By Aman Shah
MUMBAI (Reuters) - China's Xiaomi Inc [XTC.UL] has tied up with Taiwan's Foxconn to start assembling phones in India, seeking to cut costs and grab a bigger slice of the world's third-largest smartphone market.
It is another key win for Prime Minister Narendra Modi's efforts to turn his country into a manufacturing powerhouse with his "Make in India" campaign and comes on the heels of a separate announcement by Foxconn to invest $5 billion in an electronics manufacturing facility.
A lack of good infrastructure and suppliers have hampered efforts to manufacture smartphones in the country, forcing most of India's more than 100 different phone companies to obtain their products from China and Taiwan.
An assembly line in the southern state of Andhra Pradesh will, from Monday, begin rolling out Xiaomi's first locally made smartphone, the Redmi2 Prime, company executives said.
The Indian market, which Xiaomi entered in July last year, has fast become its second-largest market as the company's low-priced, feature-rich phones find favor with young and cost-conscious customers.
In the April-June quarter, Xiaomi ranked seventh in terms of smartphone shipments in India - a segment that is dominated by Samsung Electronics Co Ltd and India's Micromax Informatics Ltd, according to Counterpoint Research.
Apart from the tax benefits of making in India, the facility will help Xiaomi better manage inventory and reduce lead times from three to four weeks to under two weeks, said Manu Jain, the company's India head.
"Over time, most Xiaomi phones sold in India will be made in India," Jain said. He added, however, that it was too early to say whether the company would use the facility to export devices.
Xiaomi declined to reveal the size of its investment in the new assembly line or planned production capacity.
The assembly line marks a return for Foxconn, officially known as Hon Hai Precision Industry Co, to the Indian market. The world's largest contract electronics manufacturer was forced to shut up shop in Asia's third-largest economy last year after client Nokia stopping making phones at its plant.
Foxconn, a key supplier to Apple Inc, is keen to exploit investment opportunities in India and on Saturday signed a pact with Maharashtra state to invest $5 billion over five years on an electronics manufacturing facility.
(Reporting by Aman Shah; Additional reporting by Nivedita Bhattacharjee; Writing by Sumeet Chatterjee; Editing by Edwina Gibbs)