Huawei drops plan to set up India plant

Huawei Technologies Co. has dropped its plan to set up a factory in India for now and has contracted a unit of Flextronics International Ltd. to manufacture telecommunications equipment for local supplies, said a top executive at the Chinese company's Indian operations.

Setting up a new local manufacturing unit doesn't make sense now because of weak demand for telecom gear in India, the executive, who didn't wish to be named, told Dow Jones Newswires recently.

The company, which has a small Indian unit to make fiber-optic equipment near the southern city of Chennai, has been planning to set up a factory to make more products locally, keeping in mind New Delhi's concerns that imported telecom gear may contain spyware.

Also, local manufacturing would help it avoid anti-dumping taxes and meet some guidelines India proposes to implement.

In an emailed statement, Huawei spokesman Suresh Vaidyanathan said the company is "committed" to India for the long term, including local manufacturing, and "toward further investments" in the country.

However, recent developments in the telecom sector have prompted Huawei to go slow on its own local manufacturing. Telecom companies in India have been holding back on investments as regulatory uncertainty, corruption allegations and cut-throat competition have taken the sheen off the industry.

The Flextronics unit will manufacture equipment for Huawei at a factory in the southern city of Chennai, said the executive.

Singapore-based Flextronics declined to comment whether its Indian unit got any contracts from the Chinese company.

Getting Flextronics to manufacture equipment locally will help Huawei meet new sourcing rules in India where the sector regulator forecasts demand for telecom equipment to grow to 965.14 billion rupees ($18.36 billion) in 2015 and to INR1.70 trillion in 2020, from about INR547.65 billion in 2010.

Currently, only 10% to 13% of the demand is met from local manufacturers.The regulator had last year suggested that telecom companies should source 30% of telecom equipment locally from April. By 2020, this is proposed to be raised to 80%.

It has also proposed that telecom-gear makers should procure at least 25% of their components locally from April. This compulsory sourcing requirement could go up to 65% by 2020.

Meanwhile in an emailed statement, Huawei said it is setting up a research and development campus in the southern Indian city of Bangalore.

The campus will be Huawei's largest research center outside China and will require an investment of about $150 million over the about $400 million it spent in India on such operations in the past 10 years, the statement said.The facility will have a capacity to employ 4,000 software professionals, it added.