Is ‘Make in India’ Boon or Bane for Indian Handset Players?

The Make in India initiative has become the eye-candy for the global companies as India represents the gigantic pool of talent, transparent government and tranquil market access etc, but are the Indian handset players losing on something?

Since the ‘Make in India’ program was announced in the year 2014, the mobile handset vendors have turned out to be the flag bearers of this initiative, with two mobile manufacturing companies in 2014, the country has reached a number of 118 and is about to touch 120 in the near future.

The phased manufacturing programme, announced in May 2017 by the central government, to promote domestic production of mobile handsets is also paving some positive outcomes in telecom manufacturing. The initiative will help in building a robust indigenous mobile manufacturing ecosystem in the country, and incentivise large scale manufacturing.

The Make in India initiative has become the eye-candy for the global companies as India represents the gigantic pool of talent, transparent government and tranquil market access etc. There are companies envisioning to make India a manufacturing hub and export equipment from here to countries such as Myanmar, Middle East and Africa etc., which will develop the ecosystem and most importantly strengthen the overall India’s economy.

The biggest contribution of Make in India is that it has positioned India on the global manufacturing landscape. The country which was primarily seen services oriented after we moved from agri-economy has shown that it can also be an opportunity bed for manufacturing also. However, manufacturing is complex and long tail. We may not see results of the same magnitude as we saw in services in a short span of time. We have to have patience and work on plans for decades rather than 3-5 year planning.

However, some of the data suggests that although ‘Make in India’ has helped in pouring in more FDIs, but at the same time, the domestic handset vendors are suffering on account of increased competition coming from outside, absence of right ecosystem for telecom As per CMR data, the domestic contribution to handset manufacturing by global players stands at 95% as against only 59% by Indian brands. On the other hand, domestic contribution by Chinese players stands at 73%.

According to Shashin Devsare, Executive Director, Karbonn Mobiles, “We are following phased manufacturing program and have been raising our concerns over absence of necessary component parts and ecosystem being not as readily available as in the case of China. By increasing the additional 10% duty on PCBA to push manufacturers to get into SMT based operations, which is populating the PCBAs itself, I think manufacturing is in the interim most of the manufacturers would be dependent on sourcing these parts and components from the ODMs in China.”

“Because of the entire economics that is involved one should move from SKD to CKD both from logistics perspective also from the time to market perspective, parts and parcels have to evolve locally and for that it is critical for players like us who has the one of the largest manufacturing bases start forging ties with the components makers and eventually look at critical components manufactured in India and sourced in India,” he added.

Echoing similar views, Prabhu Ram, Head, industry Intelligence Group at CMR, says:” Through the ambitious ‘Make in India’ program, India has successfully attracted mobile handset brands from China and elsewhere to ramp up domestic manufacturing in India. While the Government has laid a robust Make in India platform, and played its part, it is the turn of the Indian industry to envision and embark on local manufacturing.”

“Unfortunately, Indian mobile handset brands have lost significant ground, and are currently just either in a survival or catching up mode with the Chinese and other players. The ray of hope and sunshine for Make in India stems from companies like Lava that have been able to capitalize on the Make in India bandwagon, ramping up their domestic manufacturing initiatives,” he added.

Make in India has been successful in the segment of handset manufacture in that about a hundred units have come up for manufacture of handsets and accessories. However, these are as yet in the early part of the growth curve since these are all, more or less, engaged in assembly rather than manufacturing. The value addition has been in single digits and this needs to move up; I believe that this has started happening, according to T V Ramachandran, President, Broadband India Forum.

At present in the country, Samsung is the leading original design manufacturer (ODM) for overall mobiles followed by global companies such as Rising Star (Foxconn’s India unit), which makes phones for Asus, Gionee, InFocus, Microsoft, Oppo, Xiaomi. Intex and Vivo are the other two big ODMs

Although, currently, foreign OEMs are manufacturing in the country, it has not strengthened the positioning of domestic brands. The entire Make in India program should have features that also attract local players.

Protectionist Approach?

Though India has seen an increase in the manufacturing of mobile devices over the last few years, with low value adds, there isn’t much support to push the design based manufacturing of infrastructure equipment.

India is still highly dependent on the import of IT and telecom products, which also poses serious challenge to trade deficit. Although under its Make in India campaign, the government has set its sights on promoting manufacturing of telecom equipment in India, however its ambitious target to meet net zero imports by 2020 cannot be achieved unless we focus aggressively on design oriented, high value addition based manufacturing and IP development in the country.

