Will Banning Cheap Chinese Phones Make India a Handset Manufacturing Hub?

As recently as 2015, Indian brands like Micromax, Lava, Karbonn and Intex were loving the shelves of phone shops across the country and selling like hot cakes. But then Chinese phones started pulling the less compelling Indian handsets off the shelves, slowly but surely.

Cut to 2022. Local businesses have been decimated. Indian brands combined hold a market share of less than 1% in overall smartphone shipments from all brands, including US Apple and South Korea’s Samsung. Meanwhile, the top four Chinese brands hold a 63% share.

While in the sub-Rs 10,000 segment, the market share of Indian brands is around 3-4%, while that of Chinese brands is almost 90%.

Now, as discussions on the strategy for reviving the national mobile device industry are underway, there is a growing consensus within the government around the idea that the low end of the market should be reserved only for national actors. Chinese brands like Xiaomi, Realme, Oppo, Vivo and Transsion may have to exit the segment of the Indian mobile market made up of handsets priced below Rs 10,000.

Such a move would be part of the plan to create ‘Indian champions’ in the sector, which is a key objective of the production-linked incentive scheme. The strategy could be executed either through an enabling framework or through negotiations. One option is to encourage foreign OEMs to push electronic manufacturing services in India and co-develop and co-design affordable phones with local brands. So who will fill the void if Chinese companies are banned?

Prachir Vardhan Singh, Senior Research Analyst, Samsung’s Counterpoint Research has a dedicated supply chain and manufacturing base. Jio is in a prime position to take advantage of this with JioPhone Next. The capabilities of non-Chinese brands may not fill the void in the near term.

Due to government policies, Chinese companies have localized their production, making India the second largest mobile manufacturer after China. In fact, almost all phones sold in India are manufactured in the country. In March, in a big boost to the PLI program, Apple’s suppliers committed to a minimum incremental production of Rs 25,000 crore of mobile devices in FY23. in FY22 was made possible by the entry into India of Apple’s third contract manufacturer, Pegatron.

National companies Lava, Micromax, Padget Electronics and UTL Neolyncs also participated in the PLI program for the manufacture of mobile devices. However, their Chinese counterparts, who are said to be on a subsidy spree, have outdone them. Analysts say they have also been unable to become contract manufacturers for mobile companies. Thus, their production levels are not sufficient to benefit from the proposed incentives.

Prachir Vardhan Singh of Counterpoint Research cannot deny the contribution of Chinese brands and Samsung to the component ecosystem. The growth of local added value is a gradual process. The potential ban will not be an inflection point for that.

This development comes at a time when the government is looking into cases of alleged tax evasion by Oppo, Vivo India and Xiaomi. Investigative agencies are also investigating alleged money laundering violations by Chinese mobile phone makers.

The brands that will be affected if the ban is implemented are Realme, Xiaomi, Vivo, Tecno, Itel and Infinix. At each launch, the JioPhone 5G, whose price would be between Rs 9,000 and Rs 12,000, could benefit from such a ban. Meanwhile, other brands, including Indian ones, will have the opportunity to increase their capacity. However, this might not be possible in the short term, which could lead to a supply shortage.

Comments are closed.