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Apple and Blackberry join the Make in India drive as the newest stakeholders: Is this a boon or bane?

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shravanipt
shravanipt
A lawyer-turned-freelancer with an impassioned zeal for the arts and the law, she is currently exploring both her interests and mostly writes on all things legal. An avid reader, besides law, she particularly follows the latest happenings in business, media/entertainment, health and nutrition, and other trending news. Currently she writes on start-ups and intellectual property laws for Quick Company (dealing in company, LLP Registration and MSME Registration and associated activities); on employment, IT, property, constitutional, family, consumer, health and other laws, and also ghost-writes on a variety of non-legal content for various local and overseas clients.

Close on the heels of California-based tech-giant Apple Inc.’s announcement that it will make iPhones in India in association with Taiwanese OEM manufacturer, Wistron, Canadian smartphone maker Blackberry has charted a surprise comeback by partnering with Delhi-based Optiemus Infracom over a 10-year brand licensing deal, thus becoming a contributor to the ‘Make in India’ project.

While Apple’s focus is on assembling operations in Peenya (lying on the outskirts of Bengaluru) due to start this April 2017, Blackberry’s deal with Optiemus Infracom will give the distributor exclusive rights to design, manufacture, sell, promote as well as provide customer support for Blackberry handsets in India, Sri  Lanka, Nepal and Bangladesh. This follows the company’s earlier global licensing agreement signed with TCL Communication in December last year spread globally excepting India, Sri Lanka, Nepal, Bangladesh and Indonesia.

A former market leader in business phones and a once-sinking enterprise in the wake of Android smartphones and iPhones, Blackberry seems to have bounced back in style with a newfound concentrated focus on security software. This strategy finds place in their recent deal with Optiemus whereby the company has agreed to license its security software and services suite as well as related brand assets, while continuing to exert control over development and maintenance of security and software solutions plus the regular security updates sent directly from Blackberry.

Incidentally, the manufacturing operations on the handsets will also take off from a Wistron facility in India, in furtherance of an existing contract between Optiemus and Wistron.

Other Smartphone-makers flocking to be a part of the Digital India playing field

It is not just Apple and Blackberry that hail India as the fastest-growing smartphone market surpassing the U.S. and China, but other foreign players as well that are increasingly trying to get a foot in the door and grab a fair share of market exploits in the country’s expanding economic potential.

For example, in August 2015, Chinese handset-maker Xiaomi tied up with Foxconn to manufacture phones at Sri City in Andhra Pradesh’s Vishakhapatnam.

In 2016 another Chinese player introduced its first smartphone F103, as a product of its tie-up with Foxconn in Sri City. China-based tech-company Vivo set shop at Greater Noida, Delhi to scale its manufacturing operations way back in 2015 and has till date invested roughly 125 crores in its expansion strategies.

Where South Korea-based LG Electronics introduced the LG K7 and LG K10 models, the company’s first Made in India smartphones in April 2016; Chinese networking and telecommunications equipment and services company Huawei partnered with Flex to manufacture smartphones in a Chennai manufacturing unit last September.

Ahead of the pack racing ahead in this segment, Lenovo (leader in the laptop, notebook, and tablet segment) and Motorola (acquired by Lenovo) had begun manufacture of smartphone Moto E in Sriperambudur, Chennai in August 2015 itself. With separate manufacturing lines at the same facility, Lenovo went ahead and later introduced its K3 Note phablet as well, which seemed to have opened to excellent reviews.

What this means for the digital space in India?

Apart from the apparent economic boost and increased job opportunities such participation of foreign entities in the ‘Make in India’ project would generate, a “cutting edge technology ecosystem and supply chain development” is expected to be fostered as well through manufacturing operations conducted by foreign players.

With import of electronic goods falling to the tune of US $44billion (Rs. 3 lakh crore), the Indian government has recently been working to scrap imports altogether by 2020; the result being, a focus on assemblage operations in India, of the more than two-third of smartphones shipped between April to June 2015. Current import duty on phones in India stands at 12.5%; evidently, bringing production of these electronic devices to India will reduce the costs for foreign smartphone-makers, thus, helping them price smartphones cheaper than they would otherwise. This is a win-win scenario for both foreign investors as well as Indian consumers.

Mobile phone component manufacturing which has till date remained largely dependent on China and is at a nascent stage, will, as an integral part of the technology ecosystem open up as a lucrative market for entrepreneurs in this sector. This is turn will raise India’s credibility on the manufacturing aspect on the international level, in addition to IT services that it has since years outsourced and generated huge revenues from.

Steps the Indian government has taken and the Challenges that remain

Recently the Indian government pumped in US$1.4 billion (Rs. 10,000 crore) under the Electronics Development Fund to encourage entrepreneurs in the electronics sector. In the present year budget, the government enhanced allocations for Modified Special Inventive Package Scheme (M-SIPS) and Electronic Development Fund (EDF) to Rs. 745 crore for 2017-18, which are designed to aid companies manufacturing in electronics, telecom, automatic, and consumer electronics.

