Back in September when Huawei announced plans to manufacture 3 million smartphones a year at a plant in India, it sparked fears in the Chinese media that a new phase of competition between India and China was on the horizon – and along with it, large scale job cuts in the latter.
Huawei, one of China’s biggest telecom companies, was just the latest in a wave of Chinese smartphone vendors to set up production facilities in the country – one of the most promising mobile markets in the world.
India attracted investment from 37 mobile manufacturers in the past year, more than half a dozen of which were Chinese handset makers, according to industry sources. Just prior to Huawei’s announcement, Xiaomi had revealed plans to set up two manufacturing plants in the country, while upstart brands like Gionee, LeEco, Oppo, Vivo, Meizu, OnePlus, and Coolpad have also announced they will be setting up facilities. Meanwhile, a slew of Chinese handset component makers – including Holitech, Wingtech and Camera King – are also reported to be weighing their options in India.
India’s vast, but still largely untapped, market is its greatest allure.
“With more than 1 billion mobile phone users, India is the second largest smartphone market in the world [after China], but the share of smartphone users is only around 250 million. This explains why so many global smartphone brands are [queuing up] in India,” said Atul Jain, COO of LeEco, India.
Growth prospects in the country are likewise appealing. While smartphone imports passed a record 32 million units in the third quarter – 11 per cent year-on-year growth – the National Association of Software & Services Companies predicts that India will have 730 million internet users by 2020 – up from 350 million today. Two-thirds of the growth in new users is expected to come from rural India.
The market is expected to see a compounded annual growth rate of 23 per cent through 2018 and account for 30 per cent of global growth during that period.
“India has a huge consumer base and has a lot of potential,” said Sudhin Mathur, executive director at Mobile Biz Group, Lenovo India.
LeEco boasts of possessing an Apple-like ecosystem that bundles content and video streaming to its devices, which it claims gives the brand a leading edge in the Indian market.
Lenovo (with its subsidiary Motorola) currently makes 6 million handsets per year in India, making it the second largest handset seller after Samsung by volume, according to Singapore-based analyst firm Canalys.
Other Chinese brands are riding the wave, racing past the local players despite a recent social media drive to boycott Chinese products. Calls to shun Chinese brands abounded for several weeks in April this year, and resurfaced in September, triggered by political issues like China’s stance on the UN-designated terrorist group Jaish-e-Mohammed and India’s bid to join the Nuclear Supply Group.
“Innovative marketing and a focus on features and value-for-money have helped Chinese brands to beat the negative perceptions,” said Arvind Vohra, CEO and managing director of Gionee India. Although Gionee outsources handsets from a local manufacturer and Foxconn’s Indian plant, Vohra says the Chinese parent is setting up a captive facility in the country soon.
Indeed, Chinese handset makers have plenty of reasons to be cheerful. A recent study by Business Standard based on data from industry trackers like IDC, Counterpoint Research, and IIM (Bangalore) projected that by the end of the year, Chinese brands would have captured nearly 30 per cent of the Indian market, up from 9 per cent in 2014.
In comparison, the share of Indian brands – including top names like Micromax, Lava and Intex – was projected to slide by 9 per cent, from the 45 per cent in 2014. A dependence on importing components or handsets was behind the loss of market share, experts said.
Indian companies have an incentive to slash that dependence, thanks to the “Make in India” campaign launched last year by Prime Minister Narendra Modi. The campaign, which aims to turn India into a global manufacturing hub, subsidises companies and reimburses their set-up costs. It also slashes the tax on locally manufactured handsets to 2 per cent, compared to 12.5 per cent duty on imported completely-built handsets.
Sky Li, vice-president at Oppo, said manufacturing locally was a logical step as the savings on duties could be passed on to consumers.
“The country’s current government policies and incentives are easing the entire process of manufacturing and selling in India,” he said.
Consequently, handset production is soaring. According to the Indian Cellular Association, production in India increased from 60 million units in 2014-15 to 110 million units in 2015-16.
India is also gaining strategic importance for some Chinese firms as their home market reaches saturation.
“Our China success story is what we are going to replicate in India. China gave us many lessons and that will help us make rapid strides here in India,” said Jain of LeEco.
IDC has predicted smartphone shipment growth in China will remain flat in 2016, largely due to the maturing market rather than the slowing economy.
Still, as the sector booms, so have challenges; the biggest of which is the country’s discerning buyers.
“While India has a huge market for cheaper smartphones – under US$100 – the challenge is to always provide the best phone at the best possible price,” says Mathur of Lenovo.
Others caution that India has a diverse set of consumers with demands that vary widely from region to region, making it more challenging than many other markets.
Nevertheless, Chinese players are pinning their hopes on the country’s exploding demand, burgeoning economy, and improving infrastructure, that they say, are paving the way for international brands.
“Given India’s attributes, it would be stupid not to produce in India,” says Vohra.