India and China: A Red Hot Affair!

Kajari Kamal, Ph D. Scholar, University of Hyderabad

I was recently gifted a Redmi Note 3, a smartphone developed by Xiaomi Inc., the third largest mobile phone manufacturer in the world. The gift was a huge surprise and I excitedly flipped the box to read the specifications. What caught my attention immediately was a ‘Made in India’ tag shining in bright red, possibly the only thing in red on a Redmi phone box! Being a keen student of Chinese history, the choice of the name “Xiaomi” (small grain of rice) intrigued me and I started to read about the company. Xiaomi is a Chinese word for “millet” and Xiaomi’s CEO links the “Xiao” part to the Buddhist concept that “a single grain of rice of a Buddhist is as great as a mountain”.

The information about the company seemed to suggest that Xiaomi wants to work from the little things, striving for perfection, as it went along. Interestingly, “mi” is also an acronym for Mobile Internet and also Mission Impossible, referring to the obstacles encountered in starting the company. Furthermore, (though maybe not so surprisingly) Xiaomi’s founder, Lei Jun, is a proud member of the Communist Party of China and its top law making body. He had also originally chosen the name ‘Red Star’ for his company.

According to Beijing Youth Daily, this privately-owned company has more than 8,000 employees, 104 of them Communist Party members. Consequently, a Communist Party Committee has been set up at the Xiaomi headquarters in Beijing. These party organs at non-state-run firms serve as the party’s fortress and political core for employees. Clearly then, Xiaomi loves the color red and is the phone of the Communist faithful.

With this background, the next logical query pertained to why Xiaomi started manufacturing in India. As is common knowledge by now, the Chinese government’s support to manufacturing in the form of affordable cost of funds, cheap inputs and world-class infrastructure gives it an advantage over the majority of manufacturers worldwide, let alone Indian ones. The Confederation of Indian Industry estimates that Chinese manufacturing as a result enjoys a cost advantage of about 10 per cent over Indian manufacturing.

Perhaps, the starting point can be traced to the ‘Make in India’ campaign launched by the Indian Prime Minister Narendra Modi in September 2014, with the objective of transforming India into a global design and manufacturing hub. Raghuram Rajan, the then Governor of the Reserve Bank of India, emphasized at the Bharat Ram Memorial Lecture delivered on 12 December 2014 in New Delhi, that “Make in India” will typically mean more openness, as we create an environment that makes our firms able to compete with the rest of the world, and encourage foreign producers to come and take advantage of our environment to create jobs in India. He also specified that it should not be misunderstood as a strategy of import substitution through tariff barriers. It has also been officially admitted that the initiative was undertaken to help India recover from an imminent economic slump, which had begun to show in the GDP figures. The promise of the BRICS Nations (Brazil, Russia, India, China and South Africa) appeared to be fading, and India was tagged as one of the so-called ‘Fragile Five’[1].

In a recent, first of its kind summit, jointly organized by the Indian Cellular Association (ICA) and Mobile World (Shoujibao), China’s leading mobile industry service platform, Pankaj Mohindroo, head of the ICA stated that “Chinese investment of $2-3 billion over next two years in this sector looks like a real possibility along with employment for 1-2 lakh people”. It is interesting to note that Chinese companies which can easily thrive in their local, supremely efficient ecosystems are looking to establish their manufacturing hubs in India, and given the size of the market here, this is likely to be on a substantial scale.

But to return to Xiaomi. It announced its first manufacturing unit in India in Sri City, Andhra Pradesh in August 2015, and is now in talks with several other states. Buoyed by its performance in the Indian market (the company’s sales crossed 1 million units for the second consecutive quarter ending June, 2016), it is set to ramp up its smartphone capacity by setting more factories here. The company states that making in India provides tax benefits, helps save in operation costs, provides better inventory management and speeds up time to market. Hugo Barra, Vice President, Xiaomi Global said: “Manufacturing smartphones locally is a significant step towards incorporating Xiaomi into the fabric of India in the years to come. Thanks to Prime Minister Shri Narendra Modi’s visionary plan to transform India into an attractive destination for manufacturing, we have a great opportunity to make our products in India, bringing us even closer to Indian consumers and contributing to India’s evolution in the technology sector”. Clearly, substantial profits are the driving force underlying this move to take up the “Make in India” call.

Clay Shirky, an American writer on the social and economic effects of internet technology, makes a case study of Xiaomi in his book, Little Rice: Smartphones, Xiaomi and the Chinese Dream. Since the 1990s, China has been climbing up the ladder of quality, from doing knockoffs to designing its own high-end goods. Shirky draws our attention to the fact that Xiaomi may potentially signal a break from the extant image of China as a ‘copycat’ and herald the beginning of China’s own indigenous design culture. It could then possibly be the ‘breakout’ company that could realize a part of the ‘China Dream’. This  Dream, according to Chinese president Xi Jinping, refers to the collective aspiration of ‘the great rejuvenation of the Chinese nation’ as well as the personal dreams of the individual citizens of China to attain productive, healthy and happy lives. This is how Xiaomi is ‘landing squarely in this shift in China’s economy’.

The flip side of the pursuance of such a dream, especially in the field of mobile phones, is that the freedom and the interconnectedness that it offers is a major source of worry for autocratic countries. According to Shirky, the case of Xiaomi exemplifies the balancing act that China has to master, to navigate between cheap copies and innovation, between the demands of local and global markets, and between freedom and control. Little Rice also delves into how a startup like Xiaomi is entwined with the political and economic future of China. The rise of Xiaomi and its spread across the globe also suggests that in post-ideological China, the Xi Jinping-led Communist Party is trying to retain its appeal with millionaire entrepreneurs like Lei Jun within its ranks.

Xiaomi’s entry into India and its stunning success also exemplifies how the “Make in India” initiative could be mutually beneficial to both countries. In International Relations, it can be likened to the concept of ‘complex interdependence’, an idea put forth by Robert Keohane and Joseph Nye. International Relations theorists have recognized that the various and complex transnational connections and interdependencies between states and societies were increasing, while the use of military force and power balancing are decreasing but remain important. They argue that the decline of military force as a policy tool and the increase in economic and other forms of interdependence should increase the probability of cooperation among states.

As I explore the functions of my new ‘made in India’ Redmi Note 3, I recall a statement by Amitabh Kant, Secretary, Department of Industrial Policy & Promotion (DIPP) : India has a huge amount of young energy right now and in many ways Mi (short for Xiaomi) represents the vibrancy, dynamism and innovation for present day India.  “Future of Xiaomi is not in China. It is in India”.

NOTES

[1] ‘Fragile Five’ is a term coined in August of 2013 by a research analyst at Morgan Stanley to represent emerging market economies that have become too dependent on unreliable foreign investment to finance their growth ambitions. The five members include Turkey, Brazil, India, Indonesia and South Africa.

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