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Electronics Production | October 11, 2010

India's mobile phone manufacturing industry 1/3

There have been a few dramatic changes in the mobile manufacturing industry since 2008. These changes have been shaped in part by factors beyond the industry such as the global recession, and in part by driving forces within the industry itself and its response to pressure from various quarters.
One of the most remarkable developments in the industry has been the unionization of the world’s top mobile manufacturer, Nokia. Nokia’s workforce in South India formed a union as a result of a resoundingly successful strike in August 2009, followed by two more strikes in January and July 2010.

An attempt to improve employment conditions in the leading company in the mobile phone market, both globally and nationally, has tremendous implications for industrial relations within the whole industry.

This is especially important because the Indian electronics industry employs around 4.4 million people at present and this figure is expected to rise steeply to 16.1 million in 2014 and 27.8 million in 2020. Of the total workforce in the electronics industry, the manufacturing segment accounts for the highest number of people.

Nokia SEZ – Setting the Trend

A number of multinational mobile manufacturers have established their plants in different parts of India since 2006. These include: Elcoteq in Bangalore’s Electronics City; Samsung in Gurgaon, near Delhi; Alcatel’s base station production plant in Rae Bareili; LG near Pune in Maharashtra; and Ericsson’s mobile switching equipment plant in Jaipur. Furthermore, Xenitis in Kolkata plans to set up a mobile phone manufacturing plant near the city.

However, the pivotal industrial cluster in the mobile manufacturing industry is the Special Economic Zone (SEZ) in Sriperumbudur near Chennai in south India. This 210-acre zone has been dubbed ground zero of electronic manufacturing in India. It houses three types of manufacturers: Original Equipment Manufacturers (OEMs) such as Nokia and Motorola; Electronics Manufacturing Services (EMSs) providers such as Flextronics and Foxconn; and component suppliers to both such as Salcomp, Aspocomp and Perlos.

At the heart of this SEZ is the Finnish mobile manufacturer Nokia’s state-of-the-art mobile phone manufacturing plant which is the largest in the company’s global network encompassing, besides India, Finland, China, Korea, Mexico, Brazil, Romania and Hungary.

Nokia’s factory in Sriperumbudur reportedly produces over 100 million handsets every year. The GSM mobile phones made in Chennai are sold in over 50 countries including the Middle East, Southeast Asia Pacific, Australia and Africa even though the product dynamics vary according to the demands of each market.

Together with other companies in the SEZ, Nokia has established the Nokia Telecom SEZ Society in order to provide infrastructure such as transport buses and canteens that serves all companies. There are also plans to build a crèche, dormitory, healthcare centre, and club to be built and operationalised in phases in the non-processing area of the SEZ with Nokia and the suppliers named as co-developers.

Components for Nokia are supplied by other telecommunications equipment producers such as Aspocomp Group (HDI printed circuit boards), Perlos (handset mechanics/mouldings), Salcomp (chargers), Foxconn (mobile phones), Flextronics (mobile handsets, base stations and other electronic items), Sanmina-SCI (network components), Laird (antennas, battery packs and EMI shielding products), Jabil and Wintek.

Signs of slow-down

Nevertheless, such positive and cheery prognosis of recessionary times cannot disguise the shifts taking place in mobile manufacturing in India. Regardless of whether these are wholly related to the global slump, manufacturing companies have been “in silent mode and refused to divulge specific details on the new manufacturing initiatives and their operations outlook.

However, evidence shows that management practices have been influenced by the global recession. Skill assessment tools which have traditionally been used in the recruitment phase have now assumed a new role to provide companies with an ‘objective’ way of identifying staff for further training or for promotions, but also more recently, or downsizing their workforce.

MeritTrac has noticed a sharp rise in enquiries since October 2008 and nearly 60% of the demand was from IT and ITeS companies.25 There are also hints of the recession’s impact in India from changes in corporate location strategies.

There are reports, for example, of Flextronics’ plan to shift some of its components production from Chennai to Bangalore. However, the company denies that it will close shop in Chennai. The company had announced that it would invest $200 million in phases at the special economic zone (SEZ) in Sriperumbudur for which the Tamil Nadu government had allotted 250 acres.

In early 2009, Flextronics launched Flex Power, a power chargers manufacturing unit at the Chennai Industrial Park (SEZ). In addition to the Chennai factory, the company also operates a repair services unit in Bangalore and a Global Shared Services Centre (GSSC) in Chennai.

The centre has three premises and has a headcount of over 1,200 regular employees doing high-end IT and finance work mainly. Flextronics in the SEZ employs 1,600 people, and the regular employees account for approximately 40% of the site headcount.

Jabil Circuit shut down its plant in the Sriperumbudur SEZ in the first quarter of 2009 in response to the global economic recession and changes in its customers’ demands. It was a key component supplier to Nokia of moulded products such as the outside cover of a cell, the internal cover, and covers of the mobiles fitted with cameras.

It had announced its plans to restructure its global operations in January 2009 by cutting its manufacturing capacity and reducing its worldwide workforce from 85,000 to about 3,000. Its Chennai plant was one of ten sites affected by its restructuring plans.

Jabil had invested $100 million in the Chennai facility, where over 600 workers were employed, in addition to its acquisition in 2007 of Celetronix located in the Madras Export Processing Zone, adding over 5,000 plus employees and 2.70 lakh sq ft of manufacturing space in three locanamely Mumbai, Chennai and Puducherry. At present, it has only one manufacturing plant in India which is in Pune.

Even OEMs have felt the pinch globally. In early 2009, Motorola for example, announced 3,000 job cuts in its global mobile business division in order to reduce costs and expected to save about $1.2 billion in 2009.30 Similarly, Nokia’s global market fell two notches from 40% to 38% and the company’s second quarter earnings in 2009 had fallen 66% due to the global recession. It had shipped 15% less handsets in the quarter than it had during the corresponding period the previous year.
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Source: Centre for Research on Multinational Corporations (SOMO)

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This article is part of a series.

India's mobile phone manufacturing industry 1/3

India's mobile phone manufacturing industry 2/3

India's mobile phone manufacturing industry 3/3

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