On December 23, it was reported that the Indian Enforcement Directorate (ED) had recently arrested a number of vivo India executives, including the interim CEO and CFO of vivo India, on the grounds of "anti-money laundering investigation." In response, a vivo spokesperson expressed "deep shock" and said that the Indian authorities' "recent arrests indicate that harassment is continuing and has brought uncertainty to the entire industry." The company will resolutely use all legal means to respond and challenge these accusations.
A vivo India manager told China Business News that the current strategy in India is mainly to "stabilize the market" and there are currently no plans to expand production in India. Regarding the latest news in India, another vivo employee told reporters that the current overseas public information is false.
As of press time, vivo’s domestic side has not responded to the above news.
vivo overseas responds to "anti-money laundering investigation"
On the 23rd local time, two executives of Vivo India were taken to a court in Delhi and then sent to the Indian regulatory agency, the Indian Enforcement Directorate (ED), for detention.
It is reported that the Indian Enforcement Directorate arrested the interim CEO of vivo India, the chief financial officer of vivo India and the company's consultant. The above three persons have been detained under the provisions of the Prevention of Money Laundering Act (PMLA). The three defendants appeared in court on Saturday and will be detained for three days.
Another source said that before the arrest, India had detained four people related to the case, including the general manager of Lava International Mobile Company, a Chinese national and two certified accountants. Relevant Indian authorities have submitted a charge sheet against the four people and vivo India to the PMLA Special Court in Delhi, and the court recently accepted the charge sheet.
Regarding the above news, vivo India Branch was "deeply shocked" by India's latest arrests. A spokesman for the company responded: "The recent arrests show that harassment (against vivo in India) continues, which brings uncertainty to the entire industry. We will resolutely use all legal channels to resolve and challenge these allegations."
In July last year, India's Enforcement Directorate raided the offices of Chinese mobile phone brand vivo and related companies in India on suspicion of money laundering. The search locations were located in Delhi, Uttar Pradesh, Meghalaya, Maharashtra, etc. The Indian Enforcement Directorate stated in a statement at the time that the agency's raid found that vivo India had remitted approximately half (62,476 billion rupees) of local sales outside India to avoid paying taxes in India. 4.65 billion rupees (approximately US$59 million) of bank cash and other financial assets of vivo India and its affiliates were seized. Vivo said at the time that it was cooperating with relevant Indian departments to provide the government with all the information it needs.
In October this year, vivo officially responded publicly to the latest developments in the above-mentioned cases. Vivo responded that the company strictly abides by local laws and regulations in India. "We are paying close attention to the recent investigation and will take all available legal measures to respond."
According to reporters' statistics, since the beginning of 2021, many manufacturers, including Huawei and Xiaomi, have been investigated by relevant departments of the Indian government. At the same time, funds in the above-mentioned companies' accounts in India have been frozen and seized for various reasons.
Yang Shucheng, secretary-general of the China-India-Vietnam Electronics Association (CMA), once told reporters, "Chinese companies are not subject to random inspections but general inspections, and the enforcement is very strict. In addition to investigating the companies themselves, upstream and downstream and related companies will also be traced." For industries with fierce competition and low profit margins, bearing tariffs means profits are eroded or price competitiveness is lost, so building factories (in India) has become the choice of many manufacturers. Yang Shucheng told reporters.
Public information shows that vivo officially entered the Indian market in 2014 and responded to the "Made in India" policy call to build a factory in India in 2015. The factory is located in the Greater Noida area in northern India. As of 2021, vivo has opened more than 650 service centers in India and opened exclusive vivo stores in more than 500 locations. In 2021, the production capacity of vivo's Indian factory has reached 60 million units per year.
The Canalys report shows that in the first and second quarters of 2023, among the top five in the Indian mobile phone market, in addition to Samsung, the combined shares of the four Chinese brands, vivo, OPPO, Xiaomi, and realme, were 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 were 70% and 67% respectively.
In response to the relevant measures by India, a spokesperson for the Chinese Ministry of Foreign Affairs previously stated that the Chinese government has always required Chinese companies to operate legally and compliantly overseas. At the same time, we firmly support Chinese companies in safeguarding their legitimate rights and interests. The Indian side should act in accordance with the law and compliance and provide a fair, just and non-discriminatory business environment for Chinese companies to invest and operate in India.
Hold on and retreat
In the past few years, Chinese mobile phone manufacturers have been important players in the Indian electronics market, both on the manufacturing and consumer sides.
According to data released by the Indian Cellular Communications Association, in 2014, mobile phones made in India accounted for only 3% of the world's total. However, in 2015, the second year after Indian Prime Minister Narendra Modi pushed for "Made in India", the proportion of mobile phones made in India reached 11% of the world's total, and surpassed Vietnam to become the second largest mobile phone manufacturer after China. At present, most Chinese brands have rapidly transformed from SKD (semi-knocked down assembly) to CKD (completely knocked down assembly) to complete localization.
vivo officially entered the Indian market in 2014. "vivo started localized production in 2015. In 2018, vivo began to purchase local land and set up factories. In the same year, SMT patches also began to be produced locally in India." A senior executive of vivo told reporters that in the process of globalization of Chinese brands, India is an unavoidable part.
