India: A Global Force in Mobile Phone Market

India is one of the largest consumers and manufacturers of mobile phones in the world. In fact, after China, India stands at the second spot, both in terms of mobile phone manufacturing as well as sales.  In 2018, India had around 1.17 billion mobile phone users and in terms of manufacturing, India witnessed a total production of 225 million units in 2017-18.

The growth has been staggering as India had only two mobile manufacturing units in 2014 and today the number stands at 268. Also, India now accounts for more than 11% of mobile phone manufacturing, which is a steep rise from a mere 3% in 2014.  An estimated 95% of mobile phones sold in India are made domestically and this rapid growth has made India a global force in the mobile phone manufacturing market. The main factors contributing to India's dominance in the mobile phone industry are increasing population, infrastructure for domestic manufacturing, high consumer demand, affinity with upgrades, government initiatives and a surge in investment from global brands. The chart below depicts the top country rankings when it comes to number of mobile phone users.

Market share and Major Players

This surge in demand, scope, investment and growth is somewhat driven by smartphone manufacturers setting up their manufacturing plants in India. Few of the key players include Foxconn (manufacturer of electronic products for Blackberry, Nokia and Xiaomi), Samsung, Gionee, Xiaomi, Videocon, Intex, Lava, etc. Companies now understand that it is more profitable and convenient to manufacture domestically than to rely on imports.

Ministry of Electronics and Information Technology implemented the Phased manufacturing program (PMP) in 2017 and National Policy of Electronics in 2019, which made it conducive for companies to produce domestically. These policies had set up an ambition of 1 billion handset production and $400 billion worth of electronics production by 2025, and as of date, market growth has been in line with these targets.  This is turning India into a robust indigenous cellphone manufacturing ecosystem where domestic and international players are competing for greater market share.

In 2019, the market share among top smartphone brands is as follows:

The top five brands account for a cumulative share of around 87% whereas the other brands are limited to 13%.

The Paradigm Shift: Emergence of Chinese Players and Disappearance of Indian Manufacturers

As evident in the market share numbers above, India’s smartphone market today is dominated by Chinese players such as Xiaomi, Oppo, Vivo and RealMe. In 2019, Xiaomi, Oppo, Vivo and RealMe alone occupy more than half of the Indian mobile phone market.  Indian players like Micromax, Intex and Lava had a market share of 15%, 10% and 6.8%, respectively, at the end of 2015. Today the combined share of these three domestic players is less than 7%. So, what went wrong?

There are many factors which have contributed to this paradigm shift. The major ones are:

a. Failure to Recognize 4G Potential: Indian smartphone players entered very late in the 4G segment. They continued to push 3G to the consumers whereas Chinese players like Vivo and Oppo launched 4G enabled devices in the market. A big disruption was caused by Reliance's Jio, which also launched its own LYF smartphone brand, supporting 4G VOLTE. The affordability and marketing of Reliance Jio (both in terms of its network services and LYF device) created waves in the Indian market, encouraging manufacturers and users to see 4G as a superior alternative to 3G

b. Underestimating Chinese Original Equipment Manufacturers (OEMs): Indian smartphone manufacturers were very confident about their distribution networks and their understanding of Indian market. They just didn't believe that Chinese players could replicate their model so efficiently and quickly. In addition, Indian players failed to create a brand pull with the consumers. So, when Chinese companies started offering phones with better features at competitive prices, consumers jumped ships easily and the fate of Indian smartphone makers was sealed.

c. Lack of Innovation: Indian smartphone makers didn't invest much in upgrading their cellphone features like camera performance, design, processor efficiency, etc. Chinese companies jumped on these initiatives and captured the consumer mindset with impressive features offered at competitive prices. Lack of innovation cost Indian smartphone makers dearly.

However, outlook of mobile phone market is still promising for domestic players. Indian smartphone makers can invest in organic growth strategies and refocus on design and quality to regain their lost customer base. Around 450 million feature phone users will upgrade their handsets in the coming two to three years and with proper planning, Indian smartphone makers can tap into this opportunity.

