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If 2004 was a year of mobile services, 2005 will definitely be a year of handset manufacturing in the country. The strong demand of mobile phones in the country has forced companies to set up manufacturing bases in the country that will cater to the Indian market and will also act as an export hub for upcoming opportunities. Since future growth is expected from African countries, India can act as a hub for South Asia, Africa, and other Asian countries, in the future.

Things are moving at supersonic speed on the mobile handset manufacturing in the country and 2005 will be a landmark year. Presently, EMS as well as handset vendors are busy finalizing manufacturing sites and partners. Some of them are in the final stages of rolling out handset manufacturing in the country.

In India, things started with a European EMS major, Elcoteq, announcing the setting up of mobile handset manufacturing in the country in Bangalore. Recently, LG Electronics, one of the late entrants in the GSM space, but number one vendor in the mobile space in India, also announced the setting up of mobile handset manufacturing in Ranjangaon, near Pune when its worldwide chairman and vice chairman was in the country. There are speculations that other EMS vendors, as well as handset vendors, are also evaluating handset manufacturing in the country and will soon announce their strategies in the months to come.

The Mobile Vision
Having consolidated its position in the consumer electronics and home appliances space for the last seven years, LG Electronics India is now actively looking at the mobile space and is making strategies to beat Nokia on the GSM turf, except in the low-end handsets' market. The company is eyeing a total revenue of $10 billion in 2010 which will contribute around 10 percent of its total worldwide turnover. Of which, mobile phones will contribute maximum: $3.5 billion, contributing around 35 percent to the overall revenue.

Presently, IT plus mobile phones contribute around 20 percent of LG India's revenues but in future it will contribute around 50 percent of their business, says Kwang-Ro Kim, managing director, LG Electronics India. On the handsets front, the company is planning to manufacture 20 million handsets by 2010 of which 50 percent, i.e., 10 million units will be exported to West Asia and Africa, he added.

The Factory
LG's second factory in India will be located in Ranjangaon, 50 km from the city of Pune. Spread across a 52 acre area, the facility will be used for mobile-phone manufacturing plus consumer electronics, IT, and home appliances product in the country.

"The Pune factory is in line with the parent's company strategy of using the Indian subsidiary as an export hub for several South Asian countries," said SS Kim, vice chairman and CEO, LG Electronics.

Considering the fact that there is no mobile phone manufacturing in the country and there are no vendors and suppliers, it was a really big decision for LG, feels Kwang-Ro Kim.

For mobile handset manufacturing, the company is planning to replicate its strategy on the consumer electronics and home appliances front. The company is planning to start with low-end models and move to high end as and when they get enough quantity.

To start with, the company will start with GSM handsets in January 2005 and will move to CDMA handsets in 2006. Both GSM as well as the CDMA factories will be co-located in Pune.

We will start in January 2005 with SKD (semi knocked down) and gradually move to CKD (completely knocked down) in the second half of 2005, says Kwang Ro Kim.

LG's R&D centers in Bangalore and Pune are a perfect fit to its manufacturing operations. The Bangalore center houses 400 plus people and focuses on making changes as per local requirements. The center has created software for Hindi SMS and is presently working on Tamil and Bengali language software for SMS. Bangalore center will focus on country adaptation for the export market whereas the Korea R&D center will focus more on base platform development.

In terms of cost, the manufacturing center will not provide any significant cost advantages but it will definitely help in faster rollout of products both in the Indian as well as global market, says Kwang-Ro Kim.

The Obstacles
Having set up its manufacturing base, the next big challenge for LG India is to create a component manufacturing base in the country, as it offers lot of flexibility in comparison to international sourcing. And it is not an easy task. Initially, it will start with front-end assembly and then move to sub-assembly level depending upon the consumption and the quantity assurance that Indian manufacturers can provide to component manufacturers. On the sub-assembly part the company is looking at component manufacturers for six major parts-LCD, key switches and key pads, SMT, IMI (processor and software), plastic casing, and accessories like battery and earphone, says SN Rai, general manger, corporate logistics and commercial, LG Electronics India.

Though, India provides a large market, government has to do a lot to encourage manufacturing in the country. First, import is a big hassle in the country as the average turnaround time for cargo clearance is around 15 to 30 days and sailing time is around 20 days. So, in total, cargo takes around 35 to 50 days. Considering the fact that mobile phone is a fast-moving product where one model is launched every seven days and every fortnight model becomes obsolete, government has to make amends so that companies can roll handsets at a faster pace. Second, even tax (central as well as local) structure is not conducive for local manufacturing in the country. Hope the government makes amend so that mobile manufacturing can gather steam.

Pravin Prashant