Shanti Business School

Ahmedabad

Business Plan On

MOBILE HANDSET
INDUSTRY
Submitted To: - Prof V.K. Sapovadia,
Prof Kishor Barad
Prof Ritu Sharma
Submitted By: - Ramesh Balar
(1011O12032)

PGDM Trimester II (Batch 2010-12)

Continuous Evaluation in Business Plan

1
 Table of content
Sr. No Topic Name

1. Short history

2. Overview of industry (Scope

And Opportunities)

3. The Mobile Handset

Manufacturers In India

4. Overall Analysis of factors

impact Mobile phone Industry

5. Market Demand Situation

6. India As Exporter

7. Government Policies And

Regulatory Framework

8. Incentives To Promote
Manufacturing and Exporters

9. OT Analysis and Future Growth

10. Current Situation Of Indian

Market

2
 A Short History Of The Mobile Handset Industry
During the late 1980s and into the 1990s large firms such as Motorola, Ericsson, Nokia and
Siemens pushed the frontiers of mobile handset performance, and the industry was considered to
be a classic case for a vertically integrated industry. These vertical integrators not only controlled
the design, production and marketing of mobile phones, but also the mobile communications
infrastructure business. Evolving their products from a suitcase-sized device with limited appeal
beyond a very narrow niche of business and professional users, these vertically integrated firms
invested huge sums in research and development to improve the performance and reduce the size
of mobile phones. As was the case with the earliest PCs, software components, hardware
components and operating systems were produced in-house, and assembled together in
interdependent product architectures. The resources required to enter the fledgling mobile phone
industry were beyond the means of most small and medium sized players. But the world has
changed. As was the case in the PC industry in the 1980s and 1990s, the mobile phone handset
industry is today ‘unbundling’ with increasingly specialized firms entering the market with
components and software that are assembled by branded manufacturers and ODMs into finished
devices. Now, as then, there seem to be several motivating factors at the heart of this process:
evolving technological standardization, gains from specialization driven by differences in the
evolving knowledge bases across the industry, and gains from trade emerging from the emerging
differences between specific firms. But powerful buyers – the mobile network operators are also
exerting an important influence on the break-up of the mobile handset value-chain by demanding
manufacturers to integrate certain standards-based technologies, software operating systems
and/or applications.

Overview of industry (Scope And Opportunities)

The mobile phones industry in India has been an attractive destination for the global mobile
phone manufacturers from the very start. It was thought in the beginning that the mobile phones
in India will serve the growing communication needs in the country. Considering the growth of
the industry in India, it can be said that the estimated results have been achieved beyond
expectations. Apart from mobile phone manufacturers, the industry has also seen the growth of

3
mobile phone carriers, mobile phone application developers, mobile phone content providers and
so on. It is expected that the industry is going to keep on growing to attain the anticipated goals
at a fast rate. There are two big reasons for the rapid growth of mobile phones industry in India.
First, There is a huge market for entry-level mobile phones. And second, the high-end
mobile phone buyers too exist in the Indian mobile phone market. These reasons encourage
the top mobile phone manufacturers to experiment their products from different categories in the
Indian market. While Samsung, Nokia, Sony and LG are some of the topmost companies that
have successfully launched a number of mobile phone models in the country, the companies like
Blackberry too are joining the league fast. Besides, there has been a recent rise in the local
mobile manufacturers as well. Micromax, Karbon and Spice are some of the local manufacturers
that have started grabbing a significant share in the mobile phones industry in India. To match up
the growing demand of mobile phones, the mobile phone carrier services like Bharti Airtel, Tata
Teleservices and Reliance Communications have improved their services as well. Uninor and
Videocon are among the latest entrants among mobile service providers that are making place for
themselves at a fast rate. Some of the factors responsible for the growth of the industry include
growing income of the middle-class families, popularity of mobile based services like online
ticket booking and low rate mobile connection plans. The recent launch of 3G by different
mobile carrier service providers in the country has further made the things favorable for high-end
growth of the mobile phones industry in India. India has emerged as the second largest mobile
handset market in the world and is poised to become a global hub for mobile handset
manufacturers.

Entry of New Handset Vendors

The growth of mobile handset market can be gauged from the fact that 27 new handset vendors
entered India just in 1 quarter of 2009. India also witnessed the launch of high-end phones as
well as entry level phones and Indian mobile users bought nearly 700,000 high-end/smart phones
in the April-June quarter (2009).

