Even as Nokia, the world’s largest manufacturer of mobile phones, ramps up production at its plant near Chennai to meet galloping domestic demand, the southern city has emerged as the undisputed telecom manufacturing hub of India.
Motorola’s low-end phones are made at contractor Flextronics’ facility in Sriperumbudur, a town 48km from Chennai where Nokia’s factory is based as well. And Sony Ericsson recently announced that its own made-in-India phones would roll out of the Sriperumbudur plants of Flextronics and rival contractor Foxconn.
Three of the world’s largest mobile phone companies now have a base in the city, which is, coincidentally, home town of Union minister for communications and information technology, Dayanidhi Maran.
Of the 16 foreign firms that have announced investments in the telecom hardware sector in the last two years, only three—LG, Samsung and Elcoteq—have excluded Chennai from their plans. As a result, the city stands to get nearly half of the $1.5 billion (Rs6,600 crore) pledged foreign investments in the sector, with the possibility of more to come.
Nokia’s announcement, in December 2004 that it would set up a manufacturing plant in Chennai, surprised many. The city was a good choice from the point of view of logistics, but it did not have a base of component suppliers. Bangalore and Noida, on the other hand, had a clutch of small vendors.
“Chennai and Bangalore were equally strong contenders with Chennai scoring marginally (higher) on air-cargo efficiency,”a Nokia executive had said then, explaining the choice.
A source in the telecom industry told Mint, on condition of anonymity, that a thankful Maran had assured Nokia that it wouldn’t regret its decision. A year later, in October 2005, the telecom ministry-run Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd said they would buy equipment only from those firms that had some manufacturing operations in India.
Nokia’s choice of Chennai has encouraged several of its suppliers to set up shop in the city. “Currently, we are manufacturing at our plant in southern China and shipping from there (to the Nokia factory in Chennai), but the logistics are becoming tougher as the volumes increase,” says Arto Makela, the man on the ground at Chennai for Salcomp, a Finnish company that supplies mobile phone chargers to Nokia.
Like other suppliers to Nokia, including the circuit-board specialist Aspocomp, handset-mechanics maker Perlos and the manufacturing-cum-assembly specialist Jabil Circuit, Salcomp is busy putting up its own plant in Nokia’s special economic zone in Sriperumbudur.
This cluster effec tt, as it is termed by management experts, provides enough incentive for Nokia’s rivals to locate their operations in or around Sriperumbudur where there is already a base of suppliers and contract manufacturers. Concentration in the same area is a prerequisite for a highly inter-connected, supplier and outsourcing-based industry like handset manufacturing, says Pankaj Mohindroo, president of the Indian Cellular Association. “There has to be a concentration of manufacturing activity in a particular location to achieve the economies of scale until we reach a particular level of production,” he said.