Arguing the lack of component ecosystem debate, Rajan Mathews, Director General, COAI, says: “Many are of the opinion that domestic telecom equipment manufacturing cannot prosper because of lack of component ecosystem, lack of technical expertise, poor infrastructure, and the capability to meet this enormous demand. However, contrary to this perception, there is no dearth of technical competence and innovative capabilities in the country. All we need is effort and the right regulatory environment, and give the sector adequate time, which it needs to offer quality components at globally competitive prices. Till such time a protectionist approach mustn’t be adopted as that will slow down the infrastructure rollout.”

Faisal Kawoosa, Head, New Initiatives at CMR, also elaborates:”Governments cannot differentiate between local and foreign businesses much. They have to play a level playing equitable platform which it has been doing. It is the Indian brands that have to evolve not only their business models but the entire business processes to emerge out of difficult times. But, what can help them is empowering with technology by having a consistent focus on R&D and government has programmes to support this as well.”

Kawoosa further adds that there are beta risks or market risks that are beyond control. It may be unfortunate to see maximum impact on Indian players, but that was never the intent of the government to hurt them. It is because of the weaknesses they were carrying all along, that they are facing the trouble.

However, Lava is one of the companies that have been trying to overcome the challenges, be it enriching the manufacturing or experimenting with Android Go as well as bringing new features like Face Unlock. Lava is ahead of its counterparts and we are seeing it going on a different path. This is how the evolution of an industry or ecosystem happens. Obviously, if the government is ready to give its best, the industry has also to match. Weak players will be washed out otherwise, he says.

Kawoosa opines that although revenues of the Indian players are plunging the knowledge base is only increasing. The first thing Indian brands have to do is realise that they have the knowledge and then explore how they can apply this knowledge. That’s on the business side.

On the government side, it has to create a platform that will automatically attract the domestic players more than others. This platform has to specifically look at seizing of opportunities. For example, working jointly on rural telecom and at the same time, thinking of exports, but very precise, something like Make in India for Africa. That’s where for a number of reasons Indian brands can find out complimenting market opportunities.

Fighting the Odds

As per an industry report, mobile telephony contributes about 1.75 percent to India’s GDP amounting to INR 2,520 billion. On one hand, India is one of the largest internet and mobile markets in the world, while on the other hand, the handset manufacturing space is laced with myriad challenges. Indigenous handset-makers are heavily reliant on imports of mobile components, especially chipsets.

To make the Make in India program successful, it’s imperative to enhance domestic manufacturing of mobile and telecom equipment. The total value addition to the economy due to increase in demand for mobiles will be significant. Hence, mobile phones require greater attention under Make in India to increase the contribution of the manufacturing sector to the GDP. At present, mobile phones add a manufacturing value of 18.3%.

Most of India’s domestic mobile manufacturing is governed by innovations and standards set by international players and organisations. Indian companies must up their ante as far as innovation and R&D is concerned, in order to remain competitive in the market, says Mathews.

As per Counterpoint, India will need more than $80 billion worth of mobile components until 2020. This explains that the opportunity for domestic mobile manufacturers to source components indigenously, is exponential. A lot of effort is needed to further skill development, design knowledge and creation of a strong infrastructure that will help make India a formidable manufacturing hub, for years to come.

To encourage domestic manufacturing in India, the government needs to adopt a comprehensive strategy for development of a specialized telecom cluster while addressing the infrastructural, fiscal and legal issues including labour laws.

An incentive based approach should also be formulated by the government to create incremental demand for the locally manufactured equipment i.e. by incentivizing the buyers to purchase domestically manufactured equipment.

The current ease of doing business climate in the country is still a limiting factor in decision-making by large manufactures to enter in India. While the government has taken substantial measures to provide fast tracking and ease-of doing business for companies looking to invest in the country, similar focus and urgency is required to resolve day-to-day operational issues that companies face while dealing with the government.

According to T R Dua, Director General, Taipa: “Easy market access and preferential market access are the most critical elements for the successful commercialisation of the domestic products. Domestic makers cannot attain scale and size of global majors till they start receiving strong support from the government in this regard and also get financial support by way of dedicated funding, tax breaks on R&D, etc.”

The government must also consider funding of major telecom infrastructure/technology development, which have long gestation period, need high investments and fit into various telecom network roll out needs like mobile technologies.

Apart from this, it is important to highlight that the push on the design based manufacturing of infrastructure equipment is very much required.