The company worked in the field of selling mobile phones. The company bought the phones and accessories from Vivo Mobile India Pvt. Limited. Ltd and sold it to dealers in Himachal Pradesh, Jammu and Kashmir, Leh and Ladakh.
Zhensheng Ou and Zhang Jie opened bank accounts with HDFC Bank. From here the plot gets more complicated.
According to the charge sheet issued by India's Enforcement Directorate (ED), the agency responsible for enforcing economic laws and combating economic crimes, the duo used false identity documents and addresses. One of the addresses mentioned was a government building and the home of a senior official. The executive claimed they used fake driver's licenses to apply for director identification numbers and open bank accounts. In fact, four foreigners from the company forged driver's licenses.
Why are identity documents forged?
The plot became more complicated. From the ED charge report, we learned that the relationship between Grand Prospect International Communication and Vivo Mobile India was more than just business.
Vivo Mobile India was founded just four months before Grand Prospect International Communication started operations in August 2014. Vivo is a Chinese company founded in 2009 in the industrial city of Dongguan in China. The company has grown rapidly and has become one of the most popular smartphone manufacturers. The company now also has a strong track record of success in India and is the second largest smartphone vendor in the country with a market share of 16% as of December last year. By 2017, its market share reached 5%. However, the directorate's investigations rocked the boat, spreading fear among the company's executives and senior employees.
"GPICPL (Grand Prospect International Communication) was part of a complex money laundering scheme created by fraudulently concealing its true owner from Indian government authorities using false identity documents. Analysis of GPICPL's financial statements also reflects economic control on it by Vivo India.investigation has revealed that it is clearly established that M/s GPICPL is controlled by Vivo India which in turn is controlled by M/s Vivo Mobile Communication Co Ltd, China.
"However, on paper, the relationship with Vivo India and Vivo China remained secret and they were misrepresented to the Indian government authorities as separate legal entities because revealing the beneficial owner and controller of the two companies would expose them to the scrutiny of to the government. was also added.
The executive first conducted a search against Vivo India and its related companies on July 5, 2022. At that time, Zhengsheng Ou and Zhang Jie had left India. Grand Prospect International Communication ceased operations after the investigation began.
Vivo India has networked with several entities similar to Grand Prospect International Communication (at least 17 others), transferring nearly Rs 71,000 crore to China, the CEO said.
Several arrests have been made and courtroom drama is expected soon. We'll get back to the charges in a minute. But now a broader question arises. Will the investigation and legal battles affect the career of the famous smartphone maker in India? How did the company manage to write such a success story?
It grows
Vivo India's chief executive officers (CEOs), all foreigners, have been with the company for a very short period. From 2014 to date, the company has had five CEOs: Yi Liao (2014); Alex Feng (2015); Kent Cheng (2016); Jerome Chen (2019) and Hong Shuquan (2021/22). Hong Xiuquan is the interim CEO. The ED arrested him in December and later released him on bail.
Interestingly, frequent changes in management did not affect the company's sales dynamics. Vivo came to India at the right time. BlackBerry devices, which have been popular in the business world for many years, are seeing their last days. Nokia was in constant decline. Amazon has entered India and competition with Flipkart, India's e-commerce platform, is intensifying. This opened up cheaper channels for selling phones. But Vivo didn't want to be just an online brand. The company is aggressively promoting offline sales, believing that India is a strategic market second only to the domestic market of China.
In 2017, one of the authors of this story was traveling from Chennai airport to Puducherry. The road was a sea of blue (Vivo) and green (Oppo) banners. Oppo is another Chinese electronics manufacturer that is growing rapidly in India.
Focusing on the offline market has proven successful as competitors (companies such as Xiaomi and Samsung) have moved to online platforms. The traditional approach to retail meant that Vivo offered retailers higher profit margins than its competitors. This made it possible to reach even the smallest cities of India in the shortest possible time. Even in multi-brand stores, Vivo hires full-time employees to boost sales.
"Our target was retailers and if Samsung offered a margin of 5-6%, we offer 10-12%. If only retailers would let us advertise on the signs opposite "We'll give them an extra .5 to 1 margin." %."
"The Samsung brand was very attractive and we had to compete with all the marketing models and focus on products to attract customers," added the executive, who did not want to be named.
In 2014, Vivo introduced innovative products that helped the company break through the chaos and capture the attention of consumers at a time when the market was dominated by Samsung, Nokia, Motorola and even Indian companies like Micromax and Karbonn.
"Vivo's main plan for 2014 and the coming years has been to focus on products. They were the first to create the slimmest phone at a time when consumers had bulky phones and didn't care much about looks,” said Tarun Pathak, Director of Research. at Counterpoint Research.
In terms of brand awareness, the Indian Premier League (IPL), the popular Twenty20 cricket league, has been successful. In 2016, Vivo signed a two-year deal with the Board of Control for Cricket in India, offering Rs 100 crore annually to sponsor the IPL title. Two years later, the company paid Rs 2,199 crore to retain the title sponsorship for the next five years. Amid government scrutiny, Vivo stopped sponsoring the IPL in 2019 but returned in 2021 as the title sponsor. It will be held again in 2022 - the title sponsor of the tournament is now the Tata Group.
