10/08/2015 4:21 PM IST | Updated 15/07/2016 8:25 AM IST

Xiaomi Dials Foxconn To Assemble In India As Prelude To Manufacturing

Xiaomi Beats Samsung in Chinese Smartphone Market >>http://ow.ly/A6zQa
Xiaomi Beats Samsung in Chinese Smartphone Market >>http://ow.ly/A6zQa

Chinese smartphone maker Xiaomi Inc [XTC.UL] has tied up with Taiwan's Foxconn to start assembling phones in India, making it the latest, global smartphone company to move a step closer to making smartphones in India.

Xiaomi's global vice president Hugo Barra said that an assembly line in Andhra Pradesh will begin rolling out Xiaomi's first locally made smartphone, the Redmi2 Prime. This could mean even lower smartphone prices and is an extension of Xiaomi's general strategy of offering phones, liberally inspired by Apple, but at a fraction of the prices.

"It's not only about designing for India, we want to make in India and be closer to our consumers," Barra told reporters. He declined to disclose the size of the investment made in setting up the assembly line.

India represents a potentially huge market. Xiaomi has been selling phones here for about a year, in which time the country has become its second-biggest market outside China. The company has sold three million smartphones and tablets since it entered the market.

The assembly line marks a return for Foxconn, officially known as Hon Hai Precision Industry Co , to the Indian market. The world's largest contract electronics manufacturer was forced to shut up shop in Asia's third-largest economy last year after client Nokia stopping making phones at that plant.

Last week Foxconn announced that it was investing $5 billion in manufacturing facilities in Maharashtra.

The primary drive for Chinese phone manufacturers is is to benefit from a duty structure that is favourable to those manufacturing or assembling in India.

Anshul Gupta, Research Director at the US research and advisory firm Gartner Inc told the Indian Express that while a smartphone attracts a duty of around 12.5 per cent, its components can be imported at just 1 per cent.

The Indian handset industry grew to Rs 75,000 crore by the end of 2014, registering a compound annual growth rateof 28 per cent. Out of this, the smartphone market is 25 per cent in volume, but three times that in value.

While incentives such as cashback on investments and tax exemptions propel phone manufacturers to shift assembly operations to India, many barriers--such as the high VAT rate on mobile handsets and accessories in various jurisdictions--remain. Moreover it will be a while before companies can manufacture the core parts of their phones that would require semiconductor fabs, component suppliers and design houses, in India.

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