Recently, according to multiple media reports, the Enforcement Directorate of India has arrested a number of senior executives of vivo India on the grounds of "anti-money laundering investigation". It is reported that the detained employees include the interim CEO and CFO of vivo India. In response, a spokesperson for vivo expressed "deep shock" and said that the Indian authorities' "recent arrests indicate that harassment is continuing and has brought uncertainty to the entire industry."
It is reported that in October this year, India’s financial law enforcement agencies also arrested vivo employees on suspicion of money laundering.
This is not the first time that Chinese mobile phone manufacturers have encountered trouble in India. Since India strengthened its investment review of Chinese companies in 2020, many Chinese mobile phone manufacturers including Huawei, Xiaomi, OPPO, and vivo have been investigated by relevant departments of the Indian government.
In fact, apart from Chinese mobile phone manufacturers, many well-known companies in the world have experienced being "robbed" in India over the years. Due to many factors such as the federal system, the complex tax system, and the protection of national industries, India has become a veritable "cemetery of foreign investment."
However, from the perspective of the mobile phone industry alone, it is still difficult for Chinese mobile phone manufacturers to give up the Indian market under the temptation of huge development space and destocking.
Huami OV, India’s calamity
On April 17, 2020, the Ministry of Promotion of Industry and Domestic Trade of India released a new policy on foreign direct investment from China. Since then, the Indian government has begun to impose continuous restrictions on Chinese-funded enterprises, and Chinese mobile phone manufacturers, which are developing rapidly in India, have become the "main targets."
On January 5 last year, the Indian Ministry of Finance issued a statement in the Indian Government Information Bureau stating that the Indian Revenue Intelligence Bureau had issued a notice to Xiaomi Technology India Co., Ltd., requiring Xiaomi India to make up for the missing tax of 6.53 billion Indian rupees (approximately 560 million yuan) between April 1, 2017 and June 30, 2020.
The reason given by the Indian Ministry of Finance is that Xiaomi India did not include the patent license fees and royalties paid to Qualcomm of the United States and Beijing Xiaomi Mobile Software Company in its import value declaration, thereby lowering the value of the goods and violating India's Customs Act.
In other words, the local tax department in India believes that Xiaomi’s products must be taxed according to how much they are worth. As for the losses caused by increased marketing expenses and increased subsidies for offline channels, they are not concerned.
As one of the representatives of Chinese mobile phone manufacturers, Xiaomi was suddenly subject to tax inspection by India. This "explosive" news quickly aroused heated discussion in China. But before the public opinion was over, just one month later, Huawei was "robbed" again.
On February 15 last year, the Indian tax department conducted raids on Huawei’s offices in New Delhi, the capital of India, Gurgaon, and Bangalore, the third largest city, on the grounds of suspected tax evasion. It is understood that the searchers not only looked at the company's financial documents, account books, company records, Huawei's Indian business and overseas transaction information, but also took away some documents.
With Huawei's response that it "strictly abides by all local laws and regulations," people thought the turmoil would end there. However, it is clear that Chinese netizens underestimated India's ability to "rectify the situation."
In April last year, the Indian government passed the Chartered Accountants, Cost and Engineering Accountants and Company Secretaries (Amendment) Bill, which was seen as further cracking down on Chinese investment in India. In the more than a year since the bill was passed, Chinese mobile phone manufacturers have been subject to multiple investigations by India.
Among them, vivo has 119 bank accounts frozen due to accusations of "money laundering", with a total amount of 4.65 billion rupees (approximately 386 million yuan). To unblock them, it must provide banks with a guarantee of 9.5 billion rupees (approximately 801 million yuan). OPPO is also accused of evading tariffs of 43.9 billion rupees (approximately RMB 3.718 billion).
Not only Huami OV, but also Chinese mobile phone manufacturers such as Transsion, OnePlus, and Realme have been subject to so-called "investigations" in India in recent years. Earlier, ZTE was also raided by India.
As an important participant in the Indian mobile phone market, Chinese mobile phone manufacturers have created a large number of local jobs in India and made positive contributions to India's economic development. However, the rise of this "tax audit storm" has made "foreign capital" more fearful of India's business environment.
Specializing in trapping foreign investment has become a tradition
The reason why I talk about "more fear" is because the Indian market has always had the bad tradition of "closing the door to kill pigs" and "plucking geese after they pass".
Not only Chinese mobile phone manufacturers and Chinese companies in other industries, whether in Europe, the United States or other regions and countries, India "treats everyone equally". Many European and American industry giants have also had similar experiences of being "investigated" and "fined" in India.
For example, Nokia was fined US$256 million in 2013, Microsoft was fined US$170 million in 2016, Amazon was fined US$3.5 million in 2019, Walmart was fined US$1.35 billion in 2021, and Samsung was fined US$212 million in 2022... For this reason, Europe and the United States also specially invented a special term "tax terrorism", which is to use legal means to intimidate multinational taxpayers from paying unreasonable taxes.
