21st Century Business Herald reporter Luo Yiqi reported in Guangzhou
Since 2020, due to the impact of the new crown pneumonia epidemic, Internet practitioner Liu Liang has successively reduced the business development process in India, until the Chinese-funded Internet software was further banned by the local government, and he finally completely withdrew.
In India, he was also a mobile phone online channel provider and gradually expanded to offline channels, and with the full withdrawal, he also stopped his local business operations.
Liu Liang is one of the cases in which he has been forced to leave the Indian market under the influence of the local government in recent years. What has attracted more attention is that Xiaomi, OPPO and vivo have recently encountered tax audit storms from Indian officials, and then have been accused of tax evasion of up to billions of yuan, some manufacturers have some funds frozen, and some have been proposed to pursue taxes.
Recently, Zhao Ming, CEO of Honor Terminal, said in an interview that the team in India has withdrawn, but there are partners in India and related businesses have been launched, and will take a safe approach to local development. This has once again brought the issue of the business environment of Chinese manufacturers in India into the focus of heated discussion.
Only from the objective conditions, India is a "charming" market after all: there is a huge demographic dividend that is still growing, the tide of replacement is still continuing, and the unit price of mobile phone consumers is also rising - these conditions are very attractive for the mobile phone industry.
(Changes in unit prices of mobile phone retailers in India between 2017 and 2021, of which 2021 is the forecast value, source: Counterpoint)
Of course, India's business environment has always needed to be improved. A number of supply chain people who have developed business in India have pointed out to reporters that since starting a business in India, tax issues have been plaguing their operations and need to be adapted to time.
The phenomenon of tax audits has also appeared in other overseas manufacturers such as Samsung. It is only a recent development, which shows that the verification of Chinese-funded manufacturers at this stage is relatively intensive and severe.
In the face of this "love and hate" existence, it is certain that it is not realistic for a large factory that has invested heavily in the early stage to completely withdraw from the Indian market, not to mention that a relatively strong Chinese mobile phone industry ecology has been built locally; However, it may be imperative to actively follow a series of local policies and related development strategies and grow in consultation.
Indian traction
For any industry, after one market development has entered a stable and mature period, it is an eternal law to enter other emerging markets and continue to expand.
India is one of the destinations with these characteristics.
Around 2016, many mobile phone industry ecosystems, including Liu Liang, have come to India to build factories locally under the traction of terminal manufacturers including Xiaomi. Of course, this is also related to the local increase in tariffs on imported products to promote "Made in India".
Suddenly, the two places of Big and Small Noida have become a highly ecological aggregation area for Chinese-funded mobile phone hardware supply chain enterprises, and terminal manufacturers from China have gradually gained a foothold in this trend.
According to the research agency Counterpoint, compared with the fourth quarter of 2015, the market share of Chinese mobile phone brands in India jumped sharply from 14% to 45% in the fourth quarter of 2016. In contrast, the share of local Indian brands fell from 54% to 20% over the same period.
(Compared with the fourth quarter of 2015 and the fourth quarter of 2016, China's smartphone market share grew rapidly, Source: Counterpoint)
So far, among the top five local brands, only Samsung is from South Korea. Chinese mobile phone manufacturers account for at least 75%.
Prachir Singh, senior analyst at Counterpoint, analyzed to the 21st Century Business Herald reporter that Indian local brands cannot compete head-on with Chinese brands, because the economy of scale gives Chinese brands a positive advantage in pricing and product specification configuration.
Driven by the local market size and policies, in recent years, the head domestic factories that have gained a firm foothold in India have also continued to expand the local factory construction action. According to the statistics of the above-mentioned institutions, as of the first quarter of 2022, oppo ranked first with 21.6% in terms of the share of indian smart machine manufacturing, followed by Samsung, and Vivo and Hon Hai subsidiaries ranked third and fourth with a proportion of more than 11% respectively.
(Share of different manufacturers in "Made in India" in the first quarter of 2022, Source: Counterpoint)
However, in contrast, huawei and honor do not seem to be actively investing heavily in India.
A mobile phone manufacturer insider analyzed to the 21st Century Business Herald reporter that based on the gross profit margin performance, Honor is not willing to actively try in India. However, its manufacturers have achieved profitability in India through a large-scale development model.
An industry observer believes that Glory has previously entered and exited the Indian market three times, but the results are not great, and it has not received a great response to the High-end Machine to enter the Indian market.
This may also be the reason why Honor can announce the withdrawal of the team relatively easily, and continue to operate in India as a partner - the huge market cannot be abandoned, but because its upfront investment is not large, there may be room for discussion in the way of operation.
