Samsung on Monday launched what is being touted by the company as “the world's largest phone factory”. To some it may have come as a surprise that the sprawling manufacturing facility is located in Noida, an area not very far away from the bustling Indian capital, New Delhi.
It's a vote of confidence by the South Korean conglomerate in Asia's third-biggest economy and Indian prime minister Narendra Modi and South Korean president Moon Jae-in very rightly led the inauguration ceremony to mark the significance of the occasion. The investment of hundreds of millions of dollars by Samsung represents a leap forward for India, which has aspirations to become a global manufacturing hub.
The Samsung smart phone plant, perhaps, is first among many to big-ticket ventures to come to India, which is very keen to boost the foreign direct investments and diversify its largely agrarian economy.
At the event, HC Hong, the chief executive of Samsung India, spoke about the company's “dream of making India a global export hub for mobile phones”.
The country, mostly known for its flamboyant film industry and its tech geniuses, is not really recognised globally for making mobile phones. People in many parts of the world, actually, hardly associate India with a growing smartphone industry. And yet, India has quietly become the second-largest phone maker after China, according to data from the Indian Cellular Association.
“Foreign brands are manufacturing in India because they are seeing the great growth and potential of the Indian market and the cost effectiveness involved,” says Dushyant Jani, the founder and chief executive of Mobclixs Technologies, a digital media firm based in Mumbai. “There's huge potential in India in terms of mobile phone manufacturing.”
He points out that Samsung's expansion comes at a time when other hubs such as China are becoming more expensive for manufacturing.
India's mobile phone manufacturing industry is expected to reach 1.3 trillion rupees (Dh69.7bn) by the end of this year, according to the country's electronics and information technology ministry.
It is not just Samsung that is tapping the growing Indian phone market. Competition is fierce: Apple is already making its iPhone SE handsets in India, and rumours are abound in the local business press that the California-based tech giant has one of its contract manufacturers producing the iPhone 6S out of a facility in Bangalore. Chinese brands Xiaomi and Oppo are also expanding their manufacturing operations in India. Then, there are homegrown phone makers such as Micromax and Karbonn, which are jostling for their share of the market amid the expansion of Chinese brands that are also trying to break into the market with low-cost smartphone offers.
“In the last four years, the number of mobile manufacturing units has increased to 120 from just two, [some] four years ago,” Mr Modi said in his speech at the Samsung inauguration.
This is good news for India's economy and for Mr Modi's Make in India campaign, which aims to boost manufacturing in the country to boost jobs and expand its gross domestic product where growth came under pressure last year. The programme, has otherwise been slow to get off the ground, with issues including red tape and land acquisition still presenting hurdles for many firms that may want to set up manufacturing facilities in the country.
The new Samsung facility has created 2,000 jobs and involved an investment of 49bn rupees, that could double Samsung's capacity for making handsets in India to 120 million units per year by 2020. About 30 per cent of the devices made at the facility are expected to be exported. The presence of such companies in India also help with the transfer of skills to the workforce, boosting knowledge and capabilities in the sector. The government says that directly and indirectly Samsung provides employment for 70,000 people in India.
The numbers reveal why companies are so keen on manufacturing phones in India. In the third quarter of last year, India overtook the US to become the world's second largest smartphone market after China, with more than 40 million handsets shipped, representing an increase of 23 per cent over the same period the previous year, according to Singapore-based research firm Canalys.
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An expanding economy is also helping, with GDP growth gathering pace to 7.7 per cent in the first quarter of the year, making India the world's fastest growing major economy, according to official data.
“There are close to 100 mobile device brands sold in India, with more vendors arriving every quarter,” says Ishan Dutt, an analyst at Canalys. “Growth [of sales] will continue.”
The fact that smartphones have become much cheaper – with Indian and Chinese firms offering budget devices - is helping to drive demand in India. Cut-throat competition between the country's telecom operators has driven down data costs, making using smartphones affordable for more of the population. About half of India's mobile phone users still have basic feature phones, according to industry estimates, which creates enormous potential as customers upgrade their devices in a country with a population of more than 1.3 billion.
“Phones in India are flying off shelves,” says N Chandramouli, the chief executive of TRA Research, a brand insights firm based in Mumbai. “The Indian market for phones is extremely complex, extremely competitive. You've got giants, Samsung, Apple, which have been well entrenched for years since they've come here. You've also got newcomer Chinese brands like Oppo and Vivo, which have grown.”
The rivalry is so aggressive that China's budget phone maker Xiaomi has toppled Samsung to grab the largest share of the price-conscious market. Data from Hong Kong-based Counterpoint shows that Xiaomi had a 31 per cent share of smartphone shipments in India in the first quarter of 2018, up from just 13 per cent a year ago.
Xiaomi phones are made at six factories in India, five of which belong to Taiwanese electronics contract manufacturing company Foxconn.
But there are challenges when it comes to phone manufacturing in India, and questions have been raised about whether it should even be referred to as manufacturing, given the fact that most of the components are shipped in from overseas.
“Manufacturers in India have a high dependence on imported components, which limits the manufacturing value add,” says Mr Jani.
Analysts say that India will have to boost its manufacturing of components to really be an aggressive force in the space and to increase the economic impact of the industry.
Meanwhile, with Chinese brands expanding their base in India, local manufacturers are under threat.
“Large investments by Chinese players towards brand building and manufacturing facilities in India depict their long term strategic intent,” says Akash Krishnatry, an analyst at India Ratings and Research, which is part of Fitch Group. “Established Indian vendors will face difficulty in sustaining, despite the early mover advantage and a more diversified product profile. Indian smartphone makers have been slow in reacting to ongoing product innovation in the market and are constrained by limited marketing budgets.”
Samsung is also fully aware of the threat it faces from Chinese phone makers in India. While ramping up its manufacturing capacity in India, alongside its pricey flagship models, it will also produce cheaper smartphones priced at under $100 as it fights to dominate India's phone sector.