A big step for Xiaomi and a giant leap for India: smartphones made in Andhra

“Good morning, Vizag! We’re about to take a huge step forward here in India,” proclaimed the inimitable Hugo Barra, arms flung wide in front of a Xiaomi billboard you see as you walk out of the airport arrival terminal in Visakhapatnam (long form of Vizag), a coastal city in the south Indian state of Andhra Pradesh.

A logo in a corner of the billboard gives a clue of what it’s about: “Make in India.” This is an initiative launched by Indian prime minister Narendra Modi to make the country a global manufacturing hub. India provides IT services to the world, but manufacturing has been stunted by policies that protected local industry, prevented scaling up, and discouraged foreign investment. The new government elected last year has vowed to change that.

Xiaomi’s announcement of a smartphone manufacturing unit in Andhra Pradesh is therefore a giant leap for India, not just Xiaomi. “Manufacturing smartphones locally is a significant step towards incorporating Xiaomi into the fabric of India in the years to come,” said Hugo Barra, while unveiling the Redmi 2 Prime as its first smartphone to be made in India.

Red hot market

India is a red hot market for smartphones. A Strategy Analytics report released last month says India will overtake the US in 2017 to become the second largest smartphone market after China. “We forecast 118 million smartphones will be sold in India in 2015, increasing strongly to 174 million in 2017,” says Linda Sui, director at Strategy Analytics.

And yet, none of these hundreds of millions of smartphones being sold in the country were being made in India, until now. They’re mostly sourced from China, Taiwan, or Korea. Apart from the lost opportunity in investment, jobs, and revenue for the country, the supply from China also creates bottlenecks and escalates costs for the smartphone vendors, whether it is Xiaomi of China or homegrown rival Micromax.

Mi-hungry Indians

Mi fans queue up to attend Mi 4i launch in Delhi.

Xiaomi has left a trail of frustrated fans since it launched its phones in India last year, as its flash sales barely made an impression on the surge in demand. The Chinese vendor prides itself on making state-of-the-art smartphones with specs comparable to higher priced handsets from its Korean rival Samsung, whom it overtook in China recently. But replicating that in India will require local manufacture. Only then can it scale up in India without burning cash on discounts.

To begin with, Taiwanese manufacturer Foxconn, who is one of Xiaomi’s main partners, will assemble the Redmi 2 Prime handsets at its plant in Sri City, Andhra Pradesh, with most of the parts coming from suppliers in China. But in the long run, Xiaomi will build up a local supply ecosystem.

Foxconn to invest US$5 billion