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CORONA Pandemic gives chance for India to become manufacturing alternative to China

India's smartphone industry is currently in the eye of the storm for two major events: A COVID-19 induced meltdown that is estimated to give a $2 billion uppercut to the industry in terms of revenues lost and possibility of more manufacturing migrating from China to India now that dependance on the Chinese has been badly exposed. In other words, India's short-term pain may lead to much needed long-term gains. After a 27% year-on-year decline in smartphone shipments in March and an expected 60% drop in April. This predicted drop only takes into consideration India's 21-day lockdown however, with the country being open to further losses if the situation worsens and the lockdown is extended. Despite this, along with India's infrastructural inadequacies, companies like Apple that have been dead against making their phones here historically, have finally capitulated to opening up their manufacturing shops in the country. Its contract manufacturer, Foxconn, has started making the Iphone XR in Chennai and plans to roll out the entire 11 series from India as well. Moreover, contract manufacturers like Foxconn, Flex, and Wistron -- they collectively work for most of the world's smartphone makers -- are already present in India, making smartphones for everyone from Xiaomi to Lava. In fact, the hit to manufacturers is estimated to be around $2 billion thus far. Phone companies like Xiaomi and RealMe have pleaded with the government to allow them to function as an "essential service" so they can deliver handsets during the lockdown. Xiaomi explained that this was not about generating revenue, but about putting an essential tool in people's hands during an emergency, especially when you consider that at least 40% of phone sales are attributed to first-time buyers. As phone-obsessed as India is, I'm not so sure the government will cater Xiaomi's pleadings. Lured by cheap labour, the massive local market, and the opportunity to cut hefty import duties, smartphone companies and their contract manufacturers finally started to voyage to India.  Iphone assemblers like Pegatron, for instance, are currently in active pursuit of an Indian unit. Other manufacturers like Meiloon, which makes speakers for companies like Harman, are also looking to jump ship and set up shop elsewhere. Make no mistake, no one is going to replace China anytime soon -- the notion of India doing so is almost laughable. But 5 years from now, who knows how things could turn out. With the right government policies and a huge push towards improving infrastructure, along with the creation of a skilled local labour pool, a new world could arise where India becomes a manufacturing hub. In a way, thanks to COVID-19, India could become the biggest benefactor of companies wanting to de-risk their China-based manufacturing. A recent UBS report has gone so far as to label India as the leading destination for companies that want to move out of China as India's foreign direct investment doubled in 2019. The migration involved not just smartphones or electronics, but a wide range of industries from food to pharmaceuticals. There's also no doubt that China's humongous advantage of having a manufacturing ecosystem and interlinked supply chains, which took a few decades to build, will still be here after the outbreak ends but If India, wants to replicate what China has, now may be the perfect storm for the country to begin working towards this promise.


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