4
 The Mobile Handset Manufacturers In India (Major and Minor)

 Ajanta
 Amplicom
 Apple
 Aqua
 Aroma
 Blackberry
 Fly
 Fortune
 Frio
 Fujezone
 G-Fone
 G7
 HTC
 Huawei
 Intex
 INQ
 Karbonn
 Kenson
 Lava
 Lemon
 LG
 Micromax
 Motorola
 Movil
 Nokia
 Olyne
 Onida
 Orpat
 Reliance
 Riviera
 Samsung
 Sky
 Sony Ericsson

Mobile Industry, after the slump has shown signs of recovery and as per IDC India’s
latest report, India’s mobile handset market touched 100.9 million units in the year
ended June 2009, recording a growth of 6.7%* from 94.6 million units in the previous
year ended June 2008. In terms of units shipped, Nokia had the largest share (*) of
56.8%, followed by Samsung with a 7.7% share while LG stood third with a 5.4%
share in the 12-month period ended June 2009

5
Overall Analysis of factors impact Mobile phone Industry
 Cellular Phone Suscribers
 Mean income value
 Total Population
 Total Internet Subscribers
 Expenditure on telecommunication
 Gov investment on IT

Market Demand Situaton

The rise in handset production is due to tremendous market demand as evident in the soaring
growth in the number of mobile subscribers in India. over 6 million new mobile subscribers are
added each month, with a total of 233.63 million subscribers in December, 2007 and crossing
250 million in early 2008, with the addition of 8.53 million mobile subscribers in February
alone.9 Approximately 30% of the Indian population is expected to be covered by the mobile
network by the end of 2008.10 Based on these figures, India is the fourth largest mobile market
behind China, the United States, and Russia. India currently has the world's lowest call rates
(US$0.02-0.03), the fastest sales of a million mobile phones (1 week), and the world's cheapest
mobile handset (US$ 17.2).12 In comparison to China’s mobile market which is reaching a
plateau, India’s has been galloping ahead at wildfire pace. Part of the reason for the phenomenal
growth of consumer demand for mobiles is its affordability with companies passing on volume
driven price reductions on to the consumers, which in turn is further fuelling manufacturing and
cut-throat competition among the leading mobile manufacturers and telecom equipment
vendors. Due to the global recession, demand for mobile phones in India fell from 30% to just
8% but this global decline is anticipated to be temporary with sales picking up in early 2010-13.

6
 India As Exporter
While the burgeoning domestic market and the abundance of technically skilled workforce are
key reasons for the rush into India, there are also signs that India will become a global sourcing
location. India is geographically central to growing markets in the Middle East and Africa,
making the time span from design-to-market shorter than if the mobiles were to be transported
from Europe or other production zones. An added advantage is that indirect labor costs in India
are about the same as in China but direct labor costs are about 30% lower. For these and other
reasons, mobile manufacturers plan to make India a hub for exporting mobiles to the Middle
East, neighboring countries and Europe, according to the Chief Executive of a consultancy firm
that has helped many of the leading telecommunications companies to establish manufacturing
units in India. Nokia is already exporting 30-40% of its annual production at the Sriperumbudur
(Chennai) plant to countries in Southeast Asia, ie. Singapore, Thailand and Malaysia, and is
planning to expand its exports to other continents. LG’s manufacturing unit in the outskirts of
Pune, Maharashtra exports mobiles to countries in the Middle East, Africa and Asia. The
company has earmarked 10 million handsets from its unit in India for export to Bangladesh, the
Middle East, Nepal, Sri Lanka and Africa by 2010. It also plans to export handsets to countries in
Europe and the Commonwealth of Independent States (KPMG 2008). Xenitis
Telecommunications will be producing 1,60,000 handsets a month for leading mobile
manufacturers and service providers in the country, of which 50,000 will be exported to Dubai
and West Asia. From the level of foreign direct investment in mobile manufacturing to the
soaring demand for mobiles in India and the country’s potential of becoming a global hub in the
transnational production networks, it is clear that the mobile industry is in India to stay for the
foreseeable future.

7
 Government Policies And Regulatory Framework
.
The growth of the mobile phone industry in India is due not only to the business plans of the
private sector alone, but also due to government policies which are creating an environment in
which the industry can flourish. The Government of India has identified electronics and IT
hardware manufacturing as “the thrust area for development” and has announced a Special
Incentive Package Scheme (SIPS) in March, 2007 in order to attract private investment in
semiconductor fabrication and other technology-based manufacturing industries in India.
In the Indian government’s annual report 2006-07 on information technology, it is stated that
“the growth of the Indian Electronics/IT hardware has not been consistent with the market
potential” and the sector therefore “needs special sectoral treatment rather than being governed
by general policy framework”. A package of incentives has been proposed for the Electronics/IT
Hardware Manufacturing Industry involving different customs and excise duty exemptions
particularly to attract foreign investment and bring down the prices of the end products. The
government has moreover approved a “Special Incentive Package Scheme for Semiconductor
Fabrication and Micro and Nanotechnology Manufacture Industry” to attract investments in
these manufacturing industries. The incentive would be 20% of the capital expenditure if the]
units are set up in the SEZs, and 25% of the capital expenditure for units outside the SEZs.
Indeed, the state is throwing its weight behind the wireless market to ensure its rapid growth.
Over the years, Foreign Trade Policy for electronics and IT products has been liberalized,
customs and excise procedures simplified, EDI implemented by customs & under
implementation by central excise and customs duty on specified capital goods and raw materials
for electronics/IT hardware has been brought down to zero%. Zones (SEZ) schemes have been
tailored to boost manufacturing in the country. Moreover, India is a signatory to the Information
Technology Agreement of the World Trade Organization and from the 1 st March, 2005 the
customs duty on all the specified 217 items has been eliminated. Parts, components and
accessories of mobile handsets including cellular phones are exempted from excise duty and
Central Sales Tax (CST) has been reduced from 3% to 2% At present, 100 % foreign equity
participation is permissible in electronics generally and in telecom equipment manufacturing
through the automatic route. In its efforts to create an investor-friendly market, the government
had raised its foreign ownership cap in telecommunications services to 74%, but it is re-
considering this FDI policy and could reduce it to the former level of 49% in light of a potential
security risk in relation to the telecoms industry.