Way back in 2012 the government had launched the Electronic Manufacturing Clusters (EMC) scheme which was meant to boost sophisticated infrastructure and thereby attract further investments in the electronics systems design and manufacturing (ESDM) sector. This has led to 14 registered EMCs across the country.

An additional US$14 million is to be invested by component manufacturers into the ELCINA manufacturing cluster in Bhiwadi, Rajasthan which was originally launched by the central government and is slated to launch 18 other similar manufacturing clusters in different cities and towns. Companies investing in these clusters will be privilege to a host of benefits provided under these schemes.

The Phased Manufacturing Program (PMP) which outlines a variable duty structure for all three components- chargers, batteries and headsets, will now attract a concessional duty of 2 percent instead of the earlier 12 percent. A seamless credit system in the supply chain under a common head of the proposed Goods and Services Tax laws will make operations smoother on many levels and encourage domestic entrepreneurs as well as foreign investors by reducing production costs, lowering import costs and generally facilitating flexibility in obtaining credit on goods and services.

Despite all the listed benefits and concessions provided under the various schemes launched or proposed to be launched, India as a smartphone hub still turns out to be expensive due to a number of factors. Essential stages of design operation, hardware testing and tooling are still based overseas. End-to-end manufacturing of phones is still problematic due to limited component supplies, a struggling ecosystem, hindered access to contemporary research and development and a dearth of talent are also responsible for slowing down the process.

Though a once-dominant Blackberry in playing it safe in its revival phase is now moving away from phones to focus more on software and security services, and will likely not try to bargain for more when working around restrictions and conditions of the Indian market; Apple has a host of demands that seem to be in excess of what the Indian government can comply with to help it set up base in India.

Of the many demands it has made, a few noteworthy ones are: a 15-year customs duty exemption on raw materials, components, capital equipment and consumables for smartphone manufacturing and services/repair for domestic and export markets, a relaxation on rules that would allow imported defective iPhones (older than three years old) to be repaired and exported again, relaxation in labeling rules, certain changes in stringent customs procedures to smoothen the manufacturing process, and some tax incentives.

While no mobile manufacturer has previously approached the Indian government for similar or other additional incentives and the government has granted no such sweeping concessions to any other foreign investor till date, it is yet to be seen how far it is willing to concede to these demands to accelerate the Make in India drive by joining hands with one of the most powerful tech giants in the world. In any case, it is certain that the road to getting foreign companies to contribute to India as equals and not as superior entities, and function on fair, universal standards while working towards mutual profits, is an arduous task indeed.

On the other hand, despite the government’s many schemes designed to introduce a level-playing field for all (domestic entrepreneurs as well as foreign companies), Indian phone makers still lag behind when it comes to beating South Korean Samsung and other Chinese players in this sector, namely, Xiaomi, Oppo, Gionee and Vivo (specifically modelled for the Indian urban target and competitively priced). Where Samsung continues to lead the smartphone market with a whopping 25.1 per cent share, the Chinese newcomers too continued to climb up to some of the top spots by changing strategy at the right moment and veering towards offline sales to build on the revenue numbers, instead of pushing in solely through online sales to gain profits.

In fact, reports show that in September 2016, Oppo overtook Apple in sales value, capturing 8% of the Indian market as opposed to the meagre 2% secured by Apple. Its approaches include setting up thousands of retail points and multiple service centres across different cities and towns, all targeted at nation-wide coverage of the smartphone market.

Needless to say, when even Apple, despite being a powerful contender globally continues to struggle in India and is facing stiff competition from its Chinese rivals, the situation for Indian phone makers is graver as they face insurmountable pressure to put up a fight and get back to their days of glory.

Indian competitors Micromax, Intex and Lava are fast losing ground and slipping back into oblivion amidst the flurry of Chinese smartphones thronging the market. In the quarter of 2016, the collective share of these three brands had fallen to around 11 per cent from the 30 percent in 2015. In fact, not even Yu Mobiles, the sub-brand of Micromax managed to make an impact on Indian consumers.

As of now, domestic companies need to step up their game in the hardware design and software implementation aspects along with competitive pricing to gain back their lost spots and be at par with foreign entities when it comes to consumer choices. At the outset, a regulated, seamless tax structure, federal government initiatives and elimination of red-tapism are needed to manifest the Make in India campaign in the most efficient way possible.

The balance eventually, would be to ensure the core purpose of Make in India does not get defeated at the hands of foreign expertise and infrastructure; and so, the need of the hour would be to develop domestic know-how in the digital space, while attracting foreign investment so it fosters a cooperative environment rather than an increasingly foreign technological monopoly in the home ground.

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shravanipt
shravanipt
A lawyer-turned-freelancer with an impassioned zeal for the arts and the law, she is currently exploring both her interests and mostly writes on all things legal. An avid reader, besides law, she particularly follows the latest happenings in business, media/entertainment, health and nutrition, and other trending news. Currently she writes on start-ups and intellectual property laws for Quick Company (dealing in company, LLP Registration and MSME Registration and associated activities); on employment, IT, property, constitutional, family, consumer, health and other laws, and also ghost-writes on a variety of non-legal content for various local and overseas clients.
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