Xiaomi starts making phones in India through partnership with Apple supplier Foxconn
China's Xiaomi has joined forces with Taiwan-based tech giant Foxconn to start assembling phones in India, seeking to cut costs and grab a bigger slice of the world's third-largest smartphone market.
The factory, in the southern state of Andhra Pradesh, is a boost for prime minister Narendra Modi, who has championed a campaign to turn India into a manufacturing powerhouse to boost economic growth and create much-needed employment.
India is the world's fastest growing smartphone market, but so far a lack of good suppliers and infrastructure have hampered efforts to manufacture phones in the country, forcing most of India's more than 100 different phone companies to import from China and Taiwan.
READ MORE:As labour costs rise in China, Foxconn doubling down on India with US$5 billion investment
From Monday, the south Indian assembly line will roll out Xiaomi's first locally made smartphone, the Redmi2 Prime, an India-specific upgrade to its best-selling Redmi2 budget smartphone. It will be sold at 6,999 rupees (US$110), company executives said.
Neither Xiaomi nor contract electronics maker Foxconn disclosed the size of their investment or future production capacity.
The Indian market, which Xiaomi entered in July 2014, has fast become its second-largest, as the company's low-priced phones find favour with young and cost-conscious customers.
In April, Xiaomi held the global launch for its Mi 4i smartphone in New Delhi, underlining the importance of the Indian market to China's most popular phone brand.
In the April-June quarter, Xiaomi ranked seventh in terms of smartphone shipments in India -- a segment that is dominated by Samsung Electronics and India's Micromax Informatics, according to Counterpoint Research.
Manu Jain, Xiaomi's India head, said that apart from bringing tax benefits, the new facility would help the company better manage inventory and reduce lead times from three to four weeks to under two weeks.
"Over time, most Xiaomi phones sold in India will be made in India," Jain said, though that could take some time given the lack of development of the local supply chain.
Xiaomi, battling slowing sales in China, is betting on emerging markets such as India and Brazil, where it began manufacturing in late June, to fuel growth.
The number of smartphone users in India stood at around 140 million in 2014. It is expected to reach 651 million by 2019, according to a study by Cisco.
Foxconn, a key Apple supplier, has been among the firms making the most of Indian states' newfound competitive streak. It signed a US$5 billion investment deal with the western state of Maharashtra on Saturday.
"The Indian mobile market is 100 per cent open to Chinese smartphone companies for investment and manufacturing," Pankaj Mohindroo, national president of the Indian Cellular Association, said during a trip to China in May.
Additional reporting by James Griffiths