Ratan Tata invests in Xiaomi: Boost for India-China business ties
There is a distinct pattern in all of industrialist Ratan Tata’s six investments in businesses ever since he hung up his boots in December 2012. He is looking for enterprises that have made a disruptive entry into Indian business, or are likely to disrupt existing business paradigms in their respective business segments in the near future. When he does this, he does not mind if the company is Indian or Chinese.
The latest investment in Chinese smartphone start-up Xiaomi, announced on April 26, makes this very evident. The company, founded by Lei Jun in 2010 and valued at $45 billion, is China’s largest smartphone maker, and is already the leader in the Indian smartphone market, selling, according to media reports, over a million handsets in the India, ahead of incumbents Samsung and Apple. This achievement was in a matter of months, after Xiaomi entered India only in mid 2014 with its budget handsets and rode on flash sales with online sales partner Flipkart.
Tata group’s entry into mobile telephony services with its tie up with Japan’s DoCoMo was not impactful as expected, and the foreign partner is exiting the joint venture. But that has not stopped its former Chairman Tata from investing an undisclosed amount in Xiaomi in his personal capacity. His other investments so far have been in online retail firms SnapDeal, UrbanLadder, Bluestone and CarDekho, apart from a small stake in One97 Communications, which owns mobile recharge platform Paytm, in March this year.
His support for start-ups notwithstanding, Tata’s Xiaomi investment also underlines the increasing appetite for Indian companies in partnering with Chinese firms. Anil Ambani’s Reliance Group borrowed $2.28 billion from Chinese banks in 2012 partly to fund equipment imports from China for his power plants. Ruias-owned Essar Energy borrowed $300 million from Export-Import Bank of China in 2013 to replace more expensive debt. Chinese e-commerce giant Alibaba had been looking for acquisitions in India, and recent reports say a Chinese consortium, led by online payment company Alipay’s owner Ant Financial Services Group, is close to buying 25 per cent in Indian handset maker Micromax. Meanwhile, the Tata Group, which has decades of presence in China, has $14 billion coming from that country, and employs 6,300 people there.
India’s dependence on Chinese goods is well chronicled, as the neighbour shipped $51 billion worth of goods to India in 2013-14, accounting for 14 per cent of India’s non-oil exports, and leaving a trade gap of $37 billion. Some Indian manufacturers cry hoarse that imports from China need to be curbed as they undermine domestic firms in steel, electrical equipment, plastics, textiles and auto components with their cost advantage. But China is too big to be ignored, and the recent transformations within that country are noteworthy.
The country, which for several decades has made mass manufacturing its mantra with low labour cost, export incentives including a deliberately depressed currency, and a hunger to align with Western companies for technology transfer, is seeing a reversal in its fortunes. Labour costs have risen 15 per cent between 2009 and 2013, while the Yuan appreciated 18 per cent against the dollar. Having lost the low cost advantage, Chinese businesses are moving to other countries in Asia, including Vietnam, Indonesia and the Philippines. That, in turn, could prove to be a blessing for Indian companies.
The options in high-value manufacturing may still be limited, but low-value manufacturing can still move into India, giving a boost to the small and medium scale sector, touted as the backbone of the Indian economy. To consider that Chinese investment in manufacturing will change India’s fortunes overnight is a myth, as hurdles to manufacturing are still many, despite Prime Minister Narendra Modi’s Make in India campaign. But it is an option that cannot be ignored, just as any other avenue to partner, including in e-commerce.
Tata investment, in that context, could well be a game-changer, and well timed before Modi’s China visit in May.