India as the New Destination for East Asian Assembling and Its Implications

Dr. Amitendu Palit's picture

Chinese smartphone producer Xiaomi has tied up with Taiwanese electronics contract manufacturer Foxconn to manufacture mobile phones in India. The first batch of Xiaomi phones (Redmi 2 Prime) assembled by Foxconn in India’s southern state of Andhra Pradesh was launched recently. Greater low-cost phone production by Xiaomi in collaboration with Foxconn will be enthusiastically welcomed by Indian consumers given their voracious appetite for mobile phones:

the number of mobile phones users in India is expected to increase to 650 million by the end of the decade from around 150 million now. While telecom services in India have expanded rapidly due to the presence of multiple operators offering a variety of value-added services, domestic mobile phone manufacturing capacities are, in contrast, quite limited. As a result, Indian consumers have had to depend heavily on imported mobile phones. Xiaomi phones would address this deficit to a large extent. Their manufacturing, though, would have limited value addition in India given Foxconn would be assembling the phones locally using imported parts and components. However, over time, there could be greater sourcing of parts from local vendors and development of capable component manufacturers as has happened following local sourcing of components by global automobile assemblers (e.g. Hyundai, Toyota, Suzuki) based in India. The Xiaomi-Foxconn venture also might signal the emergence of India as a major regional assembling hub for smartphones, a possibility highlighted by Lenovo’s recent decision to undertake assembly work with Flex in Chennai. This appears a strong possibility given China’s economic slowdown and rising labor costs that are encouraging firms like Xiaomi and Foxconn to scout out new assembly locations. The relocation of more investments to India over time might help the Indian economy grow at much faster rates than China with long-term implications for the economic and strategic balance of power regionally.