India can displace Chinese phone, electronics brands with its own: Chris Miller

Miller said that India, which has its own large market, could easily sustain its own smartphone ecosystem if American, Taiwanese or Japanese firms were to work with Indian companies to build products for the Indian market as well as exports.

By Livemint, featuring Chris Miller, Associate Professor of International History at The Fletcher School, and author of Chip War: The Fight for the World’s Most Critical Technology

India has the ability and opportunity to produce local smartphone brands that can overtake the likes of Xiaomi, as foreign firms operating under tremendous political pressure in China have the incentive to diversify their manufacturing centres and prop up alternative brands, Chris Miller, historian and author of the 2022 book Chip Wars, said.

He, however, emphasized that the world’s fifth-largest economy could, instead, look at bolstering its capabilities in emerging areas such as electric vehicles and medical technologies to challenge Chinese manufacturers, as the smartphone segment was stagnating.

China is a dominant player in consumer electronics and smartphone space, with brands such as Xiaomi, Vivo, and Oppo cornering a significant market share globally.

In a webinar hosted by Indian Electronics and Semiconductor Association chairman Satya Gupta, Miller said that the incentive for India to create alternative brands in consumer electronics as well was becoming larger every year.

“The fact that all foreign firms working in China feel increasingly squeezed by the political pressure that you get from Beijing. That gives them a bigger incentive every year to try to support the development of alternative brands, so I don’t see a reason why an Indian-based smartphone company couldn’t produce an Indian brand and sourcing components from India, from the US, Taiwan or Japan, and displace Xiaomi or displace vendors at that segment of the market,” he said in response to a question on India abilities to create its own product brands.

“As the electronics ecosystem gets built out in India, and it certainly is getting major amounts of new investment right now, it becomes much more plausible for Indian brands to source largely Indian-manufactured components for electronics India,” he emphasized.

“And I think smartphones, probably, (are) not the only case where that’s possible. Other types of consumer electronics, too. I think Chinese firms are equally vulnerable,” he added.

In response to a question on chip design firms like Qualcomm partnering with Indian brands to create product companies that would take market share away from Chinese firms, Miller said that it was ‘possible and increasingly possible.’

He added that non-Chinese chip design firms were keen on having more product companies outside of China, since the prospect of diversification of supply chain away from China would reduce risks.

Miller said that India, which has its own large market, could easily sustain its own smartphone ecosystem if American, Taiwanese or Japanese firms were to work with Indian companies to build products for the Indian market as well as exports. “That will reduce the market power of Chinese firms in the segment,” he said.

He said that restrictions by the US on China have led to companies moving their production out of China. “That’s why Apple’s going to be assembling a quarter of its smartphones in Tamil Nadu, as of next year,” he said.

The southern Indian state houses factories of iPhone contract manufacturers Foxconn and Tata Electronics.

Miller said that India could look at new sectors such as electric vehicles and medical devices where India-made products can displace Chinese vendors.

“There are places where the Chinese firms are major system-level players today, but they actually don’t have any sort of unique knowledge about the Indian market and could be supplanted by Indian system firms,” he said.

He noted that the Chinese feel that compound semiconductors were a comparative advantage and, therefore, a lot more protectionism can be expected in this space, beginning with electric vehicles where even more tariffs and more restrictions that will provide this captive domestic market for Chinese compound semiconductor producers. “That will provide guaranteed markets for Chinese firms, even if their quality is lower,” he said.

In response to this, several countries like the US, Europe and Japan have started to reduce their reliance on Chinese chips, so tariffs and restrictions are expected.

India’s policy for supporting semiconductor fabrication, assembly and packaging is ‘solid’ Miller said, adding that India will ‘no doubt’ have at least two semiconductor fabrication units by 2030, in addition to two other fabs that could be compund semiconductor-based.

Artificial intelligence (AI) has had a major impact on the semiconductor industry, as demand has risen for technology such as graphic processing units, or GPUs, used for AI. Many industries are using AI to improve the speed and efficiency of their design and manufacturing processes, Miller, who teaches international history at America’s Tufts University, said.

The chip industry has also seen a larger geopolitical impact coming from disputes between the US and China, Taiwan and China, and the rest of the world versus China, which has led to more fragmentation with one side being China-focused and another focused outside China. In this scenario, governments including the US, Japan and India have begun promoting their own chip manufacturing industries, which is a new area that is seeing a major surge in investments.

Miller said that demand for chips will largely come from the transition to electric vehicles from internal combustion engines and from GPUs for AI, warning that supply-side risks could come from countries imposing restrictions or tariffs on using chips from rivals.

“That is going to create on the one hand dislocations that create opportunities if you’re on one side of a tariff wall or one side of a regulatory wall. But it also creates the risk of higher inefficiency for the entire industry,” he said.

Miller also noted that shortages of skilled workforce in some markets like the US were leading to delays in the semiconductor fabrication projects coming up there, although the number of such fabs coming up in a region like the US has risen significantly, compared to five to ten years ago.

(This post is republished from Livemint.)