After all, the first reason why India has formed such a "tradition" is the lack of "trust" in foreign businessmen.
For India, a country that has not yet completed industrialization, it is definitely hoped that foreign businessmen will invest in India. After all, foreign businessmen can bring a large number of jobs, tax revenue and manufacturing prosperity, and can help India significantly improve its economy. However, India is very worried about the impact of foreign investment on India's national industry. It is even more worried that if foreign investment becomes larger, it will lose profits back to the investing country, which will cause India to "lose money".
Therefore, in order to protect local enterprises and prevent loss of profits, India needs to pass various targeted "laws" and build a "wall of separation." However, this lack of trust not only prevents the loss of profits, but also blocks the entry of foreign businessmen into India.
Secondly, India’s extremely complex tax system is also an important reason for the “fine” tradition.
India is a federal country and each state has its own laws and taxes. Take the goods and services tax as an example. In most countries, it is levied by the central government. However, in India, which is a federal system, both the central and local governments collect taxes separately. This also gives local governments in India the authority to inspect taxes.
This chaotic tax system has led some Indian local governments to habitually choose to "pick up" the wool of foreign-funded enterprises in order to relieve financial pressure.
Due to these two main factors, the Indian government has repeatedly taken action against foreign-funded enterprises over the years, causing many foreign-funded enterprises to change their attitude towards India, which has had a huge impact on India's goodwill. Especially after the "targeted" investigation of Chinese companies in 2022, India's goodwill was completely bankrupt.
According to statistics from the Reserve Bank of India, India attracted a total of US$71 billion in foreign investment in the 2022-23 fiscal year, a 16.3% decrease from the record high of US$84.8 billion in the 2021-22 fiscal year. Among them, foreign direct investment decreased by 27% to US$41.6 billion. It is reported that this is the first time that India’s foreign investment data has declined in the past 10 years.
Evil deeds have their own consequences, and India’s “historic turn” in foreign investment is not surprising.
There is a tiger in the mountain, so go to the mountain
Despite the increasing investigation in India, domestic mobile phone manufacturers still will not give up on the Indian market. Even Honor mobile phones, which once announced their withdrawal from India, have new plans to return this year.
In October this year, Madhav Sheth, the official head of Honor India, said in an interview with the media: "Honor is currently negotiating with three contract manufacturers in India and is expected to produce Honor mobile phones in India in early 2024. It will invest 4 billion rupees (approximately RMB 350 million) in India to establish an operation and distribution network in India."
Knowing clearly that there are tigers in the mountains, I prefer to go to the tiger mountains. Why are Chinese mobile phone manufacturers so obsessed with India? Because India is a lowland, a place where mobile phone manufacturers can regain high growth.
In March 2022, India's population reached 1.41565 billion, officially becoming the world's most populous country. In addition, data shows that the number of smartphone users in India will be 660.3 million in 2022, but its penetration rate is only 46.5%. Such a large population base and extremely low smartphone retention rate give the Indian mobile phone market huge room for development.
Looking back at the domestic smartphone market, after reaching peak shipments in 2016 and 2017, consumer replacement cycles have become longer and longer, and the overall industry market size has gradually shrunk. As the market becomes saturated and competition intensifies, domestic mobile phone manufacturers have to shift their strategic focus to overseas markets where there is room for growth.
One side is lack, the other side is saturation. Seizing this opportunity, Chinese mobile phone manufacturers have rushed into the Indian market early to lay out their plans. After several years of development, Chinese mobile phone manufacturers have now carved up half of the Indian mobile phone market.
According to data from research firm Counterpoint, as the market gradually recovers, the Indian smartphone market will reach 43 million units shipped in the third quarter of 2023.
Among them, Samsung maintained its first position in the third quarter with shipments of 7.9 million units. Xiaomi rose to second place with shipments of 7.6 million units; vivo ranked third with shipments of 7.2 million units; realme and OPPO (excluding OnePlus) ranked fourth and fifth with shipments of 5.8 million and 4.4 million units respectively.
Source: Counterpoint
In addition to the "temptation" of the huge market space, domestic mobile phone manufacturers can also better "destock" by entering India.
Because domestic competition is too fierce, manufacturers' products and technology updates are too fast, which can easily cause some components to fail to keep up with market demand, resulting in inventory. Developing overseas markets like India where the mobile phone industry is immature also means that Huami OV can better reduce inventory pressure.
In addition, mobile phones, as the current core smart terminal, can also drive the development of a series of IoT devices by manufacturers.
Having to be constantly "robbed" and having to grasp the "future", India has become a thing that Chinese mobile phone manufacturers love and hate. But no matter what the future holds, one thing is certain, as long as the core technology is always in your own hands, all problems will be solved.