撰写After suppressing Chinese-funded mobile phone companies through various means for a long time, the Indian government has finally put forward a "final solution" recently, which has also revealed the real intention of the Indian government.
According to Indian media, the Indian Ministry of Electronics and Information Technology recently convened a meeting of Chinese smartphone manufacturers such as Xiaomi, OPPO, Realme and vivo. At the meeting, the Indian government put forward a series of requirements for these enterprises: for example, enterprises open Indian capital to share shares; Core executives must be held by Indians; Mobile phones are manufactured and assembled by Indian companies; Train Indian distributors to expand exports.
Sha Jun, co-founder of the Indian Investment Service Center of Yingke Law Firm, told the First Financial Reporter that from the perspective of enterprises, these new requirements have significantly changed the cost structure and even the governance structure of enterprises, exceeding the original expectations of enterprises, and the pressure will be great.
These conditions set by the Indian government require these Chinese-funded enterprises to speed up "Indigenization" and eventually become Indian-funded enterprises. At the same time, India’s appetite is not limited to the domestic market, and it is hoped that Chinese companies will help India improve its position in the global industrial chain and supply chain.
Chen Jing, vice president of the Society of Science, Technology and Strategy, told the First Financial Reporter that India hopes to completely copy the success of China’s mobile phone industry to India. There is a complete and careful plan for this, and some achievements have been made under the systematic play.
He further stated that individual enterprises are unable to cope with the systematic suppression of the Indian government, and the worst situation is to be broken one by one. Therefore, it is necessary for Chinese-funded enterprises to unite and conduct overall negotiations with the support of the state to improve their response level.
Xiaomi has been working in India for many years.
It is worth noting that on June 9th, just before and after the meeting, the Central Law Enforcement Bureau of India issued a notice to Xiaomi Technology India Branch and three banks, accusing Xiaomi of violating the Foreign Exchange Control Act (FEMA) and "illegally transferring funds to foreign entities". For this reason, this institution has frozen 55.51 billion rupees (about 4.834 billion yuan) of Xiaomi’s funds last year. The notice means that this fund may be completely confiscated.
At the time when the Indian government issued a "solution" and issued the above notice at the same time, it seemed quite shocking to the outside world.
55.51 billion rupees is not a small sum for Xiaomi. According to the calculation of local media in India, the accumulated profit of Xiaomi India Branch in India for 9 years is 9.46 billion rupees. If only from the perspective of profit and income, Xiaomi is almost in vain in India.
According to the announcement of Xiaomi Group’s annual performance in 2022 released in March this year, the adjusted net profit was RMB 8.5 billion, and 55.51 billion rupees also accounted for more than half of the Group’s annual profit.
Being fined for tax problems is a common problem for Chinese mobile phone companies in India. In addition to the brand enterprises in the head, a Chinese-funded mobile phone accessory enterprise in India also told the First Financial Reporter that due to the investigation of upstream and downstream Chinese-funded enterprises, they were also subject to tax investigation and were tired of coping.
As the world’s most populous country, India’s market potential is quite attractive to any multinational enterprise. Chinese mobile phone companies entered the Indian market one after another around 2014. Apart from the advantage of population base, another attraction was that Modi took office that year and put forward the slogan of "Made in India", hoping to vigorously develop India’s manufacturing industry.
Since then, China mobile phone brands, represented by Xiaomi, have appeared in India one after another, and have gradually grown into well-known local brands with high cost performance. According to the market survey data of India in 2022, at least two out of every three smartphones in India are China brands, and China mobile phones have an absolute advantage in the Indian market.
However, the good days of Chinese mobile phones in India are not long. In 2020, with the tension between China and China, India first started with’s mobile phone software in June of that year, and the first batch of 59 mobile phone applications were banned. Since then, more than 200 mobile phone applications have been added.
Among them, there are many softwares, such as TikTok and WeChat, which represent the mobile phone software industry in China, as well as supporting softwares for Chinese mobile phones, such as Xiaomi Community and Xiaomi Video Phone.
After a short silence, India finally extended its goal to mobile phone hardware. On the evening of December 21, 2021, the law enforcement officers of the Tax Bureau of the Ministry of Finance of India acted in unison and rushed to more than 20 Chinese-funded mobile phone companies in India to check taxes.
