There has been a surge in investment announcements in the electronics manufacturing sector in India. Following last year’s announcements of two chip manufacturing units being set up, it is now the turn of the mobile phone industry. Mobile phone companies, including global leaders such as Samsung and Xiaomi and Indian MNCs such as Micromax, Spice Mobiles, Lava and Intex, have been announcing new factories and expansions.
Some ₹4,000 crore fresh investment is estimated to be under execution. This will generate jobs and help reduce import dependency. In 2015, IDC estimates that smartphone shipments will touch 100 million units, with the overall industry seeing shipments in excess of 260 million phones. Every vendor in the world is focused on investing in India. . Juxtaposed with a slowdown in the China market, it is no surprise that we are seeing vigorous interest from Chinese vendors. Another growth trigger is coming in the form of large scale 4G rollouts.
The market is hyper competitive and moves very fast. The leading vendors launch over 50 models a year. The average model is in the market for less than six months. The life cycle of the feature phone or candy bar phoneis even shorter. The value and feature conscious Indian consumer has demanded intense innovation from the vendors, and they are delivering. Expect more innovation, more value driven products and even shorter shelf lives and, therefore, more factories in India assembling phones.
Investment promotion schemes from the government have come at the same time that Chinese labour costs are spiralling. The compound annual growth rate of Chinese wages has been in double digits this decade and has triggered some companies to move factories back to the US. It has also made India relatively more attractive. IDC has seen an upsurge in inquiries from global clients in the context of the Make in India initiative. .
The local smartphone industry is not given its due. It is perhaps the first time Indian companies have been internationally successful in an electronics category in a completely open marketplace. They have successfully competed with, indeed out-competed, the likes of Microsoft, Sony and others. According to the most recent market numbers, three out of the top five phone vendors in India are of Indian origin (Micromax, Intex and Lava).
The new manufacturing investment phenomenon is a result of market growth, scale, government programmes and hyper competition in the marketplace. The lessening attraction of China due to wage inflation and economic instability has also helped. The rise of the Indian vendors has undoubtedly had an impact as well.
Growing jobsGovernment forecasts reveal that electronics imports will exceed our import bill for petroleum by 2025. That will be $100-125 billion worth of imports: a bill we can ill-afford. IDC research shows that the government has not incorporated fully the impact of smart devices and smart appliances. So, the bill may be larger. In this context, the investment surge will lead to long-term foreign exchange conservation.
Contrary to popular belief, electronics factories create a lot of employment. When Microsoft (Nokia) shuttered its plant in Chennai, 8,000 people were employed there. Another 30,000 jobs were indirectly impacted.
According to a National Productivity Council report, the electronics manufacturing sector has already created 5 million direct jobs: its more famous IT services cousin employs a far fewer 3.4 million people approximately. These are significant numbers, which will grow, should the sector flourish.
Electronics manufacturing capabilities are at the heart of a digital society. It is also an enabling eco-system for the internet and other digital innovations: witness giants like Huawei, Lenovo, Alibaba, WeChat and others coming through from China.
Our collective vision of a digital future will not be realised by large-scale imports: we need manufacturing muscle. India needs to create at least two million net new jobs every year. Else, our demographic dividend will become a demographic curse.
The writer is MD (South Asia), IDC