The momentum of Chinese mobile phone brands' rapid advancement in the Indian market has hit the "pause button", while South Korean Samsung mobile phones have regained more market share in India. Since India proposed "Make in India" in 2014, Chinese mobile phone companies have been one of the most active responders. Xiaomi India was registered in October 2014. By 2023, it will be the tenth year for Chinese mobile phone brands to enter the Indian market. Currently, Chinese mobile phone companies are in a dilemma in India. A series of problems are plaguing Chinese mobile phone brands and supply chain companies in India such as Xiaomi, OPPO, and vivo.

"Their strategy is to maintain the status quo, ensure healthy operations, and be cautious about reinvestment." Gao Shiwang, secretary-general of the Electronic Information Branch of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, told China Business News on August 10.

Shares wax and wane

In the Indian market, the share of Chinese mobile phone brands is fading.

Canalys data shows that after 20 quarters of glory, Xiaomi lost its leading position in the Indian smartphone market in the fourth quarter of 2022, falling to third place with shipments of 5.5 million units, behind Samsung and vivo. In the second quarter of 2023, Xiaomi shipped 5.4 million smartphones in India, a year-on-year decrease of 22%, and its market share was 15%, a year-on-year decrease of 4 percentage points.

Among the top five in the Indian mobile phone market, in addition to Samsung, the four Chinese brands, vivo, OPPO, Xiaomi, and Realme, have a combined share of 61% and 55% respectively, showing a downward trend. In the third quarter of 2021 and the third quarter of 2022, the combined shares of these four Chinese brands are 70% and 67% respectively.

Yang Shucheng, secretary-general of the China-India-Vietnam Electronics (Mobile Phone) Enterprises Association, told China Business News that the smartphone shipments of Xiaomi, OPPO, and vivo in India during the peak periods of 2018 and 2019 each reached 4 million units/month, but have now dropped to approximately 1.5 million units/month respectively. Behind this are factors such as the shrinking of the global mobile phone market and the impact of policies that have caused Chinese capital to shrink production capacity.

Canalys India analyst Sanyam Chaurasia said in a reply to China Business News that Xiaomi's share of the Indian mobile phone market has declined because, first, the macro situation has affected its main investment portfolio; second, online channels have not shown consistent demand; and third, it is late in becoming a radical 5G brand.

A Chinese person in India believes that in the past few years, Chinese mobile phone brands have occupied two-thirds of the Indian smartphone market. At present, brands such as Apple, Samsung and local Jio receive support and subsidies, which makes Chinese mobile phone brands less competitive and their market share may gradually decline.

"The strategies of Chinese mobile phone companies in India will definitely be adjusted." An observer who has been paying attention to the South Asian consumer electronics market for a long time analyzed to China Business News. First, Xiaomi and OPPO's reduced liquidity in India from last year to this year has affected the overall expansion strategy; second, Indian mobile phone shipments have accumulated from 2014 to 2022. It has exceeded 2 billion units and has a compound annual growth rate of about 23%, but its performance this year is lower than expected. After the penetration rate of smartphones reaches about 80%, it will develop towards high-end products. The products of Chinese mobile phone companies also need to make adjustments; third, the proportion of online channels has declined, and they will focus on expanding offline; in addition, India also requires the executives of Chinese companies to be Indians. "Based on all the above factors, it is inevitable for Chinese-funded enterprises to adjust."

India has always required Chinese companies to establish local supply chains, especially components with technical content, requiring local production. However, the above-mentioned people believe that Chinese-funded companies will become more and more cautious. Even if Apple comes forward to obtain investment approval from India for more than 10 Chinese-funded "fruit chain" companies, it can still be predicted that they will be very cautious when investing in India, and the development speed of foreign companies in India's local supply chain will be slower than expected.

Employed 200,000 people during peak period

2014 is a critical year for Chinese mobile phone brands to fully invade the Indian market. OPPO and vivo chose to use their own methods to break open the door of local contractors and compete head-on with Samsung; Xiaomi and OnePlus snatched e-commerce dividends and set a benchmark in the online brand industry.

China's demographic dividend is fading, while India's population is similar to China's, has a large young population, and has a lower smartphone penetration rate than China's. This has attracted leading Chinese mobile phone supply chain companies to set up factories in India, with annual output once exceeding 200 million units.

In September 2019, Xiaomi announced that since it started operating in India five years ago, it has sold more than 100 million smartphones in this most important overseas market. At that time, Xiaomi mobile phones had topped the sales volume in India for eight consecutive quarters. Xiaomi's annual shipments of mobile phones in India once reached 40 million units, once exceeding its shipments in China. This has also driven investment from upstream companies such as TCL Huaxing.

Zhao Jun, president of TCL CSOT, told China Business News in July this year that TCL CSOT's Indian module factory has already opened up its mobile phone and TV module production capacity, and the current capacity utilization rate is 70%-80%. Cooperation with local Indian customers and Chinese customers in factories opened in India has been fully launched. Although it took a long time from the establishment to the operation of the TCL Huaxing Indian module factory, it is currently operating well.

