Canalys: Xiaomi lost its leading position in the Indian smartphone market in Q4 2022 and fell to third place

The momentum of Chinese mobile phone brands in the Indian market has been put on hold, while South Korea's Samsung mobile phones have regained more market share in India. Since India proposed "Make in India" in 2014, Chinese mobile phone companies have been one of the most active responders. Xiaomi India was registered and established in October 2014. By 2023, Chinese mobile phone brands have entered the Indian market for ten years. At present, Chinese mobile phone companies are in a dilemma in India. A series of problems are plaguing Indian Chinese mobile phone brands and supply chain companies such as Xiaomi, OPPO, and vivo.

"Their strategy is to maintain the status quo, ensure healthy operations, and be cautious about reinvestment." On August 10, Gao Shiwang, secretary-general of the Electronic Information Branch of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, told the First Financial reporter.

Market share increases and decreases

In the Indian market, the share of Chinese mobile phone brands is declining.

According to Canalys data, after 20 quarters of glory, Xiaomi lost its leading position in the Indian smartphone market in the fourth quarter of 2022, falling to third place with 5.5 million units shipped, behind Samsung and vivo. In the second quarter of 2023, Xiaomi's smartphone shipments in India were 5.4 million units, a year-on-year decrease of 22%, and its market share was 15%, a year-on-year decrease of 4 percentage points.

Among the top five in the Indian mobile phone market, except Samsung, the four Chinese brands vivo, OPPO, Xiaomi and Realme had a combined share of 61% and 55% respectively, showing a downward trend. In the third quarter of 2021 and the third quarter of 2022, the combined share of these four Chinese brands was 70% and 67% respectively.

Yang Shucheng, secretary general of the China-India-Vietnam Electronics (Mobile Phone) Enterprises Association, told the First Financial Daily that Xiaomi, OPPO, and vivo's smartphone shipments in India reached 4 million units per month at their peak in 2018 and 2019, but have now dropped to about 1.5 million units per month, respectively. This is due to the shrinking global mobile phone market and the policy impact that has caused Chinese companies to shrink their production capacity.

Canalys India analyst Sanyam Chaurasia said in a reply to Caixin that Xiaomi's decline in mobile phone market share in India was due to the following reasons: first, the macro situation affected its main investment portfolio; second, the online channels did not show consistent demand; and third, it was late in becoming an aggressive 5G brand.

A Chinese source in India believes that in the past few years, Chinese mobile phone brands have occupied two-thirds of the Indian smartphone market. Currently, Apple, Samsung and local brands such as Jio are receiving support and subsidies, which has reduced the competitiveness of Chinese mobile phone brands and their market share is likely to gradually decline.

"Chinese mobile phone companies will definitely adjust their strategies in India." An observer who has been paying close attention to the South Asian consumer electronics market told the First Financial reporter that, first, Xiaomi and OPPO's reduced liquidity in India from last year to this year has affected their overall expansion strategy; second, India's mobile phone shipments have exceeded 2 billion units from 2014 to 2022, with an annual compound growth rate of about 23%, but this year's performance is lower than expected. After the smartphone penetration rate reaches about 80%, it will develop towards high-end, and Chinese mobile phone companies' products also need to be adjusted; third, the proportion of online channels has declined, and they will focus on expanding offline channels; in addition, India also requires that the senior executives of Chinese companies must be Indians. "Combining all the above factors, adjustments by Chinese companies are inevitable."

India has been asking Chinese companies to establish local supply chains, especially for parts with technical content, and to produce them locally. However, the above-mentioned person believes that Chinese companies will become more and more cautious. Even if Apple has obtained investment approval from India for more than 10 Chinese "Apple chain" companies, it can still be predicted that they will be very cautious in investing in India, and the development speed of foreign companies' local supply chains in India will be lower than expected.

200,000 employees during peak period

2014 was a crucial year for Chinese mobile phone brands to enter the Indian market. OPPO and vivo chose to use their expertise to break into the door of local vendors and confront Samsung head-on; Xiaomi and OnePlus seized the dividends of e-commerce and set an industry benchmark for online brands.

China's demographic dividend is fading, while India has a population size comparable to China's, a large young population, and a lower smartphone penetration rate than China. This has attracted leading Chinese mobile phone supply chain companies to set up factories in India, with annual production exceeding 200 million units.

In September 2019, Xiaomi announced that it had sold more than 100 million smartphones in India, its most important overseas market, since it began operations there five years ago. At that time, Xiaomi had been the top seller in India for eight consecutive quarters. Xiaomi's annual shipments in India once reached 40 million units, once exceeding its shipments in China. This also led to investments from upstream companies such as TCL Huaxing.

Zhao Jun, president of TCL Huaxing, revealed to a reporter from China Business News in July this year that the production capacity of mobile phones and TV modules of TCL Huaxing's Indian module factory has been fully opened, and the current capacity utilization rate is 70%-80%. Cooperation with factories opened by local Indian customers and Chinese customers in India has been fully launched. Although it took a long time for TCL Huaxing's Indian module factory to go from construction to operation, it is currently operating well.

