It is not a reasonable and sufficient market-oriented judgment to think that Chinese manufacturers will easily withdraw from the Indian market in large quantities at this stage.
Since 2020, affected by the COVID-19 epidemic, Liu Liang, an Internet practitioner, has gradually reduced his business development process in India until Chinese Internet software was further banned by the local government, and he finally quit completely.
In India, he is also an online channel provider for mobile phones and gradually expands to offline channels. With the full withdrawal, he also stopped his business operation in the local area.
Liu Liang is one of the cases that he was forced to leave the Indian market under the influence of the local government in recent years. More concerned is that Xiaomi, OPPO and Vivo have successively encountered a tax investigation storm from Indian officials recently, and were later accused of tax evasion amounting to several billion yuan. Some manufacturers have frozen some funds, and some have proposed to recover taxes.
Recently, Zhao Ming, CEO of Glory Terminal, said in an interview that his team in India has withdrawn, but he has partners in India and has started relevant business, and will take a safe way to develop in the local area. This has made the business environment of Chinese manufacturers in India a hot topic again.
Just from the objective conditions, India is a "fascinating" market after all: there is a huge demographic dividend still growing, the trend of changing phones is still continuing, and the consumer price of mobile phones is also rising - these conditions are highly attractive for the mobile phone industry.
Of course, India's business environment has always been to be improved. A number of supply chain people who have had business development in India pointed out to reporters that since the start of business in India, tax issues have always plagued their operations, and they need to adapt from time to time.
The phenomenon of tax assessment also appeared in other overseas manufacturers such as Samsung. It is just the recent development, which shows that the inspection of Chinese manufacturers at this stage is relatively intensive and rigorous.
In the face of this "love hate" existence, we can be sure that it is not realistic for big factories that have made huge investment in the early stage to completely withdraw from the Indian market, not to mention that a relatively strong Chinese mobile phone industry ecology has been built locally; However, the top priority may be to actively follow a series of local policies and related development strategies and grow through consultation.
India Traction
It is an eternal law for any industry to expand into other emerging markets after a market has entered a stable and mature period.
India is one of the destinations with these characteristics.
Around 2016, many mobile phone industry ecosystems, including Liu Liang, came to India to build factories under the traction of terminals such as Xiaomi. Of course, this is also related to the local increase in tariffs on imported products to promote "Made in India".
For a while, Noida and big Noida became highly ecological aggregation areas for Chinese mobile phone hardware supply chain enterprises, and large terminal factories from China gradually took a foothold in this trend.
According to the statistics of Counterpoint, the market share of Chinese mobile phone brands in India jumped from 14% to 45% in the fourth quarter of 2016 compared with the fourth quarter of 2015. In contrast, the share of Indian local brands fell from 54% to 20% during the same period.
So far, only Samsung is from South Korea among the top five local brands. Chinese mobile phone manufacturers account for at least 75%.
Prachir Singh, senior analyst of Counterpoint, analyzed to the reporter of 21st Century Business Herald that Indian local brands could not compete positively with Chinese brands, because economies of scale gave Chinese brands great advantages in pricing and product specifications.
Driven by the size of the local market and policies, in recent years, the leading domestic manufacturers that have a firm foothold in India have also continued to expand their local factory building activities. According to the statistics of the aforementioned institutions, as of the first quarter of 2022, in terms of the share of Indian smart machine manufacturing, OPPO ranked first with 21.6%, followed by Samsung, and Vivo and Hon Hai subsidiaries ranked third and fourth with more than 11% respectively.
However, in contrast, Huawei and Glory do not seem to be actively investing in India.
An insider of the mobile phone manufacturer analyzed to the 21st Century Economic Report reporter that Glory was unwilling to actively try in India based on the gross margin performance. However, its manufacturers have made profits in India through the large-scale development model.
An industry observer believed that Glory had entered and exited the Indian market three times before, but it had little effect. It entered the Indian market with high-end machines, but it did not receive much response.
This may also be the reason why Glory can relatively easily announce the withdrawal of the team and continue to operate in India as a partner - the huge market cannot be abandoned, but because its early investment is not large, there may be room for discussion on the operation mode.
