India’s smartphone market has been rapidly evolving, with the top five players continuously vying for the lion’s share. In recent developments, Tata is reportedly in advanced talks to acquire a majority stake in Vivo India, which is currently the largest smartphone brand by shipment volume.
The deal between Tata and Vivo India aligns with the Indian government’s ongoing efforts to increase local involvement in the operations of foreign companies, particularly in manufacturing and distribution. This initiative aims to strengthen India’s economy and its role in the global supply chain.
Sources familiar with the matter indicate that the negotiations have reached an advanced stage where valuations are being discussed. Vivo Indian is seeking a higher valuation than what Tata is offering, leading to further negotiation without a finalized deal yet.
Tata + Vivo: Make Sense?
Several factors make Tata Group’s possible acquisition of Vivo India both attractive and mutually beneficial.
First, it is important to note that the Indian government has mandated that any joint venture with a Chinese company must have an Indian partner holding at least a 51% stake, along with local leadership and distribution channels. This strategy aims to ensure that domestic companies and executives have significant influence over India’s mobile phone industry. Therefore, a deal with Tata Group allows Vivo India to comply with these regulations seamlessly.
Additionally, partnering with a well-established Indian conglomerate like Tata would definitely help Vivo navigate the complexities of the Indian market and enhance its brand image.
Vivo’s growth in the Indian smartphone market is nothing short of remarkable. In Q1 2022, Vivo was the fourth largest smartphone brand with a 15% market share. However, in just two years, the Chinese brand has risen to become the largest smartphone brand in the country, commanding a 19% market share as of Q1 2024.
Vivo India has also witnessed the most substantial rise in the value share of its smartphones compared to the top four OEMs over the last 12 months. Vivo’s smartphone market share in value surged from a mere 14% in Q1 2023 to 18% in Q1 2024.
The meteoric rise of Vivo attracted the eyeballs of indian authorities. The company has faced significant challenges from the Indian government, including investigations into its financial practices and allegations of tax evasion and money laundering.
Aligning with Tata could provide Vivo with the local legitimacy and operational support needed to overcome these hurdles.
For Tata Group, acquiring Vivo India would be a strategic move to solidify its presence in India’s electronics manufacturing space. Tata has already made significant strides by entering iPhone manufacturing through the acquisition of Wistron India’s operations for $125 million, making it the first Indian company to manufacture Apple iPhones.
Reports also suggest that Tata is in discussions with Pegatron about acquiring a majority stake in its unit near Chennai.
The acquisition of Vivo India would further support Tata’s ambitions to become a major player in the smartphone market. Vivo’s established distribution network and existing manufacturing facility would be invaluable assets for Tata, providing immediate scale and market penetration.
Tata Electronics is also working to develop very sophisticated and complex high-precision machines internally to produce the casing of Apple iPhones. It has reportedly partnered with two Indian manufacturers to develop these capabilities and plans to export these complex machines in the future. Previously, Tata imported these machines from China.
A successful Tata-Vivo deal is likely to have several benefits for India. It would strengthen the position of Indian companies in the domestic smartphone market, potentially leading to more competitive pricing and innovation. Additionally, it could create new job opportunities in manufacturing and distribution, bolstering the local economy.
Vivo’s Proactive Measures in India
Vivo has already taken steps to align with the Indian government’s directives. Its 14-acre manufacturing facility in Greater Noida has been taken over by Bhagwati Products, the company behind Micromax. This move is part of a joint venture with Huaqin Technology, the world’s largest original design manufacturer for mobile devices. Once this joint venture gets approval from the Indian government, their factory will start producing smartphones for Vivo.
Vivo has also relocated its manufacturing operations to a new 170-acre factory in Greater Noida, which will be fully operational soon.
In response to government pressure, Vivo and Oppo have begun making some changes to their operations in India. Appointing Indian distributors as the primary source of product supply for the trade in each state across the country is a big step towards addressing concerns about localization. Xiaomi and Realme have also adopted a similar approach. It replaced the previous system in which Chinese-owned distributors acted as middlemen. This shift strengthens the presence of Indian companies within the smartphone supply chain.
However, the question remains whether these changes go far enough. The lack of local talent in top positions at BBK companies like Oppo and Vivo is another area the Indian government has its eye on. It will be interesting to see if Tata addresses this concern if their acquisition of Vivo India goes through.
If successful, Tata Group’s acquisition of a majority stake in Vivo India would be a significant development for the Indian smartphone industry. It would mark a major step towards the government’s goal of increasing domestic participation in this sector.
It would also be interesting to see how the deal between Tata and Vivo India impacts the broader landscape of smartphone manufacturing in India. Will other Chinese companies follow suit and seek partnerships with Indian firms? Only time will tell, but one thing is certain: the Indian government’s push for local electronics manufacturing is having a significant impact on the industry.
