The absolute dominance of China in India’s smartphone market

Xiaomi India managing director Manu Kumar Jain at the phone-maker’s Sri City facility in Andhra Pradesh. File photo

When Prime Minister Narendra Modi addressed the nation on May 12 to announce a Rs 20-lakh-crore stimulus package for the economy to cushion the fallout of the coronavirus, he said the outbreak was a chance for India to be self-reliant, or “Atamnirbhar” as he put it.

He called people to be "Vocal For Local" to support the economy battered by the pandemic that has forced India to extend for the fourth time the almost two-month-long lockdown by another two weeks beginning May 18.

As soon as Modi uttered those words, social media exploded with messages calling for a boycott of foreign and especially Chinese products.

But the senders missed one small detail--most of the messages were being sent from “foreign” phones, the majority of which were Chinese.

Xiaomi, Realme, Oppo, Vivo, OnePlus, POCO, iQoo, Honor and Huawei are Chinese brands. Samsung and LG are South Korean. Nokia is Finnish and Apple is American.

Can you spot an Indian brand in this alphabet soup? And why does the country of origin suddenly matters?

Wuhan may be the reason. With global coronavirus infections going past 4.7 million and death toll climbing to 315,000, the anti-China sentiment is rising across the world.

Led by the US, several countries have accused China of playing down the severity of the outbreak that was first reported in the city of Wuhan late last year.

Several conspiracy theories, including the one claiming that the severe acute respiratory syndrome coronavirus 2 is lab-made, are doing the rounds.

To be sure, the call for going local is to promote Indian products and cut down imports not shun them.

In a global economy, it is just not possible and like it or not, China is the world’s factory, its manufacturing hub.

Where are ‘Indian’ smartphones? 

When was the last time homegrown companies like Micromax, Karbonn or Intex launched a new phone? Today, these brands have almost no presence in the smartphone market.

Barely four years ago, they were being talked about in glowing terms but the debut of Motorola's Moto G-series followed by the entry of Xiaomi decimated them. Their fate was sealed in 2016 when they failed to launch 4G phones at affordable prices.

Xiaomi was still a newbie, but it played its cards well and grew exponentially.

All along players like Vivo and OPPO were lining up with eye-popping budgets to find a toehold in the world’s second-largest smartphone market.

Getting a share of the pie was the goal, even if it meant operating in the red for a while. The Chinese flooded the Indian market with their offerings.

These brands were product-focused and delivered a better user experience at affordable rates, something that Micromax and Karbonn failed to do.

In fact, Micromax was caught rebranding a Chinese phone and importing it to India. It wasn’t making phones in India but relied on Chinese imports. So, even if the brand was "Indian", the phones were still Made in China.

Indian brands didn’t invest with a long-term outlook. Hardly a surprise then that Micromax's valuation plunged more than 90 percent in four years.

Technically, these were import-export businesses and not phone-makers. They didn’t invest in research and development, after-sales were very poor and users soon realised they were being taken for a ride.

On the other hand, foreign players have established India-centric research and development centres. Android skins like MIUI, OxygenOS, and Realme UI have features built to cater to the Indian consumer.

Indian startups like CREO and Smartron tried to enter the market but couldn’t go up against established players. Today, these companies have pivoted to the internet of things and other enterprises.

After Modi’s address, Indian brand Lava said it will shift production from China to India and invest Rs 800 crore over five years. Considering the size of the Indian market, it is peanuts and counts for little.

Foreign but still Indian 

What about Chinese brands in India? They account for 75 percent of the Indian smartphone market, according to Counterpoint Research's Q1 2020 figures.

South Korea’s Samsung has a 16 percent share. Micromax only finds mention in the feature-phone segment and that, too, with a measly 7 percent share.

Yet, the lion’s share of these brands, irrespective of the country of origin, are primarily ‘Indian’  because they Make in India. How did that happen?

The government has over the years increased import duty on finished phones to 20 percent to encourage the "Make in India" campaign.

Foreign companies looking for a big play in India were ready.

Xiaomi is the top smartphone maker in India with a 30 percent market share. It set up its first factory in Sri City in Andhra Pradesh, in 2015. Two years later, with its partner Foxconn of the iPhone fame, the brand opened its second factory and added four more units to keep up with the demand, a spokesperson told Moneycontrol.

These plants employ more than 30,000 people, 95 percent of whom are women. These facilities assemble phones.  "Currently, more than 99 percent of the Xiaomi devices sold in India are made in India," the spokesperson said.

The company’s India headquarters is in Bengaluru, right next to the base of India’s first big homegrown e-commerce success Flipkart, which has since changed hands and is now owned by the American giant Walmart.

Manu Kumar Jain is the vice-president of Xiaomi Global and Managing Director of Xiaomi India. That is as "Indian" as a company can get.

Samsung is another big player in the market. In 2018, the company opened the world's largest mobile phone factory in Uttar Pradesh’s Noida. The facility can produce more than 120 million handsets every year.

Realme India CEO Madhav Sheth said the company assembled all its smartphones at its Noida plant.

This facility also makes OPPO phones. OPPO also confirmed that the phones sold in India were assembled locally. It employs a workforce of 7,500.

Realme is an interesting “reverse” story, if you may.

It started from India and is now looking to make its mark in the “home country”. It is backed by Chinese-giant, BBK Electronics. The parent company also owns brands such as Oppo, Vivo, OnePlus and iQoo.

Recently, there were reports that Apple was planning to move 20 percent of its iPhone production to India from China. It could translate to $40 billion over five years.

The Cupertino-based giant already assembles some iPhone models in India in partnership with Wistron but wants to expand.

Assembling vs manufacturing

Assembling is an act of putting things together. So when multiple components are brought together to make a finished product, it is called assembling.

Manufacturing is when each part is built from scratch. India relies on imports for a considerable chunk of these components.

It is critical for India's long-term technology future. Listed companies like Dixon Technologies Ltd, which has a TV manufacturing plant in Tirupati, are Xiaomi's local partners in India.

Coming back to smartphones, Xiaomi says 65 percent of the device value is locally sourced. It manufactures printed circuit boards, the basic unit of a device that connects electronic components, in India.

More than 50 percent of Realme’s component suppliers are Indian. They manufacture screens, battery, packaging and internal components.

These small steps are essential for creating industry clusters that can run independently in the future. The local workforce is trained as well in the process. According to a media report, 3.6 crore handsets were exported from India in FY 19-20.

Made in India

India is expected to have 900 million internet users by 2023 and of these, 780 million will be smartphone users, a February 2020 report by Cisco has said. TV would be the second biggest medium to connect to the internet, the report said. 

Five years ago, premium phones were cheaper abroad and a must-buy during a visit. But not anymore, localisation has made smartphones cheaper in India.

Brands can price their offerings aggressively because of the import duty bypass.

Except the so-called premium phones like the latest iPhone or the Mi 10, pretty much every phone in the market today is Made in India.

This is true of the wider market as well. Honda is a Japanese company but makes its cars in India. PepsiCo is an American firm but it makes cola and chips, under the brand Lays, in India.

The call for local is aimed at reducing imports to save precious foreign currency and, as the ruling party later clarified, local does not only mean products made by Indian companies but also those manufactured in the country by multinational companies.

Yes, these brands ship profits to parent companies and that is still an outflow. But, for the time, this is how it will be.

For decades, India’s IT companies have shied away from product-based models and focused on services.

China leads the smartphone race because it has clusters like Shenzhen, where innovation is embraced and mass production facilities are available.

India has a long way to get there and it will call for huge monetary and technical support from the government. For now, “Made in India” is the best we have.

(The author writes on technology, aviation, and mobility.)