At present, such choices as Glory may be only a few. Liu Liang said to the reporter that according to his understanding, the mobile phone industry chain manufacturers have not left, and a certain proportion may come from trade services. "OVM and other large terminal manufacturers are all there. It can be said that 80% - 90% of the supply chain is following them. As long as mobile terminals are not gone, these manufacturers will not go. The number is not easy to count. I roughly estimate that the evacuation will be 10% - 20% at most."
Yang Shucheng, secretary-general of China India Vietnam Electronics (Mobile Phone) Enterprise Association (CMA), also told the 21st Century Business Herald reporter, "As far as I know, the overall strategy of Chinese brands and supply chain manufacturers in India will not change." For example, whether it is Xiaomi, a large terminal factory OPPO, Vivo and Median are also module factories, screen factories, and smaller service industry chain companies such as data lines, chargers and equipment. At present, there is no obvious change in the development plan in India.
"Looking around the world, India is an indispensable market to maintain the growth and vitality of brands." He continued that it is true that Chinese companies in India are currently facing difficulties such as tax review, business licensing and approval, but from a commercial perspective, this is a temporary difficulty, which does not change the attractiveness of the market itself.
"We haven't seen Chinese smartphone companies withdraw from the Indian market. All OEMs (referring to OVM and other terminals) have invested a lot of money in the development of the mobile phone ecosystem in India. At the same time, India is the second largest smartphone market in the world, but there are still some people who are not connected to the Internet, which makes it a profitable market, especially in the entry-level and economic markets. Prachir Singh said to the reporter that due to the competitive price and product definition, Chinese brands are in a leading position in the Indian smartphone market. If a Chinese manufacturer withdraws, it will be a difficult task for other existing players to fill the vacancy.
Encountering difficulties
It is undeniable that the current dilemma does exist.
Since this year, Chinese funded large terminal factories have been subject to joint review from multiple departments of Indian authorities, mainly focusing on tax. In addition, some manufacturers also changed some business principals in India.
However, India's tax system has always been complex and constantly changing. At the same time, considering the impact of multiple external factors, it has brought difficulties for manufacturers to operate locally.
Yang Shucheng analyzed to the reporter that the current challenges of Chinese enterprises operating in India come from three aspects: being taxed is the biggest challenge; The review of employees' existing work permit and business permit is also very strict; The management and technical personnel of Chinese funded enterprises can not get the approval for visa application before going to India.
"These three challenges make Chinese enterprises in India in a difficult period." He further analyzed the reasons, including the impact of international relations and the localization of enterprise operations.
The tax issue has always been a major persistent problem faced by Chinese enterprises when doing business in India. Many supply chain manufacturers who once operated in India mentioned to reporters that India's tax policy has been changing over the years for different production and transportation links of different parts. It is also necessary to consider that the tax subject may be a "state" or a smaller administrative unit.
Yang Shucheng thinks it is understandable. "On the one hand, this is related to the attitude of the ruling party in India, which may face similar problems in any country; on the other hand, because it is really impossible to change, we can only appeal to Chinese enterprises to actively adapt to and face this change, and understand and interpret the Indian tax law."
Yang Shucheng also said frankly that the current business environment in India really needs to be improved, and there are still problems such as rough law enforcement. "However, the mobile phone industry chain is the first batch of Chinese investors to go to sea. Up to now, a large number of large-scale systematic industry chains have been moved to India for production and manufacturing. We call on Chinese enterprises to learn and grow."
In this regard, Prachir Singh believes that the Indian government does not want to project these investigations as a "blow to Chinese enterprises", because doing so will not allow people to clearly understand India's business environment and the "Made in India" plan. "The mobile phone business has always been the banner of the 'Made in India' initiative, which the government considers an achievement. We believe that these surveys seem to be due to inconsistent understanding of the tax system, which will be resolved in due course. We believe that all these surveys have a small impact on Chinese brands, which will continue to lead the Indian smartphone ecosystem."
Of course, as a non manufacturing enterprise, Liu Liang is indeed a group that is greatly affected.
He told the 21st Century Business Herald that after the outbreak of the epidemic in 2019, considering the uncertainty of the future and the measures taken to ban Internet enterprises to a certain extent at that time, he allowed online business personnel to choose whether to leave or not by way of salary cuts. Until the online business is completely stopped, the remaining employees can only be dismissed.
"These measures have caused a large number of people to lose their jobs to a certain extent. Especially in the current economic downturn, it is harder and more difficult for local people to find jobs." Liu Liangxu said that, to a certain extent, these employees who saw the market changes and proposed to quit are now unable to obtain the same high salary level in Chinese funded companies as before.