However, an anonymous source told reporters that at least 500 Chinese-funded companies have encountered tax and compliance censuses in India in recent years, involving mobile phone manufacturers, equipment suppliers, infrastructure investors, and mobile application providers.
Facing the current Indian market, some Chinese companies still adopt a positive attitude.
Regarding the Indian market, vivo previously told reporters that as a responsible company, vivo strictly abides by all local laws and regulations in India.
OPPO told reporters that OPPO India is reviewing the notice from the Office of the Directorate of Revenue Intelligence (DRI). OPPO is a responsible company and adheres to a prudent corporate governance framework. OPPO India will take necessary and appropriate measures in this regard, including any remedies provided by law.
However, some Chinese mobile phone supply chain manufacturers have begun to reduce investment in the Indian market.
On the evening of December 11 this year, Wingtech Technology (600745.SH) announced that it planned to terminate the investment project of Wingtech India Intelligent Manufacturing Industrial Park and use the remaining raised funds to permanently supplement working capital. The Wingtech India Intelligent Manufacturing Industrial Park project has an original total investment of 1.575 billion yuan and plans to use 1.1 billion yuan of raised funds. Later, taking into account the impact of changes in the local investment environment and policies in India, the planned raised funds for the project were reduced from 1.1 billion yuan to 300 million yuan. As of October 31, 2023, a total of 116 million yuan of raised funds had been invested in the project.
Wingtech Technology stated that due to the impact of local investment environment and policy changes in India, the construction progress of Wingtech India Intelligent Manufacturing Industrial Park was slow. In order to improve the efficiency of the use of raised funds, it reduced the amount of raised funds used for the project in December 2022. Based on the recent investment progress and survival status of Chinese-funded enterprises in India, Wingtech Technology believes that there is great uncertainty in the construction cycle and expected effects of the project, and decided to terminate the use of raised funds to build the project. In the future, Wingtech Technology will choose the opportunity to promote the construction of the project based on its business development plan and the local investment situation in India. At the same time, it will meet the capital needs of the project investment through its own funds, bank loans or other self-raised funds.
Gao Shiwang, industry director of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, analyzed to China Business News that India's business environment, especially the operating experience of mobile phone companies in India in the past year or so, has had a significant impact on Wingtech's advancement of the manufacturing industrial park project in India. There may be greater uncertainty in terms of the construction cycle and expected results of the raised funds. Wingtech's prudent decision to terminate the use of raised funds to build the project is also a responsible attitude towards investors.
"However, India is still an incremental market for the electronic information industry, and companies will still pay close attention to the Indian market. We do not rule out Wingtech using other self-raised funds to promote investment and market expansion in India. However, no matter which method, companies investing in India must make due diligence to prevent potential risks such as tax, labor, and policies." Gao Shiwang said.
Another industry veteran told China Business News that after several years of observation and understanding, the Indian business environment is not friendly to foreign-invested companies. However, for Chinese-funded companies, there are additional restrictions on not issuing visas (work and business visas), restricting participation in bidding (infrastructure construction projects are mainly government investment), restricting government procurement of Chinese-funded enterprise products (such as Sany Heavy Industry), and restricting the use of Chinese-funded enterprise products in related fields (new energy, environmental protection, 5G), etc. The production and operations of Chinese-funded enterprises in India have been greatly affected.
"Based on the actual work in recent years, companies investing in India must have strong profitability. No matter how good the company's compliance is, the Indian side can always find out the company's violations based on different interpretations of laws and regulations and impose fines. The amount is about 3% of sales. That is, companies must consider hidden costs (Indian inspections and fines) to account for about 3% of the company's sales." The above-mentioned senior person said.
This senior person also believes that Chinese-funded enterprises have brought improvements in employment, taxation, and supply chains to India through building factories. However, India still regularly carries out financial and tax inspections and fines on Chinese-funded enterprises, or suddenly raises import tariffs (which can be traced back many years) and requires huge back payments. This has caused Chinese enterprises to complain endlessly and seriously dampened the confidence of investing and operating in India. Chinese-funded enterprises have also gradually realized that the choice to invest and set up factories in India is not a wise one. After the assets are invested, it is difficult to get out easily, so they are very cautious about new investment decisions. Therefore, it is not difficult to understand that Wingtech Technology has suspended its Indian projects.
"The Indian market is large and has potential, but the business environment in India is quite challenging." This senior person suggested that the best options to open up the Indian market are: first, trade, and delivery upon payment; second, choose an Indian partner with strength, credit, and connections to operate through a joint venture.
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