According to the "2021 Development Report of Chinese-funded Enterprises in India", by 2021, Chinese-funded mobile phone companies have more than 200 factories in India, with a total number of employees exceeding 200,000; there are more than 500 trading companies; the investment amount has reached more than 3 billion US dollars, and Chinese-funded companies have provided more than 500,000 jobs in India. During their peak period, OPPO and vivo each employed more than 15,000 people.

"OPPO and vivo have purchased industrial land in India and are unable to get out of it. They have no choice but to stick to it. They are currently facing declining demand and underutilization of production capacity. Even if India urges them to continue to build factories on the purchased industrial land, they can only postpone it." This Chinese person in India said that Chinese mobile phone brand companies in India have reduced production capacity, laid off Indian employees, and narrowed product categories, but they are trying to maintain a certain share; some small and medium-sized Chinese supply chain companies have no choice but to leave India.

"There are currently no new statistics. As some companies leave, business shrinks, and personnel visas are restricted, the above-mentioned numbers will definitely decrease to a certain extent." The above-mentioned person said that if India's policies remain unchanged, the above-mentioned numbers will show a gradual reduction trend.

Gao Shiwang believes that these mainstream Chinese mobile phone manufacturers have invested so much in the Indian market and will ensure continued operations. "Their current strategy is to maintain the status quo, not willing to invest too much, aiming for healthy operations, appropriately increasing profitability, and not losing money to expand market share."

India or Vietnam

China, India, and Vietnam account for most of the production capacity of the global mobile phone industry.

Smartphones have entered a period of competition for inventory and are more sensitive to costs. Economic and trade frictions and the epidemic have also accelerated the restructuring of the global industrial chain, which has caused some mobile phone production capacity to be transferred from China to India and Vietnam.

Affected by the transfer of some mobile phone production capacity and orders to India, Vietnam and other countries, the proportion of China's mobile phone production capacity has declined overall.

According to statistics from the U.S. Department of Commerce, U.S. mobile phone imports from China in 2022 fell by 2.2% year-on-year to 151 million units, accounting for 79.9% of its import sources. This has increased from 71.2% in 2019 before the epidemic, but has dropped by 5 percentage points from the peak of 84.9% in 2014. In 2022, the proportion of U.S. imports from Vietnam and India will be 15.3% and 2.2% respectively, which has increased more than 10 times compared with 2014.

India hopes to further expand the local mobile phone industry chain. The import tax rate on mobile phones has been increased to 28%, and it has proposed a goal of manufacturing US$300 billion in electronic products by 2026. Bank of America predicts that Apple may transfer at least 18% of its iPhone production capacity to India by fiscal 2025, driven by India's Production-Linked Incentive (PLI) program launched in 2020.

Chaurasia said that the current growth in India's smartphone exports is mainly driven by Apple and Samsung, helping India achieve record-breaking exports of nearly US$4 billion in the first quarter of 2023. In terms of localization of the Indian mobile phone industry chain, top suppliers are prioritizing local suppliers and component procurement. Components such as chargers, cables, motherboards and battery components are currently purchased locally in India; however, major components, such as displays and chips, are still mainly imported.

"China still accounts for 70%-80% of global mobile phone production capacity, and many of the components required for Apple mobile phone production in India need to be imported from China." Gao Shiwang believes that China has advantages in the mobile phone industry chain, supply chain, talent, and research and development, so there is still room for deepening cooperation in the China-India mobile phone industry chain.

Of course, as China's domestic labor costs increase and overseas customers' requirements for supply chain diversification increase, the production capacity of China's mobile phone industry chain is still under pressure to shift outward. At a time when uncertainty in the Indian market is increasing, many Chinese companies have set their sights on Vietnam.

Yang Shucheng has organized three business study tours to Vietnam this year, and the latest one will depart in late September. He believes that Chinese-funded enterprises will not put their eggs in one basket when developing overseas. In the next 5-10 years, the first choices will be Vietnam, India, Indonesia, Hungary, and Mexico.

Talking about the future roles of China, India, and Vietnam in the global smartphone industry chain, Chaurasia said, "They (they) will play a key role in the process of (mobile phone) brands diversifying their supply chains to support global operations."

"India sells 120 million to 130 million smartphones a year, and they are basically assembled in India. At the same time, 90% of the mobile phones produced in India are consumed locally. The difference is that 90% of the mobile phones produced in Vietnam are exported." Yang Shucheng told China Business News that he is now focusing more on assisting member companies to invest in Vietnam.

The above-mentioned relevant person in India and China told China Business News that the Indian government hopes that India will become a major mobile phone manufacturing and exporting country. Whether India can become a major exporter of smartphones in the future, in the short term, the goal is difficult to achieve.

This person said that in the long term, as Apple, Samsung and others continue to expand production capacity in India, India is expected to become a major mobile phone production and export country. Vietnam is already better than India in mobile phone production and export, and products manufactured by foreign investors will occupy a certain share in the international market.

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