India’s investigation into domestic mobile phone manufacturers continues. According to the Press Trust of India, the Enforcement Directorate of India arrested four people on Tuesday on suspicion of money laundering activities that enabled vivo to obtain improper benefits, including Hari Om Rai, managing director of Lava International Mobile Company, chartered accountants Nitin Garg and Rajan Malik, and a Chinese vivo employee Andrew Kuang. The men face three days of detention.
Vivo responded to the media that the company "strictly abides by local laws and regulations in India. We are paying close attention to recent investigations and will take all feasible legal measures to respond."
A person familiar with the matter told Reuters that vivo’s current investigation is still a continuation of related cases in 2022. In July 2022, the Indian Law Enforcement Directorate raided the offices of vivo and related companies in India on suspicion of money laundering, and froze nearly 400 million yuan in funds in 119 vivo accounts.
A week later, the Delhi High Court in India made a decision to unfreeze vivo’s bank account. However, one month after the unfreezing decision was issued, in August 2022, the Indian Revenue Intelligence Bureau once again targeted vivo, accusing the latter of suspected tax evasion of approximately 2 billion yuan.
The direct impact of successive investigations is expected to interrupt vivo's growth momentum in India. In the second quarter of 2023, vivo ranked second in India's smartphone shipments with a market share of 17%, second only to Samsung, and was the only mobile phone manufacturer among the top 5 in India to achieve year-on-year growth.
Xiaomi is a lesson learned from vivo. In January 2022, Xiaomi was asked to pay back approximately 560 million yuan in taxes by the Indian authorities on suspicion of tax evasion. In April of the same year, Xiaomi was again frozen by the Indian authorities with approximately 4.8 billion yuan in funds. At this year's second quarter earnings call, Xiaomi Group President Lu Weibing responded that the 4.8 billion yuan in funds was only frozen by the Indian government, not confiscated, and the company "is still resolving it through legal channels."
Recently, it was reported online that the Indian authorities had revoked the freeze decision on Xiaomi, but this news has not yet been officially confirmed.
In addition to Xiaomi and vivo, almost all domestic mobile phone manufacturers, including OPPO, Huawei, ZTE, etc., have encountered tax inspections by relevant Indian departments. Apple OEMs Foxconn, Flextronics, etc. are also not immune.
Although India's search operations continue to intensify, no mobile phone manufacturer dares to completely abandon the Indian market. Even Honor, which once announced its withdrawal from India, has recently made new plans to return.
After publicly withdrawing from the Indian market in July last year, Madhav Sheth, the former CEO of Realme India who recently switched to the Honor camp, forwarded new product preview information from the "Honor Technology India" account, with the text saying "Honor mobile phones will be launched in India soon."
On the one hand, there are layers of increased censorship policies, and on the other hand, there is a vast market that is difficult to leave. India has become a love-hate existence for domestic mobile phone manufacturers.
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The Chinese, American and European markets are still the heart of global smartphone development, but as these markets approach saturation, India, which has become the world's second largest smartphone sales market, is becoming the main growth driver for mobile phone manufacturers in the future.
In the second quarter of 2023, the global smartphone market sales fell by 8% year-on-year and 5% quarter-on-quarter, marking the eighth consecutive quarter of year-on-year decline. In China, the world's largest market, smartphone market sales also continued to plummet in the second quarter, down 5% year-on-year.
Looking back at the Indian market, mobile phone market sales in the second quarter of this year reached 36.1 million units, a year-on-year decrease of only 1%, and a month-on-month increase of 18%.
Apple CEO Cook even regards India as an important new market for iPhone. No mobile phone manufacturer embodies India's bet as the next China better than Apple. During the first quarter earnings call this year, when Cook was asked whether the current Indian market was similar to China ten years ago, he predicted: "I do see a lot of people entering the middle class in India, and I hope we can convince some of them to buy iPhones. I really feel that India is at a turning point."
In order to increase penetration in India, in mid-April this year, Apple opened two Apple direct stores in Mumbai and New Delhi, the capital of India. This is the first time Apple has set foot in offline channels after officially opening online sales channels in India in 2020.
