India faces China's smartphone makers

India faces China’s smartphone makers

SHANGHAI – Chinese smartphone makers are operating in India in an increasingly challenging business environment, punctuated by the legal woes that Xiaomi has faced for most of this year.

In April, the Directorate of Enforcement, India’s Federal Financial Crimes Agency, seized $676 million (€690 million) in Xiaomi’s bank accounts in India, saying the company had made illegal transfers abroad “under the guise of royalties”.

Earlier this month, an Indian court refused to lift the freeze, although the Chinese company said the asset confiscation “effectively halted” its operations in the country.

Xiaomi, which has denied any wrongdoing, is not alone in facing regulatory scrutiny. Other companies such as Vivo, Oppo and Huawei are also under pressure.

In July, Indian authorities accused Oppo of evading customs duties worth $551 million, while investigators raided dozens of Vivo offices on suspicion of money laundering.

“The Xiaomi case is part of this comprehensive examination by the Indian government,” said Atul Pandey, partner at Khaitan & Co, a lawyer specializing in cross-border investment and regulatory matters.

A major market for smartphone makers in China

After a fatal standoff on the Himalayan border in 2020, New Delhi cited security concerns in banning more than 300 Chinese apps and tightened rules for Chinese companies investing in India.

“The Indian government has blocked access to a number of Chinese apps (including WeChat and TikTok) that are allegedly involved in the surreptitious transfer of personal data outside India,” Pandey told DW.

“Later on, the government has been closely scrutinizing royalty payments and licenses to shareholders abroad,” he added.

However, Chinese companies continued to dominate the Indian smartphone market, which is the second largest in the world, after China.

The South Asian nation’s smartphone market grew 27% year-on-year in 2021, according to technology research firm Counterpoint, with annual sales exceeding 169 million units.

Revenue increased 27% to $38 billion. About 17% of global Chinese smartphone shipments went to India in 2021.

Chinese brands captured four of the top five smartphone brands, owning up to 76% of the market, led by Xiaomi with 24%, followed by Vivo and Realme with about 15%, and Oppo with about 10%.

Samsung is the only non-Chinese brand ranked among the top five, with a market share of 18%.

Dan Wang, chief economist at Hang Seng Bank, said Xiaomi’s crackdown was due to rising political tensions, and rising protectionism in India.

“Chinese factories are competitive in terms of price and quality, displacing the market share of local brands in India,” she told DW.

Protectionism or fair play?

India is simply borrowing from the Chinese playbook, said Anurag Viswanath, an associate fellow at the Institute of Chinese Studies in Delhi.

“This is exactly what China has been doing for years, which is to use trade protectionism to block Western tech giants like Facebook and Twitter, in order to nurture its domestic players and protect ‘national security concerns,'” she told DW.

“India is killing two birds with one stone – to make a point on the regional issue and using Xiaomi as a starting point – to protect and encourage its own ecosystem of ‘Made in India’ Xiaomi alternatives. And this has worked.”

Despite the difficulties, Xiaomi has denied rumors that it is planning to leave India and move its domestic operations to Pakistan.

Pandey said India offers a huge market for these companies, and regardless of political tensions, Indian consumers have embraced Chinese smartphones and other high-tech products.

“It would not be commercially wise for these smartphone makers to leave.”

Wang said the Indian market is particularly important now that smartphone sales in China have slowed due to weak consumption and low income growth caused by COVID restrictions. “India, with a younger population and faster growth, is an ideal alternative market.”

Can Indian companies catch up?

Many Indian consumers, looking at value for money, find Chinese products attractive.

Enoch David, an Indian smartphone engineer who previously worked on Apple’s production projects in China, said that “Made in China” today is not only “cheap”, but “good”.

“The Chinese gadgets are made with the latest technology, which makes them superior quality products,” Enoch told DW. “And what’s more – they’re fantastic value for money.”

While Indian manufacturers like MicroMax have been creating affordable smartphones in the past few years, they haven’t succeeded in the consumer market yet.

David said Indian phone makers have a lot to learn from their Chinese competitors. “There is a possibility. It may take some time to catch up with their Chinese counterparts, but it will eventually happen.”

Edited by Srinivas Mazumdaro

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