According to the 2021 Report on the Development of Chinese Enterprises in India, by 2021, Chinese mobile phone companies had more than 200 factories in India, with a total number of employees exceeding 200,000; more than 500 trading companies; and an investment of more than US$3 billion. Chinese companies have provided more than 500,000 jobs in India. At their peak, OPPO and vivo each employed more than 15,000 people.

"OPPO and vivo have already purchased industrial land in India, and it is difficult for them to extricate themselves, so they have to stay. They are now facing a decline in demand and underutilized production capacity. Even if the Indian side urges them to continue building factories on the purchased industrial land, they can only postpone it." The relevant Chinese source in India said that Chinese mobile phone brand companies in India have reduced production capacity, laid off Indian employees, and reduced product range, but are trying to maintain a certain market share; some Chinese small and medium-sized supply chain companies have no choice but to leave India.

"There are no new statistics at the moment. As some companies leave and their businesses shrink, coupled with restrictions on personnel visas, the above figures will definitely decrease to a certain extent." The above-mentioned person said that if India's policies remain unchanged, the above figures will show a gradual downward trend.

Gao Shiwang believes that these major Chinese mobile phone manufacturers have invested so much in the Indian market and will ensure continued operation. "Their current strategy is to maintain the status quo and are unwilling to invest too much. They aim to operate healthily, appropriately increase their profit levels, and not lose money to expand their market share."

India or Vietnam?

China, India and Vietnam account for most of the global mobile phone industry's production capacity.

Smartphones have entered a period of stock competition and are more sensitive to costs. Economic and trade frictions and the epidemic have also accelerated the restructuring of the global industrial chain, which has caused some mobile phone production capacity to shift from China to India and Vietnam.

Due to the transfer of part of mobile phone production capacity and orders to India, Vietnam and other countries, the overall proportion of China's mobile phone production capacity has declined.

According to statistics from the U.S. Department of Commerce, in 2022, U.S. imports of mobile phones from China fell 2.2% year-on-year to 151 million units, accounting for 79.9% of its import sources, an increase from 71.2% in 2019 before the epidemic, but 5 percentage points lower than the peak of 84.9% in 2014. In 2022, U.S. imports from Vietnam and India accounted for 15.3% and 2.2% respectively, a proportion that has increased more than 10 times compared with 2014.

India hopes to further expand its local mobile phone industry chain, with the import tax rate on mobile phones raised to 28%, and has set a goal of manufacturing $300 billion worth of electronic products by 2026. Bank of America predicts that Apple may transfer at least 18% of its iPhone production capacity to India by fiscal 2025, driven by India's production-linked incentive (PLI) program launched in 2020.

Chaurasia said that the current growth in India's smartphone exports is mainly driven by Apple and Samsung, helping India achieve a record export volume of nearly US$4 billion in the first quarter of 2023. In terms of localization of the Indian mobile phone industry chain, top suppliers are giving priority to local suppliers and parts procurement. Parts such as chargers, cables, motherboards and battery components are currently purchased locally in India; however, major components, such as displays and chips, are still mainly imported.

"China still accounts for 70%-80% of the global mobile phone production capacity. Many of the components needed for Apple mobile phones to be produced in India still need to be imported from China," Gao Shiwang believes that China has advantages in the mobile phone industry chain, supply chain, talent, and research and development, so there is still room for deepening cooperation in the China-India mobile phone industry chain.

Of course, with the increase in labor costs in China and the increasing demand from overseas customers for diversified supply chains, there is still pressure for the production capacity of China's mobile phone industry chain to shift abroad. As uncertainty in the Indian market increases, many Chinese companies have turned their attention to Vietnam.

Yang Shucheng has organized three business delegations to Vietnam this year, and the latest one will depart in late September. He believes that Chinese companies will not put all their eggs in one basket when developing overseas. In the next 5-10 years, the preferred destinations will be Vietnam, India, Indonesia, Hungary and Mexico.

Speaking of the future role of China, India and Vietnam in the global smartphone industry chain, Chaurasia said, "They will play a key role in helping (mobile phone) brands diversify their supply chains to support global operations."

"India sells 120 million to 130 million smartphones a year, most of which are assembled in India. At the same time, 90% of the mobile phones produced in India are consumed locally. In contrast, 90% of the mobile phones produced in Vietnam are exported." Yang Shucheng told the first financial reporter that he is now focusing more on assisting member companies to invest in Vietnam.

The above-mentioned Chinese person in India told the First Financial reporter that the Indian government hopes that India will become a major mobile phone production and exporter. Whether India can become a major exporter of smartphones in the future, in the short term, the goal is difficult to achieve.

The person said that in the long run, as Apple, Samsung and other companies continue to expand their production capacity in India, India is expected to become a major mobile phone production and exporter. Vietnam is already better than India in mobile phone production and export, and products manufactured by foreign investors will occupy a certain share in the international market.

From China Home Grid