At present, it seems that such options as glory may be only a minority. Liu Liang told reporters that according to his understanding, the mobile phone industry chain manufacturers have not left, and a certain proportion may come from the field of trade services. "OVM such terminal manufacturers are in, it can be said that 80%-90% of the supply chain is running to them, as long as the mobile phone terminal does not go, these manufacturers will not go." The number is not good, and I roughly estimate that the withdrawal will be at most 10%-20%. ”
Yang Shucheng, secretary general of the China-India-Vietnam Electronics (Mobile Phone) Enterprise Association (CMA), also told the 21st Century Business Herald reporter, "As far as I know, the overall strategy of Chinese-funded brands and supply chain manufacturers in India will not change." "For example, whether it is a large terminal factory Xiaomi, OPPO and vivo, TRANSSION, or a module factory, a screen factory, a smaller data line, charger and equipment and other service industry chain companies, the current development plan in India has not changed significantly."
"Looking at the world, India is an indispensable market to maintain the increment and vitality of the brand." He continued that it is true that Chinese-funded companies in India are currently facing difficulties such as tax audits and business visa approvals, but from a commercial point of view, this is a temporary difficulty and does not change the attractiveness of the market itself.
"We haven't seen Chinese smartphone companies exit the Indian market. All OEMs (referring to terminals such as OVM) have invested heavily in the development of the mobile phone ecosystem in India. Meanwhile, India is the second largest smartphone market in the world, but there is still a segment of people who are not connected to the Internet, making it a lucrative market, especially in entry-level and economical markets. Prachir Singh so analyzed to reporters, due to competitive prices and product definitions, Chinese brands in the Indian smartphone market in the leading position, if there is a Chinese manufacturer to withdraw, to fill the vacancy will be a difficult task for other existing players.
Encountered difficulties
It is undeniable that the immediate difficulties do exist.
Since the beginning of this year, Chinese terminal manufacturers have successively encountered joint scrutiny from Indian officials and multiple departments, mainly focusing on taxation. In succession, some manufacturers have also replaced some of the heads of business in India.
However, India's tax system has always been complex and frequently changing, and the combination of multiple external factors has caused difficulties for manufacturers to operate locally.
Yang Shucheng analyzed to reporters that the current challenges of Chinese-funded enterprises operating in India come from three aspects: being audited is the biggest challenge; The review of both work and business visas is also very strict for employees; The management and technical personnel of Chinese-funded enterprises have not been approved to apply for visas before going to India.
"These three challenges have put Chinese companies in a difficult period in India right now." He further analyzed the reasons for this, such as the impact of international relations and the localization of corporate operations.
Tax issues have been a persistent problem for Chinese companies doing business in India. A number of supply chain manufacturers who have done business in India have mentioned to reporters that India's tax policy has been changing over the years for different production and transportation of different parts and components. It is also necessary to consider that the tax subject may be a "state" or a smaller administrative unit.
In this regard, Yang Shucheng feels understandable. "This aspect is related to the attitude of the ruling party in India, which may face similar problems in any country; On the other hand, because it is indeed impossible to change, we can only call on Chinese companies to actively adapt to and face this change, and understand and interpret the Indian tax law. ”
Yang Shucheng also admitted that the current business environment in India does need to be improved, and there are still problems such as rough law enforcement. "But the mobile phone industry chain is the first batch of Chinese investors to go out to sea, and now there have been large-scale, large-scale systematic industrial chains that have migrated to India to produce and manufacture." Call on Chinese-funded enterprises to learn and grow. ”
(In the second quarter of 2022, the market share of the top five smartphone brands in India, Source: Counterpoint)
In response, Prachir Singh believes that the Indian government does not want to project these surveys as a "blow to Chinese companies" because doing so will not give a clear understanding of India's business environment and "Make in India" plans. "The mobile phone business has been the banner of the 'Made in India' initiative, which the government sees as an achievement. In our view, these investigations appear to be due to a lack of understanding of the tax system, which will be resolved in due course. We believe all of these surveys have had a small impact on Chinese brands, which will continue to lead the Indian smartphone ecosystem. ”
Of course, as a non-manufacturing enterprise, Liu Liang is indeed a group that is more affected in comparison.
He told the 21st Century Business Herald reporter that after the epidemic began to appear in 2019, considering the uncertainty of the future and the beginning of a certain degree of ban on Internet companies at that time, he let online business personnel choose whether to leave their jobs by cutting salaries and other means. Until the online business is completely stopped, the remaining employees can only be dissolved.
