Why China's smartphone tsars want Indians to make their phones

The Chinese companies have been looking to tie up with Indian partners after the government's nudge in this direction; however, discussions changed track as large Indian groups who could have been equity partners were keen on building their own manufacturing operations on the lines of local electronics manufacturing services providers, or even large global contract manufacturers that can make for more than just one brand and export as well.

“All Chinese players are talking to Indian groups. Tata group, Reliance Industries and Dixon Technologies have been in discussions with them, but talks on taking majority equity have not progressed because of the tax cases and investigations by the Enforcement Directorate which have a direct bearing on the brand," said one of the people cited above, all of whom spoke on the condition of anonymity.

The Enforcement Directorate is investigating Vivo for suspected money-laundering. The government claims that Vivo, Oppo and Xiaomi have evaded taxes including customs and GST payments totalling ₹9,000 crore between FY19 and FY23.

“There is a certain stigma attached to them (Indian entities) owning something that has a Chinese branding to it. Ultimately, it's a question of whether the brand will remain as is because that’s what it is known as in the market. We’re not keen on taking over the brand," a second person added.

Also read: Xiaomi India eyes increased localization, Apple-like ecosystem

However, he added that a partnership—which could be a manufacturing or distribution joint venture—will be mutually beneficial as the Indian company would not take ownership or be part of a so-called ‘Chinese’ phone brand, but make devices for them and benefit from their hefty sales in India.

Queries emailed to spokespersons of Tata group, Reliance Industries, Oppo, Vivo, Dixon Technologies and the electronics ministry remained unanswered till press time.

"Some of these discussions have not progressed due to issues of valuation as well," said a third person aware of the details, asking not to be named.

Market share

According to Counterpoint Research, Xiaomi, Oppo, Vivo and Realme are four of India's top five smartphone makers, holding a combined volume market share of 58% as of March 2024. All Chinese phone brands held a combined 75% share as of May 2024.

"A smartphone market without Chinese brands would be one devoid of the affordability and innovation that Chinese brands have been known to bring to Indian consumers. Their exit would likely make smartphones less accessible to the masses and potentially slow down the pace of technological advancements," said Prabhu Ram, head of industry intelligence unit, Cybermedia Research.

"Chinese smartphone makers dominate the Indian market, capturing over 69% of the total smartphone shipments. This dominance is even more pronounced in the affordable and value segments (under ₹25,000), where their market share reaches nearly 80%. With their competitive 5G and 4G offerings, Chinese OEMs have been instrumental in bringing Indians online for the first time," he added.

The Indian government is keen on companies with Chinese parents to have Indian equity partners, local leadership as well as local distribution. In March, China's SAIC Motor sold 51% in subsidiary MG Motor India to investors led by JSW Group, which picked up 35% stake.

Also read: Samsung goes non-urban, targets smartphones under ₹50,000 for value-add

However, not everyone is convinced about the wisdom of nudging foreign companies to have Indian partners. “What India can do is to ask such brands to be compliant with local regulations on data collection and privacy, but a push to ask brands to find domestic equity partners will always find more questions than answers unless a conducive business environment is upheld," said a top lawyer, whose law firm is part of several advisory committees to the government.

However, some in the industry said that Chinese firms should change the way they do business in India.

“The ways of doing business by Chinese brands have to be more transparent. The government is not against any other foreign companies. But if a brand is using the consumption market and ends up being the biggest seller, but not paying taxes on it, the government will definitely have the questions and the right to ask the questions," said Madhav Sheth, chief executive of Honor Tech, which restarted operations in India last year. The company was formerly owned by China’s Huawei, but is now licensed by Gurgaon-based PSAV Global.

Localizing operations

Smartphone makers have begun taking steps to comply with some of the demands, including extensive localization of operations.

“Localization of our overall business, through manufacturing, is created by a combination of supplies from abroad, as well as from India. Today, we continue to have conversations to figure out how more of our supply chain partners, based in China or elsewhere, come and set up shop in India," said Muralikrishnan B., president, Xiaomi India in interview with Mint on 10 June.

He added that it was an ongoing conversation where the suppliers evaluate their move based on market potential, commercials, approvals and more. Almost 50-60% of the non-semiconductor bill of materials gets sourced locally which includes mechanics, fingerprint and camera modules, he said.

Also read: Can we save our children from smartphones?

Vivo is also planning to open its largest manufacturing facility in Greater Noida, Uttar Pradesh this year which will take its capacity to 120 million units a year. An investment of over ₹3,000 crore is expected in this plant, according to an Economic Times report in June. In 2019, it had planned an investment of ₹7,500 crore over several years.

An Economic Times report in March said Vivo and Oppo have begun appointing Indian entities for distribution. A senior executive from one of the companies said on the condition of anonymity that compliance was necessary in order to continue to do business in the country. “Different countries have different regulations and for us to be able to continue, we have to comply," he said.

Another Chinese smartphone maker Transsion Technology Ltd has entered into an agreement with Dixon Technologies where the latter will acquire a majority 50.10% share in Ismartu India, a subsidiary of Transsion that makes phones for its three brands - iTel, Infinix, and Tecno in India.