vivo was "localized" in India, and Chinese mobile phone companies were frequently robbed, where to go?

China Business News

2024-06-19 11:56Published on the official account of China Business News in Beijing

Reporter Chen Jialan reports from Guangzhou

While Chinese mobile phone manufacturers are expanding into overseas markets, they are facing pressure from the Indian government to "localize".

Recently, Indian media MoneyControl reported that vivo India is negotiating with India's Tata Group (Tata) to acquire its majority shares and establish a joint venture company, in order to meet the Indian government's requirements for senior executives to be Indians and localize the marketing network to achieve the purpose of localization.

According to the report, the negotiations between the two sides have entered an advanced stage, Tata Group is very interested in the acquisition, and Vivo India hopes that Tata can increase the purchase price, but the two sides have not yet reached a final agreement.

In this regard, vivo told the reporter of "China Business News" that there was no response (to relevant news and statements).

The reporter noticed that some Indian media reported earlier that India is stepping up the "attack" of mobile phone manufacturers such as OPPO and vivo, asking them to leave or hand over the dominance of local companies to Indian companies. In line with the government's vision and changing consumer behaviors, handset manufacturers are continuously optimizing their localization efforts for retail, manufacturing, sourcing and R&D in the Indian market to ensure their long-term position in the Indian market. Ma Ji, a communications expert, told reporters that India's business environment is very poor, and it has repeatedly taken discriminatory actions against foreign investors, and has "snatched" the corporate assets of influential mature multinational companies in India.

Vivo sells equity in a local company?

According to the above-mentioned Indian media reports, the Indian government requires Tata Group to hold at least 51% of the shares of vivo India, and at the same time requires the joint venture to be dominated by Indian manufacturers, and the marketing network must also be localized.

Previously, the Indian government once again asked Chinese mobile phone brands, including Xiaomi, OPPO, vivo, realme, etc., that Chinese mobile phone brands operating in India should appoint Indians to senior positions such as chief executive officer, chief operating officer, chief financial officer and chief technology officer. At the same time, the Indian government has also requested that Chinese mobile phone manufacturers entrust manufacturing contracts to Indian companies, involve local companies in the mobile phone manufacturing process, and localize the distribution structure by appointing local distributors in India. A series of demands from the Indian government have been accused of increasing the "print content" of smartphones.

In addition, as an Indian business giant, the Tata Group is enthusiastic about entering the field of electronics manufacturing. The group not only acquired Wistron's factory in India to produce iPhones for Apple, but also began to venture into the semiconductor field, planning to build a semiconductor manufacturing plant in Gujarat. The Tata Group's ambitions for electronics manufacturing have also benefited from the Indian government's support and encouragement of the local industry.

Taking India's vast consumer market as an attraction, the Modi government has introduced support plans and increased import tariffs on complete machines, in an effort to build the upstream and downstream industries of consumer electronics manufacturing and cultivate a complete local industrial chain. In terms of investment, Modi launched the "Self-Sufficiency India" initiative in 2020, which aims to support Indian companies to move away from dependence on Chinese supply chains.

For the Tata Group, the acquisition of a majority stake in vivo India will present an opportunity in the electronics manufacturing sector.

In 2014, Chinese mobile phone manufacturers entered the Indian market one after another, and soon after, Chinese mobile phone manufacturers won four of the top five positions in the Indian mobile phone sales market. However, at the same time, Chinese mobile phone manufacturers have encountered various repressions in India, especially since 2020, the Indian government has banned more than 200 Chinese mobile phone applications in the name of so-called "national security", and many Chinese companies in India have been caught in "tax" and "money laundering" storms.

Xiaomi, OPPO, vivo, ZTE, Lenovo and many other Chinese companies are not immune to India's "harassment", especially mobile phone brands. Indian departments have taken turns to embarrass Chinese mobile phone manufacturers in various names such as tax audits, asset freezes, and restrictions on employee visas.

In 2022, vivo was investigated by the Enforcement Directorate of India (ED) for "tax evasion". At the end of 2023, India's Enforcement Directorate arrested a number of senior executives of vivo India on the grounds of an anti-money laundering investigation, including the interim CEO and CFO of vivo India.

