Declining sales in the entry-level segment make in-house manufacturing challenging for companies, as fixed costs and factory expenses remain constant.
Large electronic brands like Samsung, LG, Oppo, Vivo, and Voltas, which already have their own manufacturing facilities in India, are strategically shifting the production of entry-level products to contract manufacturers. This shift aims to optimize their manufacturing resources by freeing up capacities in their in-house plants for the production of mid-to-premium range products—a segment that has consistently shown growth over the past four years.
This move comes at a time when the share of entry-level products in total sales is declining across the market. The trend reflects changing consumer behavior, as first-time buyers are either deferring purchases or opting for mid-segment products due to the widespread availability of credit. The decline in entry-level sales is further influenced by a growing preference for devices that offer better features and performance, which are increasingly accessible through easy financing options. This has made mid-segment products more appealing to consumers who might have previously considered entry-level options.
Interestingly, LG Electronics India recently unveiled its draft red herring prospectus, highlighting a significant shift in its manufacturing strategy. The company is now producing entry-level refrigerators, washing machines, window air conditioners, and compact televisions through third-party suppliers on a stock-in-trade basis. This strategic move has enabled LG to manufacture 85% of its products within India, with only 15% sourced from third parties or imported.
In response to this change, industry executives have added that some companies have completely shifted production for their entry-level portfolios, while others, like Samsung, are outsourcing the manufacturing of entry-level washing machines, televisions, and smartphones. Meanwhile, Oppo and Vivo have also started moving production of specific models outside their facilities, showcasing a trend toward optimizing manufacturing strategies.
IDC India reported that the entry-level smartphone segment (under $100) decreased to a 14% market share in Q2, down from 22% last year. NielsenIQ data shows that weak demand for entry-level products is pressuring volume growth in smartphones, televisions, and large appliances, resulting in a 2% decline in the overall electronics market for July-September compared to the previous year. Experts also highlighted that declining sales in the entry-level segment make in-house manufacturing challenging for companies, as fixed costs and factory expenses remain constant.