8
 Incentives To Promote Manufacturing

 Custom duty on ITA-I product reduced to zero with effect from 01.03.2005. The 4%
additional duty on import of ITA products to countervail the state level taxes.
 100% Foreign Direct Investment (FDI) through automatic route. Imposition of additional
import duty, at the rate not exceeding 4% ad-valorem, to countervail sales tax, value
added tax, local taxes and other charges leviable on like goods on their sale or purchase
or transportation in India
 No industrial license for manufacturing of telecom equipment. Simple Industrial
Entrepreneur Memorandum (IEM) has to be filed with SIA.
 Modification of Electronic Hardware Technology Park (EHTP)/Special Economic Zones
(SEZs) scheme to allow 100% sales in the Domestic Tariff Area (DTA) for the purpose
of meeting export obligations.

Incentives for Exporters

 Export income is exempt from income tax for all exporters.

 Tax holiday 100% for five years and 30% for next five years in a block of 15 years.
 Reduction of customs Duty on Mobile Phones to 5%.
 Exemption from Excise duty on Cellular Phones and it components, Pagers, Radio
Trunking Terminals and Parts.

OT ANALYSIS
OPPOUTTUNITY
Ω Innovative products.
Ω Technological advantages.
Ω Very high growth rate(over 100%) of mobile users
Ω Sharp fall in air time tariff
Ω New investment opportunities.

9
THREATS
Ω Change in government policies.
Ω Increase in Inflation.
Ω Rapid changes in technology.
Ω Change in customer preference.
Ω Increase in investment alternatives.
Ω IMEI number

Future Growth Of Mobile Phone Industry

 According to the industry experts phone market is normally growth with in the
range of 4 % - 8 % (without any abnormal impacts)
 But qualitative factors reveal, there will be a higher level of growth rate around
20% - 30% due to the abnormal events happened recently
 When considering all the qualitative and quantitative factors industry experts say
there will be a growth rate around 20% in the market.

Current Situation Of Indian Market

Homegrown handset makers like Spice, Micromax and Karbon captured 14 per cent of the
mobile phone market in India in FY 2009-10, these manufacturers had just 3-4 per cent market
share in the previous fiscal. These Indian brands strengthened their presence in the domestic
handset market in 2009-10, growing at the expense of multinationals like Nokia and Samsung.
While Micromax had a 4.1 per cent market share by revenue, Spice and Karbon had a share of
3.9 per cent and 3 per cent in FY 2009-10, respectively. Lava had a share of 1.1 per cent, Lemon
1 per cent and Max had a 0.9 per cent share, it added. The Voice&Data100 annual survey on
handsets is based on the revenue of telecom equipment suppliers, including GSM and CDMA
handset vendors. According to the study, even though Finnish company Nokia remained the
market leader, its share came down to 52.2 per cent from 64 per cent last year. Samsung's market
share increased to 17.4 per cent this year from 10 per cent last year, while LG had a share of 5.9
per cent as against 4.5 per cent last year. "Low prices for perceived high-end features. You get
all-QWERTY Blackberry lookalikes complete with trackball, and even dual-SIM phones, for Rs
5,000" . while Nokia has many low-cost models, they are relatively sparse on features. The
mobile handset market grew 4.2 per cent by revenue during FY 2009-10 compared to 7.9 per
cent in 2008-09. Around 108 million mobile phones were sold in the country during 2009-10,
adding up to Rs 27,000 crore sales, up from Rs 25,910 crore the previous year.

10
 References/ Bibliography

http://www.trai.gov.in/StudyPapers_list_year.asp
www.jamieandersononline.com/
www.eogogics.com
http://economictimes.indiatimes.com/
www.miinistry of india.com

11