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Telecommunications networking suppliers Ericsson and Huawei plan to manufacture 5G radios in India, producing enough equipment to meet demand in India and export to other countries, the Economic Times reported this week. Nokia also plans to increase its existing production of 5G radios in India, from which it already exported over 20,000 5G radios to the US and Europe. Business Insider Intelligence

Networking companies are gravitating toward India as its government prepares to auction 5G spectrum by the end of 2020, paving the way for a massive network buildout. There will be 88 million 5G connections in India by 2025, according to a GSMA Intelligence report. And it could sustain explosive growth well after that, as the projection assumes 5G will only constitute 7% of India's installed base of over 1.3 billion connected devices in 2025.

Telecommunications suppliers have increasingly moved production to India, responding to import tariffs. The Indian government raised duties on communications and technology products from 15% to 20% in 2018. This created further incentive for major suppliers to shift manufacturing to the country. For instance, Samsung opened a smartphone factory in India in 2018, allocating 49.2 billion rupees ($688 million) to expand operations over three years, according to Reuters.

The South Korean company started assembling phones in India in 2007, but the influx of capital was intended to increase Indian production for exports, rather than just meeting domestic demand. Similarly, Foxconn, a major Apple supplier, promised to mass-produce iPhones in India by the end of 2019. Apple will export these devices to Europe, just as Nokia did with its India-produced 5G radios.

To gain access to consumer populations in emerging markets, telecommunications companies will need to increasingly rely on regionalized supply chains. Following China's template, India enacted policies that leverage market access as a bargaining chip to attract domestic manufacturing investments from multinational corporations. Other countries with developing economies and large consumer bases — including Indonesia, Thailand, Malaysia, and the Philippines — have implemented similar strategies.

This creates attractive investment opportunities for global telecommunications companies, but they should heed an important lesson from manufacturing in China: Overreliance on manufacturing in any particular region can have major fallout. In response to US-China trade tensions, Nokia and Ericsson had to scramble to set up new supply chains outside of China. By moving production closer to a handful of regions with significant demand, telecommunications companies can retain access to major markets, while also hedging against geopolitical risk.

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