LG may make cellphones here

High import duty forces company to consider setting up GSM handset unit.

LG is planning to manufacture Global Standard for Mobiles (GSM) handsets in India, if Finance Minister P Chidambaram does not lower the import duty any further in his Budget for 2004-05. The current import duty on GSM handsets is 5 per cent.

LG Electronics India Managing Director KR Kim on Wednesday told Business Standard the company was closely considering the option, and if the government decided to throw in some tax benefits for local manufacturing, it could soon set up a production facility here.

When asked what would be the investment in a manufacturing plant for GSM handsets, Kim said as a rule of thumb, it cost around $7 million to put up a capacity of 1 million handsets.

LG was among the last entrants in the 25 million unit Indian GSM handset market when it launched its products in October last year. "India is potentially one of the biggest handset markets for LG and we plan to become the biggest player in this business in the next three years," said Kim.

In 2004 LG hopes to sell 500,000 units and has set itself an ambitious target of crossing the 5 million mark by 2007. But the company is up against well-entrenched players like Nokia and Samsung which, according to industry estimates, have market shares of nearly 50 per cent and 20 per cent, respectively.

LG is banking on its huge sales network that reaches out to the maximum number of semi-urban and rural areas compared with any other multinational consumer durables company, to meet its target. "Our simple strategy to drive sales is to have nearly 400 distributors, whereas Nokia has only one. And 400 distributors is not a big number as it means just 10 distributors each for our 40 branch offices," Kim explained.

LG India's Korean parent has identified India as its biggest handset market, even ahead of China. Since the launch in October, LG was operating in the mid-segment of the handset market with price tag of Rs 6,000 upwards. But earlier this month, it came out with a mass market product costing Rs 4,000.

According to a senior LG executive, the company's strategy for GSM handsets is similar to that for colour televisions. "We entered the market as a premium product and created a certain aspirational value for the brand and then introduced models which are affordable for the masses," he said. As per the executive, more models in the sub-Rs 3,000 price range are in the pipeline.