"Recently, some employees have begged me one after another to provide them with some job opportunities. But I have withdrawn, so I tried to introduce some employees I think are really good to other Chinese funded companies." When talking about this, Liu Liang was somewhat helpless.
According to Liu Liang's observation, most of those who choose to withdraw from the Indian market in the short term are in the trade industry. In addition to the shutdown of the software he faced, there was another factor: the stability of the exchange rate differential.
"At present, the Indian rupee continues to depreciate, causing the difference between the exchange rate of China and India from the lowest one to more than 9 o'clock to more than 12 o'clock, almost 15% - 20% of the profits have been evaporated. At the same time, because the Indian government requires that the transfer should not be made in dollars, but in rupees, which will have a greater business impact on trading companies. Then the traders will choose to withdraw or suspend the relevant business in India in the short term. " He analyzed.
How to cope
One view is that behind the review proposed by the Indian government, there are results that need to be obtained. As long as the demands of the company and the government are balanced, the above problems may be solved.
According to Liu Liang, in 2018, Samsung also encountered the problem of tax investigation and punishment of 10 billion yuan in India, but finally through the agreement between Samsung and local departments, it brought a certain scale of production value and other conditions for the local in exchange for cancelling these fine requirements. Then it can be seen that Samsung has indeed increased its efforts to build factories in India.
"This shows the direction of the Indian government. Of course, I also think that this series of actions against Chinese enterprises is a bit serious." He continued, and the relevant Indian departments were relatively rude in the process of law enforcement. "Of course, I think that such problems as tax inspection can be finally solved through negotiation and other ways, but only the specific way to do it, unless some enterprises are in deficit and unable to pay the relevant funds." Liu Liangxu said.
In any case, it is not a reasonable and sufficient market-oriented judgment to think that Chinese manufacturers will easily withdraw from the Indian market in large quantities at this stage.
Yang Shucheng believes that for Chinese enterprises, regardless of the size of the company, they will eventually overcome the difficulties they are facing
After the development in recent years, Indian local mobile phone and communication brands have gradually declined; At the same time, India has not grown a supply chain manufacturer with sufficient capacity, and the local mobile phone ecosystem still needs to rely on the supply chain system from China.
"The supply chain system can not be built in a year or two. I think that Chinese mobile phone enterprises have at least 15-20 years of living space in the Indian market, which is long enough." He continued, this is based on the development history of Chinese manufacturers in India, the current industrial foundation of India, and the vitality of Chinese brands in India.
The above-mentioned manufacturers also told reporters that India wants to actively promote the growth and development of local manufacturers in the mobile phone supply chain, but so far it has failed. This may be related to comprehensive factors such as the working efficiency and quality of local personnel.
India is still actively promoting its indigenous manufacturing plan. In 2021, it proposed the production related incentive (PLI) plan again.
In this regard, Prachir Singh analyzed that the mobile phone supply chain players approved by PLI mainly include Samsung, Foxconn, Wistron and Heshuo. "Of the four companies, three are Chinese companies, although they prefer Apple's ecosystem. There is an additional note in the PLI plan that global participants can get incentives on devices with invoice values of more than INR 15000 (equivalent to 1500 yuan)."
This brings a layer of speculation that Apple may take this opportunity to gain greater development opportunities in India.
According to Prachir Singh's analysis, macroeconomic problems are affecting the whole world, and India is not immune. "We have witnessed a decline in consumer demand, and almost all brands are facing inventory accumulation. We estimated that the Indian smartphone market currently has an inventory level of more than 10 weeks (the normal inventory level is about 4 weeks). Entry level users are the most severely affected, because users at the bottom of the pyramid are most affected by the adverse macroeconomic winds."
In his view, if Chinese brands are affected, it will be most beneficial for Samsung, because its products cover all price ranges. But it won't have much impact on Apple. Because the brand is in the leading position in the high-end market.
Of course, as one of the top growth markets, India is still favored by many people. "The business environment is really not very friendly. But I think the Indian market is big enough, and if there is an opportunity, any business that you want to develop can grow up quickly." Liu Liang told reporters.
(At the request of the interviewee, Liu Liang is a pseudonym in the article)
(Author: Luo Yiqi, Editor: Zhang Weixian)
