As cellphone manufacturing industry consolidates, small players shut shop

Topics Mobile phone

An employee tests the camera of a mobile phone. (Photographer: Karen Dias/Bloomberg)
Nearly half of the country’s mobile phone manufacturing units are inoperative due to the growing consolidation that is under way. A handful of big players dominate the field. Smaller players are closing shop.

According to the data available with the Bureau of Indian Standards (BIS), which maintains the operational status of manufacturing units under a compulsory registration scheme, 68 of the 128 mobile manufacturing units for which the data is available are inoperative as of October.

This data matches the estimates by the Indian Cellular and Electronics Association (ICEA) whose members are mobile device and component manufacturers. It estimates that out of the 128 mobile phone manufacturers who existed two years ago, only 60-70 of them are still around — a fact confirmed by the large-scale closure of manufacturing units last year.  

Interestingly, for 29 of the non-functioning mobile manufacturing units, information is available with the BIS on what brands they manufactured. Around 55 per cent of these units were making Indian brands, which is understandable considering the sharp decline in market share of Indian brands against foreign brands in the past few years.

The smaller Chinese brands selling at the lower end of the market have also been hit, with 31 per cent of the units manufacturing for the Chinese. The rest were manufacturing for other foreign brands.

Explaining the trend, ICEA Chairman Pankaj Mohindroo said a consolidation in mobile manufacturing was responsible. “There is a slowdown in feature phone (2G) manufacturing due to the reduction in demand and global consolidation in the past two years, with substantial consolidation of the top six-eight smartphone brands. The same thing is being witnessed in India,” said Mohindroo.

But in India, Mohindroo added, other factors had accentuated the trend. “The process was hastened by hyper competition and predatory pricing from e-commerce and a 4G operator,” he said.

The 4G operator he refers to is Reliance Jio which, with its aggressive offering of a 4G feature phone (adding about 3-4 million per month) bundled with data, has adversely impacted smaller manufacturers making 2G phones as consumers shifted from 2G to 4G.  

Also, with a large percentage of the sales of mobile phones shifting to e-commerce sites, the ones that sold well on these sites were well-known brands which had a marketing edge, leading to the death of the smaller, not-so-well-known brands from smaller manufacturers.

ICEA says the consolidation is reflected in the fact that though the number of manufacturing units has come down, the number of mobile phones made in India has gone up from 225 million units in 2017-18 to 290 million in 2018-19 — a healthy growth of 29 per cent. In value terms, it has gone up by 37 per cent to Rs 180,000 crore in 2018-19.

The story of consolidation is also repeated in component manufacturing, which was the key to the government’s phased manufacturing programme which most stakeholders now say needs to be shelved and the focus shifted from import substitution to export growth.

For instance, while there are over 65 battery pack units, estimates suggest that 50 per cent of them are inoperative. Battery packs were one of the key elements incorporated into the Phased Manufacturing Programme in India and on which import duties were hiked.

A similar story can be seen in charger manufacturing units. More than 55 per cent of the 130 units on which the data is available are inoperative.

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