Growing wearables production in India bleeds China units

INTERNATIONAL DESK: The surge in wearables manufacturing in India is impacting Chinese assembly lines adversely, with many factories in that country facing a sharply reduced order book, several industry executives ET spoke to have said.

Top wearables brands such as Boat and Gizmore are making most products locally in key categories audio and smartwatch through electronics contract manufacturers such as Dixon Technologies and Optiemus Electronics, the people added.

“Because wearables assembly as a whole has shifted from China to India, most of the factories (in China) that were assembling truly wireless earbuds, neck bands and smartwatches are sitting without orders,” said Sanjay Kalirona, chief executive at Noida-based Gizmore. “Earlier, we used to import completely built-up units (CBUs). But after the government imposed duties on wearables, we started importing them in semi knocked-down format, which is getting assembled here,” he said. “So, most (Chinese) factories that had been supplying to India are now sitting empty.”

Domestic shipments of wearables jumped 81% on-year in the first quarter of calendar year 2023 to 25 million units, with India surpassing China to become the largest market in the world, according to IDC India.

Beijing’s shipments fell 4% to 24.7 million. The market tracker expects India to ship 131 million units in 2023 – the most in the world – versus 100 million in 2022.

In contrast to the smartphone market, the wearables industry is dominated by homegrown brands such as market leader Boat, Noise and Fire-Boltt that have captured almost 75% of the share by volumes, as per IDC.

By the end of 2022, 40% of total wearables sold were locally manufactured. This figure has swiftly climbed to 65% currently and is expected to rise to 80% by the end of 2023.

Sameer Mehta, chief executive of Boat, said almost 75% of its audio products and around 95% of its smartwatches are being made in India, from 20-25% of its annual volumes from last year. “The capacities of Chinese factories that we worked with are now down 50% because we have shifted that capacity to India,” he said.

“Since India has been consuming the highest number of wearables in the past one and half years, the shift towards local manufacturing here has led to a lot of factories in China working with reduced capacities, while some have shut down,” Mehta said.

Boat works with seven to eight partners in India, including Dixon and VVDN Technologies. In China, it works with Symphony, Minami and six others.

The push for wearables manufacturing came after the government notified the Phased Manufacturing Programme (PMP) from April 2022, with India manufacturing Rs 8,000 crore of electronic wearables as of FY23, from negligible levels a year before.

Experts said the low average selling price (ASP) is also being maintained by ramping up local assembly after a 20% basic customs duty was imposed on CBU imports from April 2023. IDC expects ASP is expected to decline further to $23-25 by the end of 2023, from $27 in 2022.

Two wearables manufacturing executives who asked not to be identified said the dependence on Chinese factories was declining month-on-month. They said the fall in manufacturing has largely affected small and medium wearables manufacturers, mostly based out of Shenzhen in China. They have seen a significant order book decline after they expanded capabilities in anticipation of a surge.

Relying on Foreign Tech
Boat’s Mehta said the percentage of locally manufactured smartwatches will go down to 90% (from 95%) later this year, as the company is working on bringing more premium features, such as cellular connectivity, to its wearables.

“There are certain technologies we are not able to make in India, like LTE watches, active noise cancellation earphones… These are still imported from China,” he said.

Though the PMP for wearables reduced reliance on China, India is still heavily dependent on importing components from its Asian neighbour, said Vikas Sharma, lead analyst for wearables research at IDC India.

Most Indian wearable brands are also still reliant on integrated design houses (IDH) out of China for new product introductions, design and engineering verification tests, which are the necessary steps required before a product goes into mass production.

“Once a product is finalised, we work with IDHs on the software and make the India-centric changes and value additions needed to meet Indian standards,” said Gizmore’s Kalirona, outlining the steps needed to assemble wearables in India. “In some cases, the IDHs themselves align the components, but in others, the components (are imported) from different factories in China.”

However, one of the industry executives quoted above said even these steps are steadily being shifted to India.

ET earlier reported that both Dixon and Optiemus, two of the largest electronics contract manufacturers of wearables, are steadily ramping up printed circuit boards capabilities in India, which is a step towards increasing domestic value addition.

Local contract manufacturers are now chalking out what components are required, the hardware specifications and other such aspects.

“We believe Indian brands do have the capability to take up steps for product conceptualisation. Design and engineering verification tests, however, will take some time to pick up,” said Anshika Jain, analyst, Counterpoint Research. (ET)