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Global technology companies such as Samsung Electronics Co. (005930), Apple Inc. (AAPL) and Sony Corp. (6758) are poised to see surging sales in India as the country’s anemic tech manufacturing sector can’t fulfill booming demand for TVs and smartphones.
The world’s fastest-growing market for consumer electronics has few homegrown makers of flat-panel TVs and no producers of mobile phones or the semiconductors and displays used in the devices. Last year, the nation of 1.2 billion people spent $14.2 billion importing screens and smartphones, accounting for 90 percent of demand, government data show.
India’s technology manufacturers haven’t kept pace with its software industry, which last year contributed 4.7 percent of the country’s $1.8 trillion gross domestic product. While the government is trying to support local output with subsidies, only foreign companies have the technology needed to benefit from incentives, according to India’s Department of Electronics and Information Technology.
“India got carried away with the success of software,” said Suresh Khanna, secretary general of India’s Consumer Electronics and Appliances Manufacturers Association. “We never developed newer, smarter technologies and largely ignored hardware.”
Assuming India’s economy grows at a 6.5 percent annual rate, the foreigners may be fighting for share of a market totaling 27 million flat-screen TVs by 2017, up from about 7.2 million this year, Khanna said in an interview.
Just a quarter of the TVs sold in India are assembled locally, by companies including Samsung and LG (066570) Electronics Inc., and none of the core components are manufactured in the country, Khanna said. No smartphones are made in India, he said.
“India’s situation reminds me of China 15 years ago,” said Roger Sheng, a research director at Gartner Inc. “It hasn’t taken the necessary steps to develop the technology.”
Chinese companies such as Hisense Electric Co. and Lenovo Group Ltd. (992) have built strong brands that rival the foreigners. Consumers in China bought a combined 365 million smartphones and TVs in 2013, according to Gartner, about half as many as were made in the country. Some of the extras were exported to India - - bearing the brands of domestic companies such as Micromax Informatics Ltd. and Videocon Industries Ltd. (VCLF), Khanna said.
Samsung and Apple are already adjusting to India’s high-volume, low-margin market by increasing advertising, dropping prices and creating interest-free payment plans. Smartphone shipments in the country may surge to 156 million by 2017 from 28 million in fiscal 2013, according to researcher IDC.
Apple’s shipments of iPhones in India rose to a record 254,000 units in the fourth quarter of 2012 from 52,000 in the third quarter, according to IDC, after it opened the iTunes store in the country in December and cut prices for older models.
Samsung, the world’s biggest maker of smartphones, said April 28 it’s planning to manufacture Galaxy S4 handsets in India, without elaborating. The Korean company already assembles some home appliances, mobile devices and TVs in the country.
“The big advantage of local manufacturing is faster response to the market and customer needs,” Ruchika Batra, a New Delhi-based Samsung spokeswoman, said in an e-mail.
Sony has no plans to move assembly to India, Sony India’s Managing Director Kenichiro Hibi said in an e-mail. India is the fourth-largest market for the Tokyo-based company, which ranks fifth in Indian smartphone sales, according to the company and IDC. Sony earned 3 percent of its total smartphone value from India in fiscal 2013, the same percentage as Samsung, according to IDC.
Panasonic Corp. (6752) has the capacity to produce flat-panel TVs in India to help make Japan’s No. 2 television business profitable by March 2016, Panasonic President Kazuhiro Tsuga said in Mumbai April 30.
The company is building a factory in the northern state of Haryana, where it has the capacity to make flat-screens although there are no plans to do so. The company may use semiconductors imported from Japan to meet a target of tripling Indian sales by 2016, Tsuga said. The company plans to start making chips in India after 2015, helping feed a market that consumed $8 billion in semiconductors in 2012 -- a 7.4 percent increase over 2011, Gartner estimates.
Panasonic will expand local manufacturing of appliances and plans to spend about $250 million on marketing in its push into India, Tsuga said.
Products “should be specially customized for Indian consumers, keeping local needs in mind,” he said.
India’s government is offering a 25 percent subsidy on capital costs to set up technology plants. Samsung, LG, Panasonic and Toshiba Corp. are planning to take the offer, and the government has also received proposals from Hitachi Ltd., SanDisk Corp. (SNDK) and NEC Corp. (6701), said J. Satyanarayana, secretary to the Department of Electronics and Information Technology.
India plans to approve as much as 250 billion rupees ($4.5 billion) in foreign investment for facilities to assemble electronics, Satyanarayana said in an interview. The government already has eight proposals worth 10 billion rupees close to approval and another 10 proposals for 20 billion rupees in the pipeline, he said. None are from Indian companies.
Harman International Industries Ltd. (HAR), the audio equipment-maker, plans to spend $100 million on manufacturing, research and marketing in India by 2017, Harman India’s Managing Director Lakshminarayan said today in an interview. The Stamford, Connecticut-based company plans to increase local sales to $250 million by 2016 to tap rising spending on home entertainment and as the country adds about 2,000 movie theaters with new audio systems, he said.
Without a manufacturing sector in India “we will lose control of our balance of payments,” Satyanarayana said. “And we’ll lose track of all the foreign equipment in our country, which can be a major security risk.”
Samsung is in the final stages of the approval process, he said. The company plans to partially manufacture the Galaxy S4 at its factory in Noida, northern India, making it the first smartphone assembled in the nation, Satyanarayana said.
The government plans to approve bids to open the country’s first wafer manufacturing factories by May, with production starting in 2014, Information Technology Minister Kapil Sibal said in April.
Still, Indian factories will only account for about 25 percent of manufacturing of high-end consumer electronics, using imported components and putting the finishing touches on partially assembled devices, Khanna said.
“Samsung and LG weren’t even here five or six years ago,” said Ganesh Ramamoorthy, a Gartner analyst in Mumbai. “Now they’ve swept the market away.”
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