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Tech giants eye India. Can it compete with China's manufacturing industry?

On Monday, the Chinese smartphone maker Xiaomi launched the Redmi 2 Prime, the first device from the company assembled entirely in India. Could India be ready to compete with China for the attention of the world’s foremost tech giants? 

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    Customers look at mobile phones on display at an electronics market in Shanghai, China, June 24, 2015. The call of the world's biggest smartphone market is proving irresistible for entrepreneurs in China, where even purveyors of concrete mixers, refrigerators and rock music are mimicking local trailblazer Xiaomi Inc with their own handsets.
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As the Chinese economy begins to decelerate slightly, big tech companies are turning their sights to India.

On Monday, the Chinese smartphone maker Xiaomi launched the Redmi 2 Prime, the company's first device assembled entirely in India. Meanwhile, Foxconn, a Taiwanese electronics manufacturing company, and one of the largest suppliers for Apple, also announced its plan to invest $5 billion over the next five years to build factories in India. The news has been hailed as a sign that Prime Minister Narenda Modi’s "Make in India" campaign, which aims to transform India into a hub for global manufacturing, could be paying off, and that India may be on the road to competing with China for the attention of the world’s foremost tech giants.

"It is the biggest market for us beyond China, it will someday be as big as China,” Xiaomi Vice President Hugo Barra, a former Google executive, said in a phone interview with Bloomberg Business last year. “We are coming into India with full force.”

Currently, manufacturing contributes around 18 percent of India’s economic output, compared to 31 percent in China. Moreover, China has a competitive advantage over India because many of the components that go into electronic devices such as smartphones have been built and perfected in Chinese factories, experts note.

“When Apple needs a new iPhone on short notice, the only factories that can quickly produce and assemble the required glass, chips and components are in China,” noted Charles Riley for CNN Money. “The Redmi 2 Prime, for example, be will be made at an existing Foxconn factory in southern India -- using parts imported from China.”

Still, rising labor costs in China are causing manufacturers to send feelers into other markets, and India is set to become the world’s second-largest market for smartphones in the next several years, surpassing the United States.

“China has been the engine of global smartphone growth in recent years, but China is now maturing and slowing,” wrote Linda Sui, director at Strategy Analytics, in a market forecast released in July. “India is fast becoming the next major growth wave. We forecast 118 million smartphones will be sold in India in 2015, increasing strongly to 174 million in 2017.”

And many tech companies appear poised to capitalize on this growing market. Google, for example, has also been investing in the Indian market and pushing to increase internet access in the country of approximately 1.2 billion inhabitants. In September 2014, the tech giant launched Android One in India, an initiative that aims to bring low-cost smartphones to many first-time users in emerging markets.

“We’re here really because 10 years from now a billion Indians will be online and when we have a billion Indians online we think that’s going to make a huge difference to the global internet economy,” Rajan Anandan, Google’s managing director in India and Southeast Asia, told the Financial Times.

Meanwhile, Chinese phone makers Huawei Technologies Co. and Oppo Mobile Telecommunications Corp. have announced that they too plan to begin producing some goods in India. And Samsung Electronics Co. said that it already invested around $80 million in an existing plant in India, and is looking to expand even further into the country, the Wall Street Journal reported.

India’s government, meanwhile, has pledged that it will continue to improve infrastructure and facilitate the entry of many large manufacturing companies into the country. Nonetheless, India will need to continue to expand if it is going to catch up with China’s already saturated market, observers say. And that will mean creating the facilities to manufacture all parts of smartphones and other electronic devices, not just assemble those imported from neighboring China.

“Right now we are assembling phones in India,” Xiaomi’s India head, Manu Kumar Jain, told the Wall Street Journal. “To manufacture the phone in India, the whole ecosystem would have to exist here. We’re hopeful that this will eventually happen.”

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