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Xiaomi, Vivo and Oppo: Political tensions in India and China hit the smartphone market. But they need each other


New Delhi
CNN Business

The Indian government is cracking down on the companies that make the most popular smartphones in the country.

Indians love Chinese smartphones, but over the past two months, New Delhi has stepped up scrutiny of three major Chinese companies – Xiaomi, Vivo, and Oppo. Together, these companies control more than 60% of the Indian smartphone market, according to data from research firm Counterpoint.

Xiaomi, the country’s best-selling brand, was the first to take on regulators’ heat. In May, the country’s main financial investigation agency accused the Indian subsidiary of Xiaomi of making illegal transfers, violating foreign exchange laws.

Xiaomi India said at the time that “all our operations are in full compliance with local laws and regulations”. It did not respond to further requests for comment this week by CNN Business.

Vivo, another major Chinese brand, was also on the list of the Law Enforcement Directorate of India. Earlier this month, the agency accused the company of tax fraud and said it conducted inspections at 48 Vivo locations in the country, seizing $60 million from its bank accounts.

A Vivo spokesperson told CNN Business that the company is “cooperating with the authorities to provide them with all required information.” She also did not respond to a follow-up inquiry.

And just last week, Oppo became the latest Chinese smartphone manufacturer to be targeted in India. The company sells the popular Realme and OnePlus brands in the country, and the Indian Revenue Intelligence Directorate has accused the company of evading about half a billion dollars in taxes.

Oppo did not respond to a request for comment.

Beijing, meanwhile, has criticized the raids on Chinese companies, saying India is damaging its reputation among foreign investors.

In a statement earlier this month, China’s embassy in India said the investigations were disrupting “normal business activities” and raising concerns about “the confidence and willingness of market entities from other countries, including Chinese companies, to invest and operate in India.”

Chinese tech companies have had a particularly tough time in India over the past two years, with New Delhi cracking down since escalating border tensions between the world’s most populous country.

In 2020, India banned more than 200 apps – many of them Chinese, including the popular video platform TikTok.

Chinese sellers are also under the thumb of Indian regulators because they have “grown so quickly,” Tarun Pathak, director of research at Counterpoint, noted.

“India is seeking more clarity on how Chinese companies do business here,” he said. “Their balance sheets are now being looked at.”

He added that the Indian government is tightening regulations for foreign phone makers because they have realized that “these companies need India more than India needs it.”

Although strict regulatory measures make doing business in India difficult, experts say New Delhi is unlikely to impose an outright ban on Chinese smartphones.

“Chinese companies are here to stay,” said Pathak, adding that “there are no more detainees.”

South Korean giant Samsung is the second best selling smartphone brand in the country and the only non-Chinese company among the top five sellers in India, according to data from Counterpoint. “It cannot increase its market share from 20% to 60% overnight,” said Pathak.

Apple (AAPL) has had big plans for India for years now, but it has only captured a small portion of the market because its products are too expensive for most Indians.

Kiranjeet Kaur, associate director of research at the International Data Corporation (IDC), expects these companies to be back on track by the time the Diwali festival season — driven by shopping — begins in India in October. It added that these sensors would not be of interest to Indian consumers.

After the border clashes, calls for a boycott of Chinese companies, including phone makers, swept India, Kaur recalled.

She added that despite these protests, “there has been no decrease in shipment numbers” for these companies, and their market dominance continues.

India’s love for Chinese smartphones transcends any political tensions, mainly because they are considered a great value in a price-sensitive market.

While Indian manufacturers have created affordable smartphones in the past few years — including one developed by Mukesh Ambani, the billionaire chairman of India’s sprawling Reliance Group, in partnership with Google — they have failed to generate much traction among consumers.

“If you compare features, Chinese smartphones offer a lot, and they cost a little bit more,” said Kaur.

And despite the new legal challenges, China cannot abandon the Indian market. The South Asian country of more than 1.3 billion people, said Pathak, is the world’s second largest smartphone market after China.

“India is very important to all the major players, whether they are Americans or Chinese,” he said. It is also the world’s largest “emerging market” with “nearly half of the country still not connected to smartphones”.

A Covid-related slowdown in China, which has hurt consumer activity, is making India more attractive to cross-border businesses.