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China smartphone maker cracks notoriously tough India

Last year, when a global chip shortage forced several smartphone makers to delay launches, Chinese brand Realme took a gamble in India. With processors from global giants like Qualcomm Inc. in short supply, Realme decided to buy them from a relatively unknown Shanghai manufacturer to continue churning out new handset models.

The move boosted sales of a four-year newcomer and helped it reach the No. 3 position in a rapidly growing market with nearly 600 million smartphone users. In the latest quarter, only Samsung Electronics Co. and Xiaomi Corp. sold more devices in India, with Realme taking off.

The closely held Realme has emerged as a force to be reckoned with in the lucrative but treacherous Indian market, where even global brands like Apple Inc are battling regulatory hurdles. And in recent months, Prime Minister Narendra Modi’s administration has intensified investigations into Chinese companies as the two nuclear-armed nations clash politically.

Nevertheless, Realme has completely escaped government action so far. All the smartphones it sells in India are manufactured in the country, thereby promoting local employment. And Realme is helping India bring new users online with its Android smartphones, which can cost as little as $100, which is a fraction of the iPhones and Samsung’s more expensive models.

“What I want to do is bring more affordability to the India market,” Realme’s India boss Madhav Sheth said in an interview at a coffee shop next to the company’s local headquarters on the outskirts of New Delhi. Realme is in compliance with all Indian legal requirements and believes in co-operation with the authorities, he said.

Realme’s relatively smooth sailing stands in stark contrast to the odds that its bigger rivals face. Apple has struggled for years with the government to open only retail stores in the country and a long face-off with authorities surrounding a state-built spam-detection app that accesses users’ call logs. This year, the government cracked down on market leader Xiaomi with a money-laundering agency that was proceeding to confiscate more than $700 million from the Chinese company, thereby discouraging India’s entire budding electronics industry.

Shumita Deveshwar, senior director, investment strategy consultancy TS Lombard, said, “For foreign companies, investing in India is a bit risky as policies change without any prior warning. “India has also been encouraging local companies to grow, and sometimes its politics makes the country an uncertain battleground, especially for foreign investors.”

Realme has taken advantage of rivals’ challenges by expanding its distribution to over 40,000 stores and introducing aggressively priced devices like last year’s Rs 13,999 ($180) Realme 8 5G, the most affordable fifth-generation wireless device at the time . Tech researcher Tarun Pathak of Counterpoint said that such a strategy has helped reduce the market share of Xiaomi and Samsung in India.

Realme commanded 16% of India’s smartphone market by shipment volume in the first quarter of this year, up from 11% a year ago. According to Counterpoint, it is only behind Samsung’s 20% and Xiaomi’s 23%, and was the only player to grow in double digits last year, while rivals shrank.

Pathak said, “Realme has stopped the development of Xiaomi and Samsung.”

Buoyed by its profits, Realme this month unveiled its first global flagship store in Modi’s home state of Gujarat. The 13,000-square-foot space in the city of Ahmedabad is part of Realme’s plan to become a premium player in India. The company also sees India as a step towards global expansion, and has recently forayed into European markets.

But Realme, with links to more established brand Oppo, should tread cautiously in India, where Chinese companies have suffered as a result of border clashes between countries in 2020. New Delhi has since banned more than 200 Chinese apps and tax authorities have raided smartphone players including Xiaomi and Oppo.

“India has a complex relationship with China and there should be a certain level of government scrutiny of China-based companies,” said Amitendu Palit, senior research fellow at the Institute of South Asian Studies at the National University of Singapore. “If there is a meltdown in the cold relationship between New Delhi and Beijing, we are likely to see some normalcy in trade, but if the relationship continues to sour, we could see it spill over into trade.”

At the same time, India has done the work of promoting local companies. In 2020, the government announced a nearly $7 billion plan to provide financial incentives to increase local production and export of smartphones. A key element of that plan was to create a “local champion” or smartphone giant that could not only cater to domestic customers but compete with the best in the world.

Yet domestic smartphone makers like Lava and Micromax have failed to capitalize on such incentives, with Realme and other foreign brands winning more customers due to perceived quality advantage. Vijay Shankar Kriplani, a marketing professional based in Mumbai said that Realme stands out by combining low prices and upscale features.

Kriplani, 39, said, “The better battery life and lower price prompted me to switch to a realme smartphone two months ago.”

Realme, which like its rivals uses the glitz and glamor of Indian cricket and Bollywood to sell its smartphones, doesn’t want its success to be limited to mobiles. Its India expansion strategy includes plans for local assembly of tablets and laptops earlier this month. Sheth said the company will invest Rs 10 crore to manufacture wireless earphones, open a design studio and expand its network of single-brand stores to 600 in two years. He added that those steps are expected to help Realme increase its sales by 50% in two years.

Still, as macroeconomic challenges intensify and contend with bigger rivals, Realme will have a tough time maintaining its high level of growth, said Rishabh Doshi of tech consultancy Canalys.

Doshi said, “Realme has done well in India so far, but due to rising inflation, longer phone replacement cycles and global slowdown, it will have to be tested for times to come.” “Deep-pocketed players like Samsung have other businesses to fuel the growth of their smartphone units in this environment, but smaller companies like Realme will probably have to tighten their purse strings and this will probably be their biggest challenge.” Bloomberg

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