War on trade? Features 18/12/2020 With Indian-Chinese relations soured by ongoing border disputes, India is scrutinising the extent of its trade with China. Reece Webb discovers what impact a potential trade war between the two countries could have on the Indian AV industry.Clashes between Indian and Chinese troops on the Ladakh border leading to the deaths of 20 Indian soldiers [bbc.in/3h9nizc] have resulted in rising tension between the two countries. India is responding with an economic shift. A hugely public move was the dropping of Chinese smartphone manufacturer Vivo from the title sponsor spot of the Indian Premier League cricket tournament [bbc.in/2F8HqEx]. In addition, there are a multitude of ‘soft power’, non-public retaliatory measures being implemented by India. The distancing between the two nations could very well affect the AV industry in India in a big way. Blurred lines The water gets murky as the line between company and Chinese state begins to blur. According to the World Economic Forum [bit.ly/2R3XwBR], China is home to 109 corporations listed on the Fortune Global 500, with a whopping 85% of those companies owned directly by the state. Known as a state owned enterprise (SOE), governments across the globe have expressed security concerns brought about by the potential for direct influence by the Chinese Communist Party and the Chinese state. Large companies such as Huawei for example, have come under greater scrutiny. Huawei products have been banned for particular applications by Great Britain and USA [bit.ly/3m2Ol2A] because of the potential for malicious actions by the Chinese state. The innovation game India finds itself at one of the most significant crossroads it has faced in the 21st century. Inavate India previously reported on the rise of Indian manufacturing and government initiatives to promote local, Indian manufactured products amidst a drive to steer away from foreign production. Internationally, India’s growing reputation as a global hub for innovation and trade is painting the country as an attractive choice for businesses looking for an alternative to Chinese production. Jayant Krishna, CEO, UK India Business Council Group, foresees the growth of UK-India trade as a direct consequence of the coronavirus pandemic [bit.ly/3bJnXWP]. Krishna wrote: “UK and India have started looking at opportunities emanating from the business sentiments worldwide to explore manufacturing supply chain possibilities as alternatives to China. “Moreover, UK businesses are and will look to India as an incremental base for manufacturing and research and development. These are all areas ripe for India-UK collaboration in creating ‘Aatmanirbhar Bharat’, underpinned by both nations’ strong track-record in technology and innovation.” The ‘Aatmanirbhar Bharat’, a ‘self-reliant India’, reflects the vision of Indian Prime Minister Narenda Modhi, focusing on building the Indian economy infrastructure and demand [bit.ly/328L8Xp]. Turning the tide Taking on the Chinese manufacturing powerhouse is no mean feat even for an industrial giant like India, so how can the Indian economy rise to the challenge? One proposed method for tackling the Chinese giant revolves around the implementation of tariffs to incentivise locally made Indian products as the most attractive choice for consumers and integrators in the country. The state-run Bureau of Indian Standards is reportedly planning to implement strict quality control measures