Chinese smartphone makers may need to be more careful about capacity expansion in India now that the nation has become the world’s No.2 mobile phone producer.
Data from the Indian Cellular Association showed annual production of handsets in India rose from 3 million in 2014 to 11 million in 2017, according to Indian news agency PTI.
Many of the handsets sold in India came from China-based vendors, which had a collective market share of 53 percent in 2017, compared with 34 percent in 2016, according to market research firm IDC.
Those vendors may need to take a short break to rethink their strategies in India.
Although the Indian smartphone market grew by 14 percent in 2017, as the IDC data showed, it’s possible that investing to expand output might lead to overcapacity. Chinese handset manufacturer Xiaomi in 2017 announced the establishment of a second plant in India, which means it will have a combined production capacity of one phone per second during operating hours.
Some observers estimate the maximum capacity of Xiaomi’s plants would exceed total production in the industry in India last year. It seems the production capacity of the Indian mobile phone sector is growing faster than consumer demand.
The investment boom and heated competition among Chinese smartphone vendors has resulted in frequent price wars, which squeezed profit margins. Amid concern over a saturated market at the high end, untapped demand in the lower-tier cities remains the key attraction for China-based vendors in India. That’s led to a decline in the rate of return on fresh investment.
India’s smartphone industry might soon encounter a bottleneck if the country tries to become self-sufficient in meeting domestic consumption. Sustainable investment expansion cannot be achieved unless India becomes a labor-intensive processing base as well as an important exporter of smartphones.
Achieving these goals will not be easy. At a minimum, there is a need for deep economic reforms to boost the development of an export-oriented economy.
Following a boom in outbound investment, China-based vendors should wait to see if India can make a successful transition to an export-oriented economy, and that means pausing investment to avoid falling into a price war.
The author is a reporter with the Global Times