Vivo faces visa violations in India, dealing fresh blow to Chinese smartphone brands

Delhi has accused Vivo workers of failing to disclose their employer in visa applications, and has also arrested a company executive on suspicion of money laundering

Key Takeways:

• Vivo has been accused of visa violations in India, including allegations that some of its workers traveled illegally to sensitive parts of the country
• The company and other Chinese smartphone brands like Xiaomi and Oppo that currently dominate the market are all facing separate tax-evasion allegations

By Doug Young 

While much attention has focused on mounting difficulties for China tech firms in the West, the fast-growing India market is rapidly emerging as an equally contentious place for growth-hungry Chinese smartphone makers. The growing woes splashed into the headlines this week with news that Vivo, the market’s leading brand that is also from China, was facing a wide range of allegations over visa-related violations.

Vivo’s woes come as the company recently emerged as the new king of India’s smartphone market, now the world’s second-largest behind only China. The latest list of the market’s top five brands reads like a “who’s who” of the biggest Chinese names, led by Vivo with 16% share in the first half of this year, according to IDC. South Korea’s Samsung (005930.KS) was number two, but Chinese names realme, Oppo and Xiaomi (1810.HK) rounded out the top five, in that order.

Vivo is a private company, but its trajectory could soon start to look like Xiaomi, which was one of China’s earliest brands to enter India back in 2014. Its early start helped Xiaomi quickly rise to become king of the India smartphone market, surpassing Samsung for the top spot in 2018.

But things began to go downhill for Xiaomi last year when it was accused of tax evasion, and the government froze $674 million worth of its assets. That led Xiaomi to say its India operations had been “effectively halted,” as it lacked cash and other resources to operate.

Those woes have been a major factor behind Xiaomi’s tanking market share in India, which was once its largest foreign market and still accounts for about a third of its sales. Its Indian sales plunged 39% in the first half of 2023, dropping it to the market’s fifth-largest brand.

India has leveled similar tax evasion allegations against many of the Chinese brands, including Vivo. But this latest story represents a major new twist by adding spying to the mix. Such allegations are directly tied to the geopolitical rivalry between China and India, which have some territorial disputes in the Himalaya area.

That brings us back to the latest setbacks for Vivo, which has been accused of having 30 of its employees hide the fact that they worked for the company when seeking visas to work in the country, according to a court filing earlier this week.

The filing also accuses some of the people of traveling to sensitive areas of India that require separate travel permits in addition to the usual visas, constituting a “gross violation of India visa conditions.” Last but not least, Chinese Vivo executive Kuang Guangwen was arrested in India this week for what looks like an unrelated money-laundering investigation launched in 2022.

Vivo said in a statement that Kuang’s arrest “deeply concerns us” and that it remains “dedicated to legal compliance.”

Tax evasion

The latest visa and money laundering allegations aren’t the first clash between Vivo and India. Last year the country accused the company of moving 624.7 billion rupees ($7.5 billion) outside the country, mostly to China, without paying taxes on it, similar to the accusations against Xiaomi.

Oppo and Huawei have also been accused of making similar remittances of large sums without paying taxes. The Huawei case drew particular attention since the company reportedly says it makes big losses in the country, making the remittance of big sums look suspicious.

Frankly speaking, multinationals are famous for playing these kinds of shell games by moving money between countries to reduce their taxes, which makes this latest round of probes look at least partly politically motivated. There’s been nothing written about similar probes against Western companies, even though Samsung and Apple (AAPL.US) are both among India’s top 10 smartphone brands.

In fact, Apple seems to be seizing on the Chinese companies’ troubles to boost its presence in the market, though here we should note that its iPhones are far more expensive compared with the Chinese brands. Apple began making older versions of its iPhones in India as early as 2017 through a facility operated by its manufacturing partner Foxconn, and is reportedly preparing to make its newest models in a facility planned for the state of Karnataka.

Again, we should note that Apple’s moves aren’t necessarily designed to steal market share in India, but instead look more like a diversification play after it suffered during the pandemic due to its heavy reliance on China as a manufacturing base. Still, such heavy investment in India is likely to please local government officials, lowering the likelihood of future legal problems like the ones the Chinese brands are now facing.

As the only publicly traded company in the group, Xiaomi provides a good picture of how the investment community sees the embattled Chinese companies. Xiaomi’s shares are actually up about 10% this year, though the stock has lost about two-thirds of its value from an all-time high in early 2021 when many foreign-listed Chinese stocks were peaking.

Xiaomi currently trades at quite a strong price-to-earnings (P/E) ratio of 29, which is roughly on par with the 30 for Apple. It’s also well ahead of the 13 for Samsung, though smartphones are just one part of the South Korean tech giant’s product mix. We should also note that Xiaomi’s forward P/E is just 20, compared with a 27 for Apple.

The bottom line is that India is increasingly looking just as tough for Chinese tech, if not tougher, as the West. That’s because the country is probably the closest thing to a true political and economic rival to China, since the two countries share so many qualities in terms of economic development and also have a common border and their territorial dispute.

As a result, we could probably expect to see companies like Xiaomi, Vivo and Huawei gradually pull back from the market, potentially even eventually shuttering their local manufacturing bases over concerns of having assets seized. That could spell potential opportunity for the likes of Apple and Samsung, though the biggest beneficiaries are likely to be lower-end homegrown brands that India would like to promote.

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