Chinese Companies Try to Solve their India Problem

Posted by: Bruce Einhorn on May 9, 2010

As China’s two biggest makers of telecom equipment, Huawei and ZTE, try to get New Delhi to reverse its policy prohibiting Indian companies from buying their Chinese-made products, smaller companies from China have problems of their own in India. The government late last year took steps to stop a flood of Made-in-China phones entering the country. The phones are made by the so-called shanzhai, or bandit, manufacturers. These companies specialize in producing inexpensive, no-name phones; Indian partners often import them and slap on a local brand name. Over the past few years, Indian sales of these gray-market Chinese-made phones have soared; they accounted for 30% of the Indian market in 2009, says Flora Wu, an analyst in Beijing with consulting firm BDA China. That’s 40 million handsets, up from almost zero in 2007.

Problem is, many of these shanzhai companies don’t put International Mobile Equipment Identity numbers on their phones. Given the way the terrorists who attacked Mumbai in 2008 used cell phones to communicate, having tens of millions of anonymous cell phones in the country creates a major security threat. So last year the Indian government began forcing operators to disconnect phones without IMEIs. That change - as well as the latest moves against Huawei and ZTE - may be leading some Chinese companies to rethink India. Instead of exporting from China, why not produce locally? Like the Japanese automakers that started manufacturing in the U.S. in the 1990s, thereby disarming some of their strongest nationalist critics, the Chinese might be able to win friends in India by investing in the country, creating local jobs and helping to build a local supply chain of manufacturers. One sign of possible things to come: According to the Indian newspaper the Business Standard, China Wireless Technology, a handset maker in Shenzhen, wants to open a factory in India and boost the number of Indian employees from current 200-300 to 1,000. The paper cites Managing Director Sami Al-Lawati saying “we plan to set up a manufacturing facility in 2012.” Expect more reports like this in the months ahead.