Chinese smartphone manufacturers are increasingly caught between a rock and a hard place.
Due to dwindling global market share, Chinese smartphone companies are reducing shipments from India. This comes as New Delhi increases pressure on companies to change their structures to include more Indians at top management and distribution levels, localize components, and promote exports from the nation, which executives and experts say is becoming difficult to maintain.
According to the executives ET talked with, advantageous markets like as North America and Europe, where the likes of Apple and Samsung (who account for the majority of smartphone exports from India) ship, are off-limits to Chinese firms.
According to Counterpoint Research, this makes India a critical market for Chinese manufacturers, who together command almost 74% of the volume market share.
The combined market share of Chinese brands, on the other hand, has remained either flat or declining across key markets such as Europe (35%), North America (12%), and Japan (8%), where Apple and Samsung have grown thanks to the premiumization trend that has accompanied a lengthening of replacement cycles, according to the research firm.
“Chinese brands are only thriving in India.” Even in China, there is mounting criticism after Huawei’s market takeover. “They have no presence in the US market,” a senior executive in the mobile phone business told ET. “They are also being pushed out of Europe after being sued for royalties by Nokia, and Japan does not favor Chinese products.” So, what markets do they have left now that their viability in China is a greater question?
“Notably, the main Chinese brands already have production plants in places where they already have substantial market shares, such as South East Asia (69%). Even in far-flung countries such as Latin America (52%), manufacturing facilities for smartphones are present, while Vietnam is quickly becoming an export center to supply Western markets, according to industry analysts. What is the goal of establishing manufacturing units outside of China?” “Either you relocate some capacity from China, or if it is incremental, it requires an additional market to be replaced for the supply coming from China. However, with global demand declining, the additional market is not there,” said Navkendar Singh, IDC’s assistant vice president. To be sure, Chinese businesses have openly stated their desire to begin exports, with some even going to neighboring countries to begin the trip.
Vivo, for example, has begun exporting to Thailand and Malaysia and will extend to Saudi Arabia and Bhutan this fiscal year, to export a million devices by 2023. Xiaomi, too, has hired Dixon Technologies to begin local production to export mobile phones from India.
However, geopolitics is now playing a significant role in the increasing movement of production out of China, particularly for American companies like Apple. However, keeping both sides satisfied and substituting supplies from China with other locations would be tough for Chinese businesses, he warned. “Given the importance of the Indian market, they should ideally be doubling down on complying with all the demands of the (Indian) government, but how will they do it without making the Chinese government unhappy?” the executive who was cited before said.
With the implementation of the production-linked incentive scheme for smartphones, cost barriers have been eliminated for companies such as Apple and Samsung, which accounted for $9.5 billion of the $11.2 billion in exports produced in FY23.
“The average cost of assembling a product is approximately 2.5% of the product cost, while the PLI scheme provides a 5-6% incentive to manufacture in India. It’s a no-brainer for companies like Apple and Samsung to increase manufacturing in India,” the executive added. The same mathematics does not apply to Chinese businesses, who have been essentially kicked out of the PLI system and instead instructed to partner with Indian producers under the plan, according to analysts.