Xiaomi, OPPO and OnePlus have all been accused of evading tariffs and illegally sending money. In June 2023, India's Enforcement Directorate issued a notice to Xiaomi's branches in India, some executives and relevant banks, accusing them of illegally transferring funds abroad and allegedly violating India's Foreign Exchange Management Act, based on which Indian authorities previously seized a total of 55.51 billion rupees of Xiaomi's funds, or about 4.82 billion yuan.

Being "indigenized" is intensifying

The Indian government's move is also seen as part of a "Make in India" strategy to support local companies, while the Indian market has also been challenged for Chinese handset makers.

In the financial report meeting in March 2024, Lu Weibing, president of Xiaomi Group, explained the decline in the average selling price of mobile phones, saying that there are two main reasons for the decline in ASP data in overseas markets, one of which is the adjustment for the Indian market, and Xiaomi's high-end mobile phones will basically not be listed in the Indian market in 2023.

In February, Xiaomi also said in an open letter that it hoped the Indian government would consider some incentives and lower import duties on certain smartphone components.

In the face of the arrest review by the Enforcement Directorate of India, a spokesperson for vivo India also said that the harassment has brought uncertainty to the entire industry. However, the impact of vivo's operations in the Indian market in the past year does not seem to be significant, according to Canalys data, vivo ranks second in the Indian market in 2023 with 26.1 million units shipped, compared with 2022, the ranking of shipments has also risen one place. Xiaomi fell from first to third in the Indian market.

Regarding the rise of vivo's mobile phone market share in India, Canalys senior analyst Sanyam Chaurasia said that there are three main reasons: first, vivo's strong offline channel performance in the Indian market (unlike Xiaomi and realme in the past two years, which are online-centric); Second, it has opened a wave of entry-level and affordable 5G market, and initially led this market segment; Third, the mid-range model performed well.

Vivo's quest to partner with Indian companies is also seen as an important means of retaining local market share.

"Vivo's strategic collaboration with local partners will help align the brand with the government's vision." Sanyam Chaurasia told reporters that the Indian government has been pushing all smartphone manufacturers to build an India-centric smartphone ecosystem, which includes building local channels, leveraging local manufacturing partners and appointing Indian leadership.

Based on the importance of the Indian market, vivo launched localization actions when it entered India in the early days, including cooperating with local retailers, establishing service centers and experience stores, as well as enhancing brand awareness through localized advertising and brand ambassadors, launching mobile phones with under-display fingerprint and lifting camera functions for the Indian market to meet the needs of local consumers, and responding to the Indian government's investment in building factories to achieve localized production.

The industry believes that if vivo's early localization is more out of market competition and brand building considerations, the current localization is a coping strategy under the pressure of Indian government policies, showing a certain degree of passivity. The reporter noted that from the appointment of Indian management, the restructuring of the local distribution network to the cooperation with local manufacturers, the "localization" of Chinese manufacturers in India has intensified.

For example, Indian media reported that Xiaomi had hired an Indian manager for a management position. Since April this year, vivo has changed its agency cooperation with Indian companies in New Delhi, Punjab and Haryana, and OPPO has also set up a similar distribution network in Delhi. In April, vivo's manufacturing facility in Greater Noida was taken over by Bhagwati Products (Micromax), a subsidiary of India's homegrown technology company Micromax.

In February this year, Chinese brands such as OPPO, vivo and realme were rumored to be discussing cooperation with local Indian manufacturers such as Dixon Technologies and Karbonn to produce smartphones, partly due to pressure from the Indian government.

"According to Canalys, in the first quarter of 2024, OPPO (excluding OnePlus) accounted for 17% of its global shipments in India, vivo accounted for 29% of its global shipments in India, and Xiaomi (including POCO) also accounted for about 16% of its global shipments in India." Canalys research analyst Zhong Xiaolei told reporters that India is still the largest overseas market for OPPO, vivo and Xiaomi, and they will not easily let go of this cake.

(Editor: Wu Qing Review: Li Zhenghao Proofreader: Zhai Jun)