Inside Nokia’s Dollars 150m mobile phone plant near Chennai, a stream of youthful employees in white nylon lab coats flows through a security turnstile that leads to the factory floor where the average worker is just 21 years old.

Over the past two years, Jukka Lehtela, director of India operations, has spearheaded the construction and operation of Nokia’s first Indian factory on what was a barren parcel of land about an hour’s drive from the southern city of Chennai.

The factory has soundly dispelled doubts among handset makers about the viability of manufacturing in India. Nokia expects India to be its second largest market by 2010 by volume behind China, which counts two factories. The Finnish company is in the midst of expanding its Indian plant, a move that will nearly double factory floor space.

The factory exceeded expectations by churning out 25m mobile handsets last year after opening in January. It launched with a workforce of 550, expecting numbers to reach 2,000 by year end. Yet by November, staff had swelled to 3,800 as a result of booming domestic demand and fast progress building up exports to Asia. Exports accounted for about 30 per cent of production in 2006 and are expected to near 50 per cent by the end of this year, based on advance orders, many from Africa and the Middle East.

Others are following in Nokia’s footsteps, including LG Electronics of South Korea and Motorola of the US, which is likely to start production this year. India’s Department of Telecommunications is ambitiously aiming to attract Dollars 2bn worth of foreign investment in telecoms equipment manufacturing this year.

Nokia has paved the way for a telecoms manufacturing hub in the industrial zone that houses its factory. Already, construction crews are erecting several warehouse-sized buildings that crowd the view from Mr Lehtela’s office window.

This “telecom industry park” will be a hub for component suppliers and service providers to cut down on the time and cost of importing phone parts from China or elsewhere.

Local production also allows more nimble response to the Indian market, which tends to favour brightly coloured handsets that are dust proof and have built-in flashlights, handy during the country’s ubiquitous power cuts.

In a reflection of the added complexity of the Indian market, phones produced at the plant have alphanumeric keypads in any of 13 languages including Hindi, Tamil, Bengali, Gujarati, Telegu and English.

Eight other companies – Salcomp, Aspocomp, Jabil, Laird, Shin-etsu, Perlos, Wintek and Foxconn – are setting up shop in thetelecoms park. These suppliers, many of them long-time Nokia partners, make phone chargers, circuit boards, antennae, assembly equipment and other related products. More than 20,000 workers are expected to be employed in the park when it is in full operation in 2008.

Nokia is finding plenty of demand as India continues to add mobile phone subscribers at a blistering rate. India added 6.8m mobile subscribers in January and last year overtook China as the world’s fastest growing mobile market.

With the share of the population with telephone service climbing to 18 per cent as of February, Mr Lehtela says that India is “just warming up”. He adds that truly fast growth comes when phone penetration reaches 25-30 per cent of a country’s population as consumers add second phones or upgrade to newer models.

Yet just a few years ago, handset makers were sceptical both of making precision electronics in India, known for power cuts and shaky infrastructure, and the strength of the domestic market.

Nokia sensed the potential of the market and contemplated building a factory both a decade ago and five years back. Both times it deemed the market too small. But by November 2004, momentum among Indian consumers had accelerated and the company made a firm decision to build.

Mr Lehtela says that getting government clearance for a special economic zone (SEZ) took six months, the same period of time it took to build the factory. Faster customs clearance, not tax breaks, is the main benefit of the SEZ for Nokia. Imported components are now sent directly to the factory and get customs clearance within two days rather than waiting at the airport for a week or two as is the norm.

Mr Lehtela highlights the creativity of his workforce. A questionnaire given to employees asking about possible production improvements yielded 1,800 suggestions as 80 per cent of the staff offered ideas. “People use their hands and their heads,” he comments.

Within a week of the survey, Nokia had implemented 80 changes. Many were simple yet clever suggestions, such as demarcating an assembly line with a piece of tape to help technicians sort phones they had manually inspected.

To protect against power cuts, the company has its own generators. A power outage of a few seconds would result in scrapping 1,000 mobiles because of the precision assembly involved with tiny phone components.

Lack of housing for swelling numbers of employees is a problem because there is not yet a residential belt to support the factories sprouting up near Chennai. Currently, 40 buses are used to ferry workers from their homes.

By far the biggest obstacle is infrastructure. Chennai’s roads are becoming increasingly congested.

The airport is also small and outdated. An uncovered loading area caused critical supplies to get wet during a rainstorm.

“If government doesn’t focus fast enough on infrastructure, it will definitely impact growth,” warns Mr Lehtela.

He raised the issue of Chennai’s overburdened airport to prime minister Manmohan Singh during an official visit to the factory last year. Not long afterwards, the airport loading area was covered.

Mr Lehtela also credits the government of Tamil Nadu, the state in which Chennai is located, with helping investors finding land. But soaring land costs could damp investment by others looking to enter the market. Property prices in theChennai area are now four to six times what Nokia paid two years ago and steadily rising.

“The more you wait, the more you need to pay for the land,” says Mr Lehtela. “Every day companies are thinking and not doing, they are losing business.”

Financial Times