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China's mobile and digital dominance runs deep into Indian economy

In business-to-business supplies, China is perhaps the most important trading partner for India today.

, ET Bureau|
Last Updated: Feb 16, 2020, 08.43 PM IST
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For a country that shares a sensitive geopolitical relationship with India, China has made inroads into the Indian economy in the past few years.
Sometime in 2019, India overtook the US to become the second largest smartphone market in the world, after China. Of the 158 million units shipped (meaning made available in the Indian market), around 114 million, or 72%, were Chinese brands, said Counterpoint Research. Xiaomi led the pack, with Vivo, Realme and Oppo figuring among the top five, according to figures released in January. It’s been an astounding market share grab, considering most of these brands have not been in India for more than a few years.

Chinese companies are now major players in a number of consumer segments. Lenovo is a heavyweight in computer hardware, Haier is inching up the league table in white goods. Huawei’s domination in telecom equipment is strong and its leadership in 5G technology, in particular, is absolute. In auto, 2019 saw a blockbuster entry for MG Motor, with its Hector SUV. A number of major Chinese automakers are now rolling into India.

Chinese companies are beginning to dominate in some digital segments as well. ByteDance-owned TikTok is a sensation in India. ByteDance plans to invest $1 billion in India over the next few years. Alibaba owned UC Browser, too, has significant users in India. Hangzhou-headquartered ecommerce player Club Factory is expanding its reach to tier-2, -3 and smaller cities in India. Investors such as Ant Financials and WeChat owner Tencent have picked up stakes in large digital players such as Paytm and Zomato. PUBG, one of India’s most popular mobile games, is owned by Tencent.

This is just the picture on the consumer-facing business. In business-to-business supplies, China is perhaps the most important trading partner for Indian businesses today.

The emerging picture is rather remarkable, considering the geopolitical unease that exists between India and China. The robust $87 billion in trade between the two countries sit sill at ease with a history of aggressive border disputes, memories of a war and China’s open support for Pakistan, including in international fora. In fact, at various points, India has asked its military personnel to refrain from using Chinese devices or apps, or both. Now Chinese companies are everywhere — from telecom infrastructure to handheld devices and the most popular apps. Perhaps nowhere in the world do two countries with such geopolitical suspicions on the one hand also share such deep trade links on the other.
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Thinking Global
Globally, as in India, China has managed a remarkable turnaround in perceptions — from a supplier of cheap and poor-quality products, its companies have won the world’s grudging respect. This has been achieved through strategic intent and global acquisitions.

For instance, Lenovo was only a big player in China before it bought IBM’s hardware business and emerged among the largest computer sellers globally. British brand MG Motor and Scandinavian Volvo are among the marquee brands that have been acquired by Chinese companies.

Much of China’s global scale and success in commerce goes back to the 1990s when free trade agreements resulted in zero-to-low tariffs, and China focused on becoming the lowest cost producer and invited American and European companies to set up their manufacturing capabilities.

“China makes inferior to good products across segments to cater to different price points and needs. So from cheap plastic toys, festive lights and wristwatch dials to computers, smartphones and solar panels, Chinese companies play across segments,” says Hitesh Sawhney, partner and leader of the China business group at PwC India.

Commoditisation at Scale
Chinese domination in tech products has been fuelled by its ability to commoditise at scale. China produces at scale and becomes the cheapest supplier of a particular commodity — be it phone cases, batteries, electronic components or solar panels. Nokia, for instance, used to be a dominant maker of mobile handsets. It used proprietary technology. Later with cheap chip sets from China and Taiwan, as well as customisable Android operating system, the entire ecosystem became commoditised. The same process has been replicated in computers, washing machines, air conditioners, microwaves and other products.

Chinese industries also enjoy active state support. If the US imposes tariffs, the government ensures that industry can tweak supply chains to reduce costs and remain competitive.

“China as a country approaches commerce with strategic intent. In their planning and economic thinking, it’s about how do we maximise value addition. That means higher GDP and more jobs,” says George Paul, CEO, Manufacturers Association of Information Technology (MAIT).

Even in areas where Chinese companies don’t have advantages of scale, they are willing to invest to create the market. For instance, ecommerce in India seems like a two-horse race between Amazon and Walmart-owned Flipkart. That has not deterred Chinese ecommerce player Club Factory from investing. In recent months, it has increased its penetration in smaller towns in Uttar Pradesh, Telangana and Bihar and offers sops to onboard sellers. “Local talent is key to our success. We are hiring local employees and also scaling up operations to connect with the masses,” says Vincent Lou, founder and CEO of Club Factory.

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Carpet Bombing
In smartphones, after Nokia lost ground, Indian companies, including Micromax, Lava and Karbonn, stole a march, but they could not innovate or invest in R&D. Later, Chinese companies, including Xiaomi, Oppo, Vivo and Realme, stole their thunder. Anshika Jain, research analyst, Counterpoint Research, says: “Chinese companies launch devices across price points; others hold on to their sweet spot.” Realme has 14 products in the market. Even carmakers such as SAIC and Great Wall Motors plan to bank on a portfolio of multiple products at different price points to attract buyers. “They will replicate their success in smartphones in the car market,” says Paul.

Besides Chinese companies take a 360-degree view and study what drives local sentiments. Vivo is a major cricket sponsor. OnePlus expanded by word of mouth. They also innovate relentlessly. Triple and quad cameras are now available in sub-Rs 20,000 devices from Chinese brands.

Eric Braganza, president, Haier Appliances India, points out that the Chinese strategy is to break up an organisation into micro enterprises — say, create 40 branches of one organisation, each with qualitative and quantitative targets. And then scale up all of them.

The large ecosystem also supports growth, like easy access to capital. “Chinese advantage is product financing,” says Rajan S Mathews, director general, Cellular Operators Association of India (COAI). He adds, “In India it’s absolutely critical. Local manufacturers don’t get it as banks in India are not keen.” Once Chinese win markets, they don’t increase prices (like in smartphones, computers etc). They are happy holding on to their volumes as they know if they increase prices, someone with a cheaper offering could upset their equation.

As investors, Chinese have begun to show aggression in India in the last couple of years. While Alibaba’s Ant Financial has been investing in India for a while, rival tech superpower Tencent has got more active recently, closing 10 deals in the last eight months alone. It has invested in edtech startup Doubtnut, Byju’s, insurance aggregator PolicyBazaar and B2B ecommerce portal Udaan, besides Swiggy, MXPlayer (owned by Times Group, publisher of this newspaper), My-Gate, Dream11 and others. Globally, Tencent has invested in 800 companies, of which 70 are publicly traded and around 150 are unicorns.

Now with labour costs rising in China (labour is now relatively cheaper in India), a large domestic market and availability of skilled talent should help Indian companies start competing better.
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