US tariffs: Mobile firms hedge bets, seek incentives for India operations

Global mobile device makers assembling in India will be seeking financial incentives from the government to ensure they remain competitive amid the 27 per cent duty slapped on their exports to the US.

 

Otherwise, they may have to hedge their bets by shifting new capacity to other countries — where duty imposed on US exports is lower.

 

A top executive of a mobile company said: “Indian tariffs on components add up to 6-8 per cent of the bill of materials even after reduction in the last Union Budget. Even if a company is doing 50-50 between domestic sales and exports, half of this, that is 2-3 per cent, is a cost also imposed on the export quantity, creating an additional disability. For companies like Apple Inc, which exports bulk of its phones, it would be even higher. This disability has to be removed immediately if we want to remain competitive vis-a-vis prospective new locations.”

 

India has a relative tariff advantage now over China (where duty slapped is 54 per cent) and Vietnam (where duty to the US is 46 per cent).

 

But in a quick response, the Vietnam Trade Ministry has requested the US administration to put on hold the planned new tariffs and go for further negotiations with them. It is planning to send a delegation to the US under deputy prime minister Ho Duc Phoc.

 

Global mobile device players said they will be looking at alternatives if the duties stay at existing levels.

 

These include Saudi Arabia, the UAE, Brazil and Singapore all of which are at 10 per cent tariff rates by the US.

 

A senior executive of a global mobile company said: “Saudi and Singapore are renowned for operating some of the most significant special economic zones (SEZs) in the world. That’s a big competitive advantage over India. Countries like Saudi Arabia or UAE offer a zero tax regime or have a simple tax structure like in Singapore. India is complex and high. Also Saudi, UAE and Singapore are offering aggressive incentives to woo investment. So, India has to respond.”  

 

The executive argues that even Brazil — despite its high cost of production — will have a 7-8 per cent cost advantage over India when exported to the US.

 

He said a US mobile company is working out the economics of exports to the US from India or Brazil or both.  

 

However, everyone does not hold the same view.

 

A senior executive in an electronics manufacturing services (EMS) company said: “It has taken 10 years to build an ecosystem for mobile device assembly and we are somewhere in the middle.

 

Singapore is too expensive and the cost of making phones in Brazil is prohibitive and meant mainly to serve the local market. And UAE and Saudi have no ecosystem at all now.”    

 

The big labour advantage in India, global mobile players say, is over exaggerated as most smartphones exported are in the premium and super premium segment.

 

Industry experts say that labour accounts for only 2 per cent of the cost of producing a mobile phone. This goes down with costlier phones (Apple iPhone start from ₹65,000).

 

According to Canalys estimates, the top brands whose vendors ship to the US include Apple Inc, which has a 60 per cent share. It is followed by Samsung at 21 per cent, Motorola (10 per cent) and TCL and Google (at 3 per cent each), among others.

 

However for Apple Inc, Motorola, Samsung and Google, India is an important manufacturing hub for their mobile phones for both the domestic market and exports.

 

So according to estimates, Apple and other global mobile device makers exported out a substantial $5 billion worth of phones to the US from India — bulk of them being iPhones.  

 

Motorola (which also exports from China) has tied up with Dixon to source its phones and a key market is the US. 

 

Google (which has assembled phones in China, Vietnam and now India with Pixel) has Bharat FIH and Dixon as its assembly partners. Samsung also exports some phones from India to the US, according to reports.   

Changed dynamics

 

> Global mobile phone makers want removal of duties on imported components, which is putting them at a cost disadvantage

> These firms may look at new countries with only 10% duty. They could think of shifting fresh capacity to UAE, Saudi Arabia, Singapore, or Brazil

> With new import tariffs, Brazil is expected to have a 7-8 % cost advantage over India

> Apple’s iPhone, Samsung, Motorola, TCL, and Google dominate shipments

> Most of them have assembly plants in India, which export to US