Dragon on the prowl

India is not just a fast-growing market for Chinese firms, but an all-in-one package

DSC_5316 Right call: Vivo’s plant in Greater Noida | Aayush Goel

Around 5,000 employees work round the clock at Chinese mobile maker Vivo’s manufacturing plant in Greater Noida. Vivo started the plant—which produces two million smartphones a month—at a time when most mobile brands in India, even those which bore Indian names, imported phones from China. The initial investment in 2015 was 0100 crore. Later the company ramped up the facility, investing Rs300 crore more.

A major challenge which many Chinese manufacturing companies face in India is the shortage of a skilled manufacturing workforce.- Santosh Pai, lawyer
Mobile payments, telecom, IT, pharmaceutical, P2P lending and medical equipment are some of the sectors in which Chinese companies can benefit from Indian know-how. - Huang Huajing, representative of CCPIT
We take extensive measures, ranging from localising our product offerings and marketing efforts to building locally robust after-sales infrastructure and service network. - Manu Jain, managing director, Xiaomi India
India is the second largest market for Vivo phones in the world. - Nipun Marya, director of brand strategy, Vivo India
Despite these mobile phone and telecom companies, India is still awaiting a large-scale greenfield Chinese investment. - Mohammed Sadiq, secretary general, Indo-Chinese Cultural and Economic Council

It was money well spent. In financial year 2018, Vivo Mobile India posted a year-on-year revenue growth of 77.6 per cent, to Rs11,179 crore. Vivo, however, is not the brightest Chinese star in the Indian mobile market. It is Xiaomi Technology India, whose revenue in financial year 2018 was Rs22,947 crore. In the year, the top four Chinese phone makers in India—which include Oppo Mobiles India and Huawei Telecommunications as well—doubled their combined sales to Rs51,722 crore, accounting for a third of the Indian mobile market.

The onslaught on the Indian telecom market is probably the most shining example of the significance that India holds in the scheme of things for Chinese companies. But phone makers are not the only ones who make hay here. In 2010, there were just about 30 Chinese companies in India; now there are around 800 with an established presence, said Santosh Pai, partner at the law firm Link Legal India Law Services. Pai has helped many Chinese companies start business in India. He said Chinese companies had made a cumulative investment of around $15 billion in India.

Pai is currently helping a Chinese automotive parts manufacturer set up operations. He said the Chinese presence helped Indian industries scale up efficiently. For instance, “technology giants like Alibaba, Tencent, Baidu and Xiaomi are transferring their learning from China at a rapid pace into the Indian internet industry”, he said. “A major challenge which many Chinese manufacturing companies face in India is the shortage of a skilled manufacturing workforce.”

Santosh Pai | Bhanu Prakash Chandra Santosh Pai | Bhanu Prakash Chandra

Another challenge is the volatility of the India-China relationship. Pai, however, says Chinese investors are mature enough to deal with it. “Economic engagement overtakes political decisions,” he says. “In the year of the Doklam crisis, Chinese investments almost doubled in comparison with the previous year.”

Chinese companies’ growing presence in India has as much to do with their global aspirations as with the importance of the Indian market. For instance, BYD Auto Company, which is the world’s top-selling plug-in electric car manufacturer, is working on making India a base for its manufacturing and development in South Asia. And, it has big plans for the Indian market as well. “India currently has 53 cities with more than one million inhabitants. With the expansion of the urban population, investment in public transport will become a vital issue for the Indian government, to solve problems such as urban traffic congestion, environmental pollution and an energy crisis,” said Ketsu Zhang, executive director of BYD India. The company has started designing and making electric buses in India. It also makes batteries and some mobile phone parts in its Chennai facility.

Huang Huajing | Aayush Goel Huang Huajing | Aayush Goel

China Council for Promotion of International Trade (CCPIT), which has presence in 34 countries, is in the process of opening an office in Gurugram. “There are around 800 Chinese enterprises actively working in India,” said Huang Huajing, a representative of CCPIT in India. “Fintech, especially mobile payments, telecom, IT and IT services, pharmaceutical, P2P lending and medical equipment are some the sectors from where a lot of Chinese companies can benefit from the Indian know-how.”

