Despite having the most popular handset brands in India, China-based smartphone companies have been accused by India of setting up shell companies in India and involvement in illegal fund transfers, signaling India may no longer be a cash cow for Chinese companies.
Earlier in October, the Enforcement Directorate of India arrested four executives on money laundering charges, including a Chinese national who worked for Vivo, a fresh setback for Vivo after August 2022 when the company was accused of evading taxes.
Vivo is not alone among China-based smartphone vendors facing regulatory scrutiny in India. Honor has shifted its focus away from the world's second-largest smartphone market after China.
Xiaomi has been investigated by the Indian authorities for customs duty evasion in the guise of royalty payments, leading to asset freezes of nearly US$700 million. Xiaomi said that most of the overseas fund transfers were for royalties paid to Qualcomm, a claim the Indian government disputes.
India has been an important overseas market for Xiaomi. Since entering the Indian market in 2014, Xiaomi has seen rapid growth, selling 120,000 smartphones within a month by flash sale marketing. Over the years, Xiaomi has become the largest smartphone brand in India, holding a 20% market share in India in 2022 and investing in local production.
In addition to money laundering and tax and customs duty evasion, China-based smartphone vendors were reportedly required to appoint Indian nationals as senior executives, such as CXOs, outsource manufacturing to local companies, and export through local distributors, underscoring India's ambition to boost its domestic supply chain. Data shows that China-based brands enjoy more than 60% of the smartphone market in India, while local brands, such as Lava and Micromax, hold a little more than 1% of the market.
In late September, Dixon signed an agreement to manufacture products for Xiaomi through its subsidiary Padget Electronics, the first time Xiaomi outsourced manufacturing to an Indian EMS provider, implying the significance of India to Xiaomi even in the face of regulatory pressure.
Source: IDC, October 2023