Cook's emphasis on India is also reflected in the gradual increase in the simultaneous production of new iPhone models. Since 2017, India has only been allowed to assemble low-end iPhone models. Changes started last year. In 2022, a few weeks after the iPhone 14 series was released, India was allowed to OEM the latest flagship series. By the 2023 iPhone 15 series, India has already qualified for the first production of the iPhone 15 series like China. This means that even Chinese users are likely to receive iPhone 15 made in India.
In a forecast report given by JPMorgan Chase, 25% of Apple iPhones will be produced in India by 2025. Morgan Stanley analyst Erik Woodring boldly predicted that in the next five years, India is expected to contribute 15% of Apple’s new revenue and 20% of its new users. In the next 10 years, Apple's annual revenue in India will reach US$40 billion. For comparison, Apple's current annual revenue in the Chinese market is approximately US$75 billion.
As India, which has just surpassed China and become the most populous country in the world, Apple is not the only mobile phone manufacturer eyeing its development potential.
Because it was independent from Huawei and had no time to care about the glory of overseas markets, after choosing to withdraw from India last year, it was recently revealed that it plans to return. According to Indian media reports, Honor is currently negotiating with three local manufacturers in India and has invested approximately 350 million yuan to establish an operation center and distribution network locally.
Even Xiaomi and vivo, which have suffered censorship, are still investing in the Indian market. In April this year, vivo claimed that it would further invest in the Indian market, investing approximately 3 billion yuan in the production of smartphones in India by the end of 2023. Its new manufacturing plant in Greater Noida is expected to start production in early 2024 after obtaining local licenses, and will have the ability to produce nearly 120 million smartphones annually in the future.
It is worth mentioning that the opportunities brought to mobile phone manufacturers by emerging markets such as India are not only to save mobile phone sales, but also to promote the development of a series of IoT devices.
Although global shipments of wearable wristband devices have declined year-on-year, they have experienced a major explosion in the Indian market. In the first quarter of this year, its sales in the Indian market increased by 122% year-on-year, offsetting the global year-on-year decline of 14%.
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Ten years ago, domestic mobile phone manufacturers focused on the potential of the Indian market. 2014 is regarded as the first year of the internationalization strategy of domestic mobile phone manufacturers. Most of the first stops for Xiaomi, vivo, Honor and others to explore overseas markets were in India.
In addition to the vast market space, the reason why many domestic mobile phone manufacturers have invested in India is also inseparable from the supporting policies provided by India at that time.
In 2014, the Modi government launched the "Made in India" plan, and mobile phones became one of the key industries. In order to attract foreign mobile phone manufacturers, India has opened the door wide and launched a series of preferential tax policies.
With the ambition of CopytoIndia, Lei Jun set India as the first step for Xiaomi to officially take internationalization. By the third quarter of 2017, after three years, Xiaomi had surpassed the former overlord Samsung and became the new number one in India. This advantage has been maintained by Xiaomi for five years, and India has become Xiaomi's largest overseas market.
Simultaneously with Xiaomi's rapid capture of market share, there is also a significant increase in the share of locally manufactured mobile phones in India. In 2014, India-made mobile phones accounted for only 3% of the global mobile phone market. In the second year after Modi pushed for "Made in India", the global share of mobile phones made in India has risen to 11%, gradually becoming the world's second largest mobile phone manufacturer and the world's second largest mobile phone sales market after China.
The arrival of domestic mobile phone manufacturers such as Xiaomi, OPPO, vivo, and Honor has also reshaped the competitive landscape of the Indian mobile phone market. A group of local smartphone manufacturers that emerged around 2010, such as Micromax, Karbonn, Lava, etc., lost most of their share to more cost-effective domestic mobile phone manufacturers and gradually declined. By around 2021, more than 80% of mobile phone sales in India will come from domestic mobile phone manufacturers.
New changes have emerged since then. In October 2021, India's Ministry of Electronics and Information Technology issued notices to Xiaomi, vivo, OPPO, and OnePlus, requesting relevant data and details about these mobile phones and their components, and said that a second notice may be issued in the next few weeks involving requirements for testing these mobile phones.
After the Indian Ministry of Electronics and Information Technology launched the first review, in the past two years, more and more Indian departments have begun to target domestic mobile phone manufacturers, and from time to time they have imposed fines, frozen funds and other operations.
