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December 15, 2004

The rush to manufacture mobile phones in India

Businessworld magazine has published an article on why there has been a flurry of activity, interest and announcements in the recent times for manufacturing mobile telephone handsets in India.

So, whose's making (going to make) handsets in India?

Why India?

The sheer size of the Indian market, its frenetic growth rates, and above all, the fact that it conforms to global standards...The Indian mobile market is expected to add around 20 million new subscribers in 2004. At an average price of Rs 5,000 a handset, the Indian mobile market is worth Rs 10,000 crore ($2.22 billion) already...And it is still growing very fast.

In fact, the handset market is expected to grow at 35 per cent year-on-year on an average till 2010. In 2005, nearly 37 million handsets worth $4.2 billion are likely to be sold in the country. That will make India the third largest mobile handset market, after China and the US. By 2008, handset sales are estimated to touch 50 million, catapulting India as the second largest market.

It is this growth that global majors are hoping to cash in on. But they could still have continued to get their handsets manufactured outside India as they currently do. Except that a hitherto ignored variable, a policy decision by the Chinese government, has now altered the equation wholly in India's favour. China has been working on its own 3G standard, the TD-SCDMA. The Chinese government, by pushing this standard, hopes to save the country up to $10 billion in import costs and expensive 3G loyalties. But this would also mean that the handsets sold in China will not work on the standards followed by the rest of the world.

If handsets that cater to global standards cannot be sold in China, it also does not make sense to manufacture them there. Which explains why the global handset majors are setting up shop in the next big mobile handset market. A huge domestic demand also means economies of scale, which can be leveraged for exports.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.