The fact is, if any Chinese company wants to be a global market leader it cannot ignore India. “Success for a Chinese company in India is closely linked to the ease and speed with which it can localise and adapt to our market conditions,” said Pai. “First-movers in certain industries have now consolidated their experiences and have become comfortable in the Indian environment.” BBK Electronic Corporation is a perfect example. The Chinese giant, which sells Vivo, Oppo and OnePlus mobile phones, is within striking distance of Samsung’s market leadership in India. “India is the second largest market for Vivo phones in the world,” said Nipun Marya, director of brand strategy, Vivo India.

OnePlus, whose phones have built quite a reputation in the past few years, has decided to make India its second headquarters. India, in fact, is the biggest revenue generator for the brand. The company is also planning a full-fledged research and development facility in India. “I feel that the Indian market is also gradually moving towards the premium segment. Globally the market is dominated by the premium segment,” said Vikas Agarwal, general manager, OnePlus India.

The biggest inflow of money from China, however, is to the startups. Indian startups and Chinese investors are a match made in heaven. According to a KMPG report, Indian startups received $2 billion from China in 2017, which was three times the investment in the previous year. Chinese investors mostly focus on e-commerce and financial technology. Alibaba, the biggest Chinese e-tailer, is a major investor in two of India’s unicorns, Ola and Paytm. Tencent, another tech giant, is an investor in the messaging platform Hike.

Manu Jain Manu Jain

While for many startups the Chinese money is a lifeline, for the investors it is a great opportunity. Chinese investors arouse little excitement in Silicon Valley, and their next best option is India, which has a robust startup ecosystem. In 2017, Chinese investors were involved in 23 deals signed by Indian startups.

Jyotika Ahuja, Alibaba’s director of corporate communications, told THE WEEK that India was an important market in the company’s expansion strategy. “The Indian e-commerce market is expected to reach $71.94 billion by 2022. We want to take a patient approach in this market. Our long-term aim is to use data and technology to transform retail, including offline retail. Our experience in implementing innovative solutions in new retail across China has been instrumental in customising our offerings in a market like India.”

Nipun Marya | Aayush Goel Nipun Marya | Aayush Goel

These companies are not limiting themselves to the products and services they offer. Xiaomi India, for instance, is led by local leadership, and it hires local talent and manufactures locally. “We take extensive measures, ranging from localising our product offerings and marketing efforts to building locally robust after-sales infrastructure and service network,” said Manu Jain, managing director, Xiaomi India. “We currently have ten investments in startups, along with Shunwei Capital, which include Krazybee, Sharechat and Hungama.”

China’s big consumer durables companies are in a direct fight with the dominant Korean players in the fast-growing white goods market in India. Haier, which is the largest maker of laundry equipment in the world, recently expanded its manufacturing facility in Pune and will soon set up another plant in Greater Noida. “We have grown by 50 per cent in the first half this year and in value terms we have grown by around 55 per cent,” said Eric Braganza, president, Haier Appliances India. The company had a net sales of Rs2,350 crore in 2017. In the first half of this year, it did business close to Rs1,850 crore. Haier, which sources around 70 per cent locally for production, has customised its products for the Indian consumer.

Mohammed Sadiq | Aayush Goel Mohammed Sadiq | Aayush Goel

Midea Group, another Chinese electronics giant, has a presence in India through a joint venture with American air-conditioner maker Carrier. It is now planning to invest Rs800 crore in Pune to build a plant with the annual capacity to make five lakh refrigerators and six lakh washing machines.

China is also a major supplier of solar panels to India. In fact, China and Malaysia account for about 85 per cent of India’s solar cells. However, the sector is dominated by unorganised players. Trina Solar, which is the world’s second largest solar energy company and the biggest supplier to India, is setting up an assembly facility in India. The company has signed an MoU with the Andhra Pradesh government to set up a plant at a cost of Rs2,800 crore.

Despite the optimism, however, many challenges remain for Chinese companies in India. “Even if Chinese companies come and scout for land or office space for starting their business in India, they do not take any advice from Indians as there is still a lack of trust,” said Mohammed Sadiq, secretary general of the Indo-Chinese Cultural and Economic Council, a Delhi-based NGO. “Institutional cooperation with India is still minimal. Also, despite these mobile phone and telecom companies, India is still awaiting a large-scale greenfield Chinese investment.”

This might change soon considering that Chinese companies are trying to make use of policies such as Make in India and Digital India. And they seem to have figured out the Indian consumer. “India is a market that understands value for money and Indians are more aware about the product than several other markets,” said Will Yang, brand director, Oppo India. “Therefore, we are always pushed to be exceptional.”