Foxconn Technology Group will soon shut its mobile phone manufacturing plant near the southern Indian city of Chennai, joining one of its biggest customers in the country, Nokia Oyj, which made the same decision only two months ago with the sale of its mobile phone business to Microsoft Corp.
The decision reflects India’s inability to foster even its fledgling mobile phone manufacturing base that the Nokia and Foxconn facilities represented, despite being one of the largest wireless markets in the world, with a mobile phone user base only a bit shy of a billion subscribers.
“We can confirm that our India operation, FIH India Private Limited, will be suspending all operations at our manufacturing facility in Chennai effective December 24, 2014,” FIH Mobile Ltd., a Foxconn group company, said in an emailed statement to International Business Times.
“This action is being taken due to a change in that facility’s customer base and a related change in the manufacturing requirements of our customers in India,” said Foxconn, one of the world’s largest contract manufacturers of electronics gadgets that counts Apple Inc. as a customer.
“We are working with the government and the relevant labor unions to ensure that this action is carried out in a manner that follows all relevant laws and regulations and is fair to the approximately 1,700 employees who will be affected by this move,” Foxconn said.
The company added the move to shut its manufacturing facility involves a restructuring of its business in India, where it might consider investments based on how its customers’ needs change.
India’s growing urban middle class has created one of the fastest-growing smartphone markets in the world, attracting Chinese smartphone makers such as Xiaomi Inc., which was recently barred from selling its hugely popular Redmi 1S and Redmi Note handsets in the country, due to a patent dispute with Telefonaktiebolaget Lm Ericsson, the Swedish wireless equipment maker.
Xiaomi sees such strong demand in India that it is exploring the option of setting up a manufacturing base there. Foxconn’s decision, however, takes India a step in the wrong direction in fostering local manufacturing.
“The mobile component ecosystem in India is not very strong ... displays, processors and chipsets (which make up about two-thirds of the hardware cost of a mobile phone), none of these three component makers are here in India,” Tarun Pathak, a senior analyst with Counterpoint Technology Market Research, told IBTimes in a phone interview Friday.
“Without them, mobile phone manufacturing can’t be sustained, and Nokia was a bit of a one-man show,” buying components such as phone casings and various plastic parts from Foxconn in India, he said.
With Nokia gone, Foxconn simply didn’t have enough orders in India and exporting wasn’t an option, as markets such as Vietnam, where smartphone assembly has taken off in a big way, are even more cost-competitive.
While local mobile phone companies such as Micromax Informatics Ltd. do some assembly of their phones in India, “the crux here is, there is no one to take on the manufacturing plant,” because they know that the rest of the ecosystem is absent. Therefore the government will have to work toward facilitating the component ecosystem first before mobile phone manufacturing can take off here. This will take another two to three years, Pathak said.
This story has been updated to add an analyst's comments in the last four paragraphs.