Partnership pays: Many Chinese firms are forming joint ventures with Indian players—that’s the way to go

Partnership is the way forward, which both sides seem to have realised with time.(Image: Freepik)

Post the 2020 border clashes, India hardened its stand against Chinese investments. While a radical decision was taken to ban all Chinese apps—short video app, Tik Tok was very popular then—with regard to the manufacturing firms, a different strategy was adopted. Since Chinese manufacturers had struck deep roots in sectors like mobile handsets and automobiles, restrictions were brought in the foreign direct investment norms. These sectors are under automatic route, but the government tweaked the norms making it mandatory for countries sharing land border with India to seek prior permission for bringing further investments. The first casualty was China’s Great Wall Motor which had to drop its plan to acquire General Motors plant at Talegaon in Pune, as regulatory approvals did not come.

While global as well as local players had a strong footing in the auto sector, the curbs on Chinese automobile players did not affect the market, but the scene was different in the case of mobile handsets. Here the market was dominated by Chinese manufacturers, all of whom had assembly plants in the country. Apart from coming out with a production-linked incentive (PLI) scheme for smartphones for local as well as global players later in 2020, which saw Apple setting up its manufacturing base in the country, the government started asking Chinese players to open up their supply chain.

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None of the Chinese players had participated in the PLI scheme. They only catered to the domestic market, and their supply chain, including their distributors etc comprised Chinese entities. It was a closed network. The government gave them a clear signal—open your network to domestic players and start exporting from the country. In the process, several cases of violations of forex and tax laws against some of the players were registered, which are undergoing investigation. The government’s strategy seems to be working now. Xiaomi has already entered into a pact with domestic contract manufacturer, Dixon and Optiemus for the manufacture of its phones. Reports suggest that other players like Oppo, Vivo, Realme, and One Plus are also in the process of outsourcing their manufacturing to domestic players. Such partnerships are good for domestic players as well as consumers. While Apple and Samsung are strong brands with manufacturing presence in the country, their combined market share will be around 25%, so the majority of the market is served by Chinese players. Technology, marketing and manufacturing pacts will thus benefit all stakeholders.

A similar development is also taking place in the auto sector. While Great Wall Motor had to relinquish its plans, the same was not the case with China’s MG Motors. The company has formed a separate joint venture with Sajjan Jindal’s JSW Group, under which the two will manufacture electric vehicles with technology and product support from MG’s parent SAIC. Chinese manufacturers have technology and their products are competitive on the price front, and hence, are popular with the customers. If the firms that are present in India are able to decouple from their Chinese parent by forming JVs with Indian players, open up their supply chains, it will be a win-win situation. They cannot afford to ignore the Indian market and India cannot just throw them out as they have struck a rapport with the consumers. Partnership is the way forward, which both sides seem to have realised with time.