MORE FROM KrASIA

Indian mobile phone industry to stand still as coronavirus keeps factories shut in China

Currently, two-thirds of the semi-finished materials used in mobile phone production are shipped from China to India and one-third are purchased locally.

Photo by Masaaki Komori on Unsplash

The mobile handset production in India has pinned all its hopes on two factors—component imports from China to resume sooner and India to lift its temporary travel suspension from Mainland China—failing which, the production may come to a standstill as the industry will run out of the stocked-up inventory by the end of February.

The coronavirus outbreak in China, which has claimed over 2000 lives so far, has caused the majority of the local businesses to halt operations. Even as the tech and internet firms have restarted operations as they can function remotely, the manufacturing companies are believed to be still largely down as employees are unable to resume work. And there is no certainty when these factories will start operating in a full-fledged manner.

Usually, when the factories reopen after the Lunar New Year, shipments are released once a new set of orders are placed. However, according to people in the industry, there have been no shipments sent from China to India for half a month.

“The inventory (with smartphone companies) is soon going to run out. It is really a matter of weeks before companies run out of raw material to manufacture phones, and other electronic items out of India,” said George Paul, chief executive officer, Manufacturers Association of Information Technology, an industry body which represents India’s information and communications technology (ICT) sector.

But even if Chinese factories start operations in the coming weeks, the world’s second-largest smartphone industry will still face the shortage of supplies and personnel due to the travel ban India has imposed on China. Moreover, the limited information that China is willing to divulge is not helping the situation either.

“If we look at the news in China, the epidemic is still in the upward growth stage. What makes the situation further difficult is that the updates coming out from China are not so transparent, which is a sign of big concern for the global supply chain,” Paul said. “All the travel (between India-China) has stopped. Leave aside people, there are fears that even cargo and raw materials that are coming can be contaminated with the virus.”

According to him, if there was transparency in updates and information from China, such as current status and the dos and don’ts, these concerns could have been put to rest.

“They could have given us a clear picture (saying) that you don’t have to worry, you are not going to get it from electronic parts, or you just expose them to such and such steps and that will disinfect it,” he added. “That is going to be the next dimension that we will have to grapple with even when the supply comes.”

The smartphone makers’ Chinese employees who went on vacation for the new year are not able to report back to duty, so they also do not have any update on the situation.

“That is precipitating the problem even more in all the electronics goods sector be it mobile, TVs or computers because all of the supply-chain goes through China,” said Paul.

According to Pankaj Mohindro, founder and president of the Indian Cellular Association, the apex body of the mobile industry in India, “if the operations in these factories do not resume, the impact will be very serious, in the sense that there will be a production closure.”

Multiple industry sources told KrASIA that the Chinese government has started giving permission to some factories to resume work. However, it hasn’t improved the situation since the majority of the workers are stuck in their hometowns.

A two-edged problem

India China Mobile Association (CMA), an industry body that represents the Chinese mobile industry in India, has a different problem with India.

A blogpost by India CMA, last week, said there are about 200 odd Chinese mobile phone supply chain manufacturers that have set up and invested in factories in India over the last couple of years. Most of the Chinese employees who work in these factories haven’t returned to India due to the travel ban, which is adversely impacting these suppliers.

Moreover, it said, “there are many cases where the factory has been rented and is ready for production, but the equipment has not been received by the customs, so the factory cannot continue.”

“We need Indian government to lift the (travel) ban and allow Chinese to enter India,” an executive from the association told KrASIA. “It’s a big deal now that people cannot get through.”

Local media has reported that many smartphone makers are looking to diversify their supply chain and source component from countries such as Vietnam, Taiwan, and Japan. However, it’s easier said than done.

“In electronics, because it is such sophisticated technology, once you freeze the supply chain including what components come from where, you can’t change it as you would do in the mechanical industry or the electrical industry,” explained Paul. “If something as simple as one capacitor gets changed, we actually have to test the product once again for reliability.”

Even if a component such as a display panel is made in Japan or Taiwan, it invariably goes through China for some brand evaluation, he said, adding “nobody can escape this because the world’s electronics supply chain travels through China.”

Paul said if the supply situation continues, he expects that Indian mobile factories will slow down production to a single shift and later it could come down to a point where the plants will shut down for a few days in a week.

Industry experts believe that the component supply crunch will delay new product launches since they won’t have supplies for production, and the discounts would be rolled back by smartphone companies as demand will outstrip supply.

“We expect new launches to be pushed back by at least four to five weeks and the ones which are being launched will have limited stock. And, we don’t expect factories to run on full capacity in February. If the virus is contained in March, it will still take two months for commercial activities to come back to normal in China,” Tarun Pathak, associate director, Counterpoint Research told local media Economic Times last week, adding that he expects a 10 to 12% decline in smartphone sales in the first quarter of 2020.

Paul said since India has “the MRP (maximum retail price) framework to safeguard the consumer, where you cannot charge more for a product,” the discount offers will come down for electronic devices because the demand is more than the supply.

“At this stage, what India and the rest of the world are looking for is clear communication from the authorities in China on what is the situation, and what is okay and what is not okay, and how we can continue working,” he said. “So unless that kind of communication comes in, we will all just be waiting for clarity and imports to come.”