, such as roads, railways, electricity and water supply, also needs to be improved and this requires a huge investment.

"You can't wait a month for a missing spare part and delay the assembly of the phones. So, it will still be some time before India is able to fully realize localized mobile phone manufacturing,” the executive said.

“Mobile phone parts are capital- and technology-intensive industries, and the proportion of China-made Apple parts is still quite large,” said Guo Zijiao, an analyst at market research firm Omdia Display. “There is no place in the world that can undertake such as large-scale transfer in the short term.”

Editor: Kim Taylor