Meanwhile, the Indian government's push for import substitution has restored India's position as a phone-producing country. Vivo has invested in local phone assembly in the Greater Noida region of Uttar Pradesh.
The company started local assembly in 2015 and earmarked Rs 7,500 crore for production expansion in 2019. By 2023, Vivo said it will double its annual production capacity to 120 million units from the current 60 million. The new facility is expected to be operational this year.
Changes
In mid-2017, a military clash between India and China in the Doklam region, claimed by China and Bhutan, sparked a backlash against Chinese brands in India. But this was a temporary problem. However, geopolitical tensions continued to rise after the Galwan Valley clash in 2020.
India's foreign investment policy has begun to change. The country has changed the rules for foreign direct investment, especially from countries with land borders. India has also taken steps to prevent opportunistic takeovers of Indian companies during the pandemic. Chinese smartphone brands (Vivo, Oppo and Xiaomi) are under scrutiny by tax inspectors. The three companies evaded taxes, including customs, goods and services tax (GST), amounting to Rs 9,000 crore between 2018-19 and 2022-23-2023, Rajeev Chandrasekhar, minister of state for electronics and technology, told Parliament of information last year. The minister added that Vivo has evaded taxes amounting to Rs 2,923.25 crore, including Rs 2,875 crore in customs duty and Rs 48.25 crore in GST.
autumn
As we reported earlier, the executive first investigated Vivo in July 2022, when searches were conducted at 44 properties owned by the company in North India. In December last year, the probe agency filed charges of criminal conspiracy, concealment of beneficial ownership and money laundering, among others, against more than a dozen current and former employees of Vivo India, as well as several organisations. The agency said Vivo China has violated several Indian laws and since its inception, Vivo Mobile India has transferred Rs 70,837 crore to foreign companies controlled by Vivo China.
Foreign nationals used eight fake driver's licenses to open bank accounts for several government distribution companies and obtain manager identification numbers. The executive said fake IDs can be used for activities that pose a threat to national security.
The agency's investigation found that Hari Om Rai, CEO of Indian mobile phone maker Lava International, helped Vivo China set up state-owned distribution companies that looked like independent legal entities on paper but whose finances were controlled by I Live India. The investigation also revealed that China had complete control over Indian companies. This was deliberately concealed by the Indian authorities.
In October last year, the Enforcement Directorate arrested Rai, chartered accountants Nitin Garg and Rajan Malik and Chinese national Guangwen Qiang for violating the Prevention of Money Laundering Act. They have been in custody since January 10.
Vivo India's acting CEO Hong Xiuquan, CFO Harinder Dahiya and consultant Hemant Munjal were also arrested on December 21 on charges of money laundering. However, the three were acquitted by the court, which was challenged by the ED of the Delhi High Court. The Supreme Court upheld the release but ordered the leaders not to leave the country.
"We are deeply concerned by the current actions of the authorities. The recent arrests demonstrate continued harassment and thus create an atmosphere of uncertainty regarding the overall situation in the industry. We are committed to pursuing all legal avenues to review and challenge these accusations," the statement said. Vivo India after the arrest of two executives. In which".
The company did not respond to Mint's requests for clarification. Queries sent to Lava International and Nitin Garg also went unanswered. HDFC Bank did not respond to the clarification sought by Mint regarding bank accounts opened using fake documents.
the future
Let's get back to the question of what will happen to Vivo India now. Does he have a future in the country?
Chinese phone manufacturers, despite all the scrutiny and criticism in the press, continue to do well. In fact, today they control more than two-thirds of the market. The share of Chinese brands and their sub-brands increased to 72% in 2023, from 68.5% in 2022, according to research and consulting firm TechArc.
This leads market watchers to believe that Vivo India will be able to survive the legal battles and their fallout.
“While ED investigations have some impact on partner confidence, we have seen in the past that such issues do not have a significant impact on business performance,” said Faisal Kausa, co-founder of TechArc.
"Consumers don't seem to care about a company's provenance. The deciding factors remain product quality at affordable prices and the physical presence of a store near them," said an industry executive, who wished to remain anonymous. Moreover, there are currently no quality Indian products. brands that can challenge the dominance of Chinese brands. Phones were added.
However, the current problem has implications for retailers and employees.
According to the Gujarat-based retailer, in the early days of Vivo India, the company used to take its business partners on parties in fun places like Bangkok. "Our margins were in the double digits, and our competitors weren't even close. Now, after SER's raids, the parties have stopped. The company offers a margin of 2-3%.
Vivo India did not respond to a request for clarification on the prices offered to retailers.
The consequences are much worse for employees, especially the elderly. Potential employers don't look at their CVs. Current and even former Vivo employees are living in fear, according to industry executives. There is a fear that investigative authorities will call them in for questioning or arrest them at any moment. "Any employer would want to avoid that," said one HR executive, who requested anonymity.
All of this means lower employee morale, which can affect operations. Clearly, Vivo India has some work to do to appease employees, retailers, distributors and suppliers. And all the while we are fighting serious charges of fraud and money laundering.
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