Standards and Regulation Related to Import of Chips Used in Mobile Phones

India is at the forefront of smartphone manufacturing, however, a large portion of these phone components are imported from abroad. India imported more than $13 billion worth of cellphone components in 2018. This also implies that manufacturing in India is largely assembly of the crucial parts coming from abroad.

To encourage domestic smartphone manufacturing initiatives, Government has introduced a differential excise duty regime. Under this regime, Government levies a 12.5% custom duty and countervailing duty (CVD) to imports. Domestic producers have the choice between 12.5% excise with VAT exemption on smartphone components (like chips) and a lower excise duty with no VAT exemption.

In addition, Government has also established a zero duty Export Promotion Capital Goods (EPCG) scheme under which components entering the country for pre-production, production and postproduction do not attract any custom duty.

Make in India and Electronics Manufacturing

The Indian electronics industry is a powerhouse and one of the largest and fastest growing industries worldwide. Over recent years, Indian electronics industry has been strategically shifting from a consumption model to a manufacturing (and then consumption) model. The ‘Make in India’ initiative has been instrumental in driving this change by providing lucrative opportunities to investors in terms of infrastructure and ease of doing business.

The wave of manufacturing growth is attributed to the large working age population, which is predominantly young (India has a median age of 27 years), making India an attractive destination to global brands.

Challenges for Manufacturing Mobile Phones in India

‘Make in India’ cannot succeed without meeting productivity challenges faced by the industries. There has been an increasing gap in quality standards when it comes to production plants and the skillsets of the employees working in those plants often doesn't meet the international standards. There is an urgent need to upscale those plants and upskill the workers in order to keep pace with the demand.

The Essential Steps for Smartphone Manufacturing and Assembly

Now that we have discussed about smartphone as a market, let us also look at smartphone as a device and understand its key components and how it is manufactured.

How are the ICs created?

ICs are made on thin silicon slices from which individual IC chips are cut apart. The manufacturing takes place in a clean room where strict laboratory conditions are maintained. The air is filtered from any contaminated particle, and light too, is filtered as certain ICs are sensitive to specific frequencies of light.

The following processes are typical while preparing ICs

1)      Silicon wafer preparation

A thin cylindrical ingot of silicon is heated to its melting point of 1,440 degrees Celsius. Heating ensures that all impurities are removed. The end product is a cylindrical ingot of purified silicon, with its bottom cut off. A wafer slicer then cuts off the ingot to create a thin round wafer of silicon.

2)      Masking

The dimensions of IC are much smaller and usually many layers of ICs are superimposed on each other. The design of each layer is first created on a drafting machine and the subsequent image is created as a mask.

3)      Doping

It is the introduction of impurities into the ICs so that the electrical, optical and structural properties of the ICs can be modulated. The impurities added are known as dopants. 

4)      Creating Successive Layers

Every IC chip in each successive layer goes through this process of masking and doping. Silicon dioxide is added to act as an insulator between the layers.

5)      Making individual ICs

The scores of individual chips now exist on this thin wafer. A diamond cutter slices and creates lines between individual chips on the wafer.

Other Materials used in Mobile Phone Manufacturing:

1) Glass

The glass used in mobile phones is generally made from aluminum oxide, silicon oxide and indium tin oxide.

2) Metals

The common metals used in mobile phone manufacturing include:

·         Aluminum alloys - For mobile cases

·         Lithium cobalt oxide and carbon graphite - For batteries

·         Platinum and Tungsten - For circuitry.

3) Plastics

Conclusion

High consumer demand for innovative products shaped India's mobile phone market over the last decade. With 5G looming in the horizon and the market leaning towards features like camera numbers, bezel less phones, motion sensors, etc., mobile phone manufacturers must constantly upgrade their product portfolio to support the necessary applications and services. Features such as foldable devices and wireless charging are going to become mainstream and consumer demand for these services at competitive prices will skyrocket. Presently, India's mobile manufacturing industry is well positioned right now to evolve to these demands. However, the applecart can easily turn if the industry doesn't adapt itself to international standards in terms of innovation, scale of its efficiency and skill of its employees.