"These initiatives have to some extent caused a relatively large number of people to lose their jobs. Especially in the current economic downturn, it is more difficult and more difficult for locals to find jobs. Liu Liang continued that to a certain extent, these employees who have seen the market change and proposed to leave are now difficult to obtain the same high salary level that was usually within Chinese companies before.
"Some employees have been pleading with me recently, hoping to help provide them with some job opportunities. But I have withdrawn, so I have found a way to introduce some employees who I think are really good to other Chinese companies that know each other well. Talking about this, Liu Liang was quite helpless.
According to Liu Liang's observation, most of those who choose to withdraw from the Indian market in the short term are in the trade industry. In addition to the software shutdown he faced, there was another factor: the stability of the exchange rate differential.
"At present, the Indian rupee continues to depreciate, resulting in the exchange rate difference ratio of The Chinese and Indian currencies from the lowest is more than 1 to 9 points, to now more than 12 points, almost 15%-20% of the profits have been evaporated." At the same time, because the Indian government requires that the transfer cannot be made in US dollars, but must use rupees, which will have a greater impact on the business of trading companies. Then traders will choose to withdraw or suspend their related business in India in the short term. He analyzed.
The way to cope
One view is that behind the indian government's review is the result it needs, and as long as there is a balance between the company's and the government's demands, the aforementioned difficulties may be solved.
According to Liu Liang's recollection, in 2018, Samsung also encountered tens of billions of tax investigation and punishment problems in India, but finally through the agreement between Samsung and local departments, it brought a certain scale of output value to the local area in exchange for canceling these fine requirements. Subsequently, it can be seen that Samsung has indeed increased its local factory construction action in India.
"This can be seen in the direction of the Indian government. Of course, I also feel that this series of actions against Chinese-funded enterprises are somewhat serious. He continued, and the relevant departments in India are relatively rude in the process of law enforcement. Of course, I think that such problems as tax inspection can still be finally solved through consultation and other means, but it is only a matter of how to do it, unless some enterprises cannot pay the relevant funds in the deficit state. Liu Liang continued.
In any case, it is not a reasonable and sufficiently market-oriented judgment to think that Chinese manufacturers will easily withdraw from the Indian market in large quantities at this stage.
Yang Shucheng believes that for Chinese-funded enterprises, regardless of the size of the company, they will eventually overcome the difficulties they are currently facing, "India is an expected market, according to our research, India will go to the scale of China's smart machine market in the future, but the real replacement tide has not yet arrived, which will be a broad incremental market." ”
After the development of recent years, India's local mobile phone and communication brands have been declining; At the same time, India has not grown a supply chain manufacturer with sufficient capabilities, and the local mobile phone ecosystem still needs to rely on the supply chain system from China.
"The supply chain system cannot be built in a year or two. I think China still has at least 15-20 years of room to live in the Indian market, which is long enough. He continued that this is a reference to the development process of Chinese-funded manufacturers in India, as well as the current industrial base of India, and the vitality of Chinese brands in India.
The above-mentioned manufacturers also deduced to reporters that India wants to actively promote the growth and development of local manufacturers in the mobile phone supply chain, but so far it has not been successful. This may be related to the overall factors such as the efficiency of local personnel and the quality of personnel.
India, on the other hand, is still actively promoting its local manufacturing program. In 2021, it once again proposed the Production Associated Incentive (PLI) program.
In this regard, Prachir Singh analyzed that the mobile supply chain players approved by the PLI are mainly Samsung, Foxconn, Wistron, and Pegatron. Of those 4 companies, 3 are Chinese, though they lean more toward Apple's ecosystem. There is also an additional note in the PLI program that global participants can receive incentives on devices with an invoice value of > 15,000 Inr. 1,000 (equivalent to 1,500 yuan). ”
This brings a layer of speculation that Apple may be able to use this to gain greater development opportunities in India.
According to Prachir Singh's analysis, macroeconomic problems are affecting the entire world, and India is not immune. "We've seen a drop in consumer demand and almost all brands are facing a buildup of inventory. We estimate that the Indian smartphone market currently has an inventory level of more than 10 weeks (normal inventory levels are about 4 weeks). The hardest hit are entry-level users, as users at the bottom of the pyramid are the most affected by macroeconomic headwinds. ”
In his view, if Chinese brands are affected, it will be the most favorable for Samsung, because its products cover all price ranges. But it won't have much impact on Apple. Because the brand is in the high-end market leader.
Of course, as one of the top two growth markets, India is still optimistic about many people. "The business environment is really not particularly friendly. But I think the Indian market is big enough that if there is an opportunity, any business you want to develop can grow very quickly. Liu Liang told reporters.
(At the request of the interviewee, Liu Liang is a pseudonym in the article)
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