In June this year, India issued new supply chain management regulations, requiring key executive positions such as CEO, CFO, CTO, COO and other mobile phone manufacturers such as Xiaomi, OPPO, realme, and vivo to be held by Indian nationals, and the suppliers of these companies must be local Indian companies.
Affected by the intensified censorship actions, Xiaomi lost its first place in India in the fourth quarter of 2022, and the throne was regained by Samsung.
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The backlash against domestic mobile phone manufacturers highlights India's greater ambition for the "Made in India" strategy, which is to shift from only pursuing local assembly of mobile phones to requiring comprehensive localization of the mobile phone supply chain.
After proposing "Made in India" in 2014, the Modi government launched a new "self-reliance" strategy in 2020 and supported it with a "production-linked incentive plan" to further emphasize the status of local manufacturing and hope to build India into a new global mobile phone manufacturing center.
According to regulations, the Indian government will provide high subsidies to companies participating in the production-linked incentive plan and provide 4%-6% rewards for the sales increase of domestically manufactured products. Some Indian scholars directly call this a "replacing Chinese industry" plan.
In addition to incentives, taxation has become another key tool in India to guide foreign-invested enterprises to strengthen localized production. Taking India's vast consumer market as an attraction, the Modi government is trying to cultivate a complete local industrial chain by raising import tariffs.
According to China Business News, starting in December 2017, the Indian government increased the basic tariff on smartphones from 10% to 15%, and then to 20% in February 2018. In April, it began to impose a 10% tariff on electronic components including circuit boards and camera modules. By 2020, India's average import tariff for smartphone manufacturers will be 28% for complete machines, and the average tariff for other spare parts will be 15%.
Viral Acharya, an economist at New York University and former deputy governor of the Bank of India, analyzed at the Brookings Institution in March this year that India is implementing regional protectionism in areas such as commodity manufacturing.
In order to maintain the above-mentioned new tax policy and protect local manufacturing, India even gave up joining the RCEP agreement at the last moment. In November 2020, the Regional Comprehensive Economic Partnership Agreement (RCEP) covering 10 ASEAN countries and 15 countries including China, Japan, South Korea, Australia, and New Zealand was signed. RCEP aims to establish a unified market free trade agreement, with the ultimate goal that all member countries will enjoy the benefits of zero tariffs. India, originally the 16th country, chose to withdraw at the final stage after participating in the negotiations.
The theory of economic nationalism better summarizes the motivations behind India's above-mentioned behavior. This theory believes that there is economic competition among different countries in the world. If a country wants to win from the competition, it must implement xenophobic policies to protect its economy from competition from foreign products, technology, and capital. In terms of specific trade exchanges, various barriers are established to prevent the entry of foreign goods to protect local national enterprises.
Under the influence of India's strong promotion of local manufacturing strategies, electronic products have become the largest export category. As of March, its exports had tripled compared to 2018, reaching $23 billion. Among them, the output of smartphones produced in India is expected to increase from 3% of the world in 2014 to 19% in 2023.
On the basis that it does not plan to make any changes to the current tax system, India even wants to extend its successful experience in the mobile phone industry to the computer industry.
In August this year, India's Directorate General of Foreign Trade announced that in order to "ensure trustworthy hardware and systems" enter India, reduce dependence on imports, and promote local manufacturing, it will implement license requirements for the import of laptops and tablets.
According to Reuters, India had to adjust its policy and decided to postpone its implementation for one year due to complaints from Apple, Dell, HP and other companies and the US government. After companies begin to locally produce laptops and tablets in India, the import quota system will gradually come into effect. The size of each company's quota will depend on its localized production, import of IT hardware and export of such products from India. This import quota scheme will not apply to smartphones.
At present, the Modi government is committed to achieving the goal of 100% local production of mobile phones. In 2014, when domestic mobile phone manufacturers first entered India, the number of mobile phones they exported to India each year reached 180 million. Statistics from Indian Customs show that by 2022, the number of mobile phones imported by India from China has dropped to 2.19 million, a reduction of more than 90%.
Although it is becoming increasingly difficult to make money from India, between making less money and making no money, no mobile phone manufacturer will actively choose the latter unless it is a last resort.
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Jingdong Mall