From Delhi, the capital, to Mumbai, the economic center, and then to Bangalore, the Indian science and technology center, no one was spared. Such a concerted and large-scale action, even the Indian media can easily conclude that this is a "encirclement and suppression" of China’s mobile phone suppliers.
Xiaomi and a number of Chinese mobile phone companies were involved in the storm center. Xiaomi’s mobile phone share in the Indian market began to decline. In 2020, its shipments will still account for 26% of the Indian market; According to the data released by Counterpoint, in the first quarter of 2023, Xiaomi has been overtaken by Samsung and vivo, from the first to the third, and the market share has dropped to 16%.
India Cellular & Electronics Association (hereinafter referred to as "the Association") also sent a letter to the Indian government in May last year, expressing dissatisfaction with the law enforcement actions taken by Indian law enforcement agencies against mobile phone companies at that time. The Association said in the letter that the actions caused "deep and unnecessary panic" in the industry. The association is an industry organization representing all relevant enterprises in India.
Chinese enterprises are in a dilemma.
In the meeting convened by the Indian Ministry of Electronics and Information Technology, the Indian government focused on "opening conditions", while "tax evasion" was taken in the last stroke. After all, this is a means, not an end.
MadhavSeth, president of Realme’s international business, said that the Indian government hopes that these Chinese enterprises can make use of local talents and ecosystems to build India into a production and export base. This will add added value to Indian industry and promote local enterprises to be self-reliant.
The conditions offered by the Indian government, including the chief executive officer, chief financial officer and chief operating officer of Chinese-funded mobile phone enterprises, must be held by Indian nationals. This is actually not difficult. Chinese mobile phone manufacturers have been deeply involved in India for a long time. From the beginning, they relied on local employees and there were a large number of Indian executives.
Even the Indian media said that in recent years, Chinese-funded enterprises have trained Indian managers, partners and distributors through local investment in India, forming a core team of operations, which is also beneficial to the training of local talents.
Regarding the requirement for Indian capital to become a shareholder in Chinese-funded enterprises, or even holding shares, Chen Jing told the First Financial Reporter that in fact, in order to protect national enterprises, in other countries, domestic enterprises are also required to hold shares when accepting foreign investment, but this prerequisite was clearly stated when foreign capital entered the market, while India adopted the strategy of changing afterwards.
Chen Jing further analyzed that India first gave some sweetness to foreign investment, and through tariffs and other thresholds, it constantly induced foreign-funded enterprises to invest a lot of manpower and material resources in India. When the time is ripe, we will offer relevant policies to put foreign-funded enterprises in a dilemma, "agreeing to a big loss and not agreeing to a bigger loss."
Regarding the future direction, Chen Jing believes that China enterprises should negotiate with the Indian government and choose a plan with less losses. Instead of accepting the plan offered by the Indian government in its entirety, or withdrawing from the Indian market and walking away.
In fact, it is not an easy thing to walk away in the Indian market. For example, Ford Motor Company started to operate in India in 1995, and announced its withdrawal from the Indian market in 2021 due to accumulated losses of more than $2 billion in the Indian market. However, due to labor disputes, it barely reached a severance compensation agreement with workers after closing the factory for one year.
As an old player in the Indian mobile phone market, Chinese mobile phone manufacturers have encountered big troubles in India, but today, when the global mobile phone market tends to be saturated, India is still a market that foreign mobile phone manufacturers compete for. In April this year, Apple CEO Cook visited India and expressed his hope to expand production scale and smartphone sales in the country.
Thanks to the transfer of technology and production capacity, according to JPMorgan Chase’s prediction, by 2025, Apple will produce a quarter of the iPhone in India. The Counterpoint report also said that in 2020, the Indian-made iPhone only accounted for 1.3% of its global production, and the proportion in 2022 has risen to 4%, and it is expected to rise to 7% this year.
However, under such good expectations, Wistron, an important supplier of iPhone that has been operating in India for many years, recently announced its withdrawal from the Indian market. After the withdrawal, Tata Group, a local Indian enterprise, acquired Wistron’s factory in India to undertake its production tasks in India. The reason why foreign capital has been defeated in India one after another has to be thought-provoking.