After Xiaomi, will India “harvest” vivo again?

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Author | Fanie
Chinese mobile phone manufacturers are not doing so well in India.
Recent media reports stated that vivo’s Indian subsidiary is negotiating with Tata Group to acquire a majority stake in order to meet the Indian government’s localization requirements for operations. According to reports, the negotiations have entered an advanced stage, and vivoIndian company hopes that Tata Group will increase the acquisition price.
At the same time, the Indian government requires Tata Group to hold at least 51% of the shares of vivoIndian companies. It also requires that the joint venture after acquisition be led by Indian manufacturers and the marketing network must be localized.
This is also regarded as an important step for India to promote the "Made in India" plan. Other Chinese mobile phone manufacturers may face the same situation, but they are not willing to give up the Indian market easily.
01
Frequent fines
In fact, in June 2023, India required Chinese mobile phone manufacturers including Xiaomi, OPPO, realme and vivo to introduce Indian equity partners in their Indian operations , and asked them to appoint Indian executives to key positions such as chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO) and chief technology officer (CTO).
At the same time, these companies are also required to designate Indian contract manufacturers, establish joint ventures with Indian companies, upgrade local manufacturing to the level of parts and components, expand exports from India, and hire local distributors. In addition to this, the Indian government has also directed these companies to abide by the law and not evade taxes in India.
Before this, mobile phone manufacturers have been punished many times by India.
In June 2023, India claimed that Xiaomi was suspected of violating India's Foreign Exchange Management Act, and formally accused Xiaomi's local department of illegally transferring money to foreign entities by pretending to be "royalties". Previously, India had seized 55.51 billion rupees of funds from Xiaomi, which was also the largest seizure of funds in India.
Xiaomi’s market in India was also affected for a time.
In 2023, Xiaomi (1810.HK) smartphone revenue is 157.5 billion yuan, a year-on-year decrease of 5.8%. Xiaomi explained that it was mainly due to the decline in smartphone shipments and ASP (average selling price). The ASP of smartphones dropped by 2.7% from 1,111.3 yuan in 2022 to 1,081.7 yuan in 2023. However, in 2023, smartphone ASP in mainland China will increase by more than 19% year-on-year.
In the financial report conference call, XiaomiPartner and Group President Lu Weibing said that there are two main reasons for the decline in ASP in overseas markets. The first is that XiaomiThe focus of the Indian market is still on returning to a healthy state, and it has not yet promoted high-end mobile phones. Listed on the market; secondly, in emerging markets such as Latin America, the Middle East, and Africa, Xiaomi still focuses on market expansion of mid-to-low-end models. These markets are the main markets for Xiaomi’s new phones to be shipped overseas.
Except Xiaomi, other mobile phone manufacturers are also "unable to escape".
In July 2022, OPPO was accused of evading tariffs of nearly 43.9 billion rupees. India claimed that OPPO mistakenly used tariff exemptions when importing mobile phone parts and did not include royalties when calculating the transaction value of imported goods.
In the same month, vivo was investigated on suspicion of money laundering. India said that vivo established 22 companies in India to launder money and accused these companies of financial terrorism. As a result, 119 Indian-related bank accounts of vivo were frozen, with a total amount of 4.65 billion rupees. Subsequently, vivo provided a guarantee of approximately US$119 million to the bank and lifted the account freeze.
Samsung didn’t escape either. In January 2023, India accused Samsung of tax evasion of approximately US$212 million.
In fact, in addition to mobile phones, India also frequently suppresses foreign companies in other industries, and companies often suffer various investigations and penalties. The unstable business environment has turned India into a "cemetery for foreign companies."
02
A market they don’t want to lose
Mobile phone manufacturers are also unwilling to give up on India easily. A very important reason is that India, as the world's most populous country, has a huge mobile phone consumer market.
Huatai Securities stated in the research report that according to IDC data, the CAGR of the Indian mobile phone market size from 2015 to 2023 is as high as 11.0%, and the market size in 2023 will be US$37.986 billion, equivalent to 29.7% of the Chinese market size during the same period. In terms of penetration rate, India's smartphone penetration rate in 2023 will be about 70%, which is equivalent to China's level in 2012-2013, and there is still a lot of room for improvement.
In such a consumer market, India has never established its own mobile phone brand. Huatai SecuritiesResearch report shows that Samsung, Apple, Xiaomi, Transsion, OPPO, vivo and other brands are major brands in India. In 2023, the sales market share of domestic brands in India will be less than 5%.
The living space of Indian domestic brands has been squeezed by overseas brands. Behind the scenes, it is related to India's reliance on foreign investment to build a local industrial chain. In 2014, India proposed the "Made in India" plan, aiming to increase the proportion of manufacturing in GDP from 15% to 25% by 2025.
In order to achieve localized production of mobile phones, the Indian government launched a phased manufacturing plan in 2015. In the first phase of the plan, the Indian government mainly attracted foreign investment to build factories through tariff exemption policies; in 2017, the plan entered the second phase, and the government Further increase tariffs on imported complete machines and parts, aiming to increase the added value of products and promote the localization of the industry.
Data shows that in 2014, 78% of Indian smartphones relied on imports, and by 2023, 99.2% of all mobile phones sold in India will be manufactured locally in India.
After establishing the mobile phone industry chain, India has changed its attitude towards foreign investment.
On April 18, 2020, the Department for Promotion of Industry and Internal Trade (DPIIT) of India revised its foreign investment policy, stipulating that from now on, all direct investments in India from "countries with land borders with India" must be approved by the Indian federal government. Even changing the ownership of existing foreign-invested enterprises in India requires approval from the Indian federal government.
Among the countries bordering India, China is the main investor - the China-India-Vietnam Electronics Association CMA has statistics that by the end of 2020, the overall number of Chinese mobile phone supply chain factories investing in India reached 200, and the number of trading companies reached 500 , there are tens of thousands of Chinese people coming and going to support the development of Chinese-funded mobile phone factories. The number of Chinese-funded mobile phone companies traveling to and from India each year reaches 100,000.
The introduction of this policy is regarded as highly targeted towards China.
According to media reports, some Indian officials even stated that Chinese smartphone manufacturers currently occupy a major market share in India, but their market dominance is not "based on free and fair competition." Although Chinese mobile phone brands account for 70% of the market share in India, they often suffer losses, which exacerbates market inequality.
This time, India requires vivoIndian companies to give up at least 51% of their equity to Indian companies, which is also to further "localize them in India" in order to bring more revenue to India. There is a high probability that other brands will not escape. .
It is not difficult to see that India has a “love-hate relationship” with Chinese mobile phone brands. And through policies, forcing Chinese mobile phone manufacturers to gain more control in India can also win more opportunities for Indian domestic brands. For mobile phone manufacturers, the Indian market is still a potential stock that can bring overseas growth. If you want to continue doing business in India, you must also be more proactive in adapting to India's "fickle" business environment.

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