INTERVIEW: This Indian challenger to Apple and Samsung explains why it chose India and Vietnam to make a bulk of its products
Photo by Sahaj Patel on Unsplash
- Indian consumer electronics brand
boAtused to make all its products in China, but the pandemic gave the startup a rude wake-up call.
- Over the last one year, it has started manufacturing in Vietnam and India in order to de-risk its manufacturing.
- The company is currently manufacturing about 15 of its products in India with the help of local partners.
- boAt has quickly risen to capture nearly a third of the smartwatches and audio market in India, where it competes with Samsung and Apple.
Indian consumer electronics brand boAt used to make all its products in China, but the pandemic gave the New Delhi-based startup a rude wake-up call. Founder Aman Gupta had to set up alternative factories in other countries.
Eighteen months later 9% of boAt’s manufacturing happens in India. India’s recently unveiled production-linked incentive (PLI) scheme is attractive, but not enough for the firm to make India its biggest production hub yet. China continues to make 90% of its production bulk, while the latest Vietnam market is adding another 1%.
The company’s products were completely made in China until February 2020.
In just about 5 years, the startup, whose last reported valuation was ₹2,200 crore (about $300million), has quickly risen to capture nearly 30% market share in the audio segment in India — its earphones, in particular, have been popular — and nearly a third of the smart watch segment, where it competes with the likes of Samsung and Apple.
boAt’s chief executive (CEO) Vivek Gambhir, in a conversation with Business Insider, highlighted that it is currently manufacturing about 15 of its products in India with the help of local partners. It aims to manufacture 30-40% of its production volume in the home market, by 2024. The target could have been achieved sooner if conditions in the Indian electronics manufacturing hub were slightly better.
India currently has 20% manufacturing disability compared to China and 12% manufacturing disability versus Vietnam. A manufacturing disability is defined as the difference, in percentage, in the selling price of a product and the manufacturing price.
This is why boAt chose Vietnam as its second market. By 2024, the company expects the Southeast Asian country to make up for 10% of its production.
Together, India and Vietnam will manufacture around 50% of boAt’s products, while China will add another 50%.
AdvertisementboAt is not the only one one taking notice of Vietnam. The country’s rise as a major manufacturing hub for international exports in the last decade can be described as meteoric. South Korea-based electronics giant Samsung has one of its largest facilities outside its home country in Vietnam. The company assembles half of its global handsets in Vietnam and has benefited after the US-China trade war. Apple too started producing its Airpods in Vietnam last year.
When global companies were looking to reduce their dependence on Chinese manufacturers, India, too, saw an opportunity to lure some of them. However, as Gambhir explained, the cost of manufacturing in India has to be more competitive than it is right now. He added that while Vietnam is a better strategic location for now, compared to India, they want to be a leader in the Make-in-India campaign over the next few years.
Challenges ahead of boAt to makes its Make-in-India desire a success
According to the Indian Electronic System Design and Manufacturing (ESDM) Disability Identification Study, the electronic products made in India could be less competitive anywhere between 7% and 26%, depending on the nature of the product.
But cost is not the only factor. The recently unveiled production-linked incentives in India, along with the import duty hikes, will bring down costs, Purnendu Kumar, practice leader of consumer and retail at consultancy Praxis Global Alliance, told Business Insider.
Even if the cost is brought down, the ecosystem is yet to mature. “We are working with about five plus local partners [in India], but there's a certain amount of, you know, hand holding required to be able to actually work with them and educate them in terms of our products getting manufactured,” he added.
Therefore, Vietnam is higher up the ladder for boAt at the moment, especially due to “high quality manufacturing opportunities”. The free trade agreement between India and the Southeast Asian country is another boon that reduces imports and exports barriers among the two nations.
As for boAt, India will continue to be its research and development (R&D) hub. It has set up a R&D centre in Bengaluru earlier this year, in addition to its existing R&D unit. The company also hired 30 employees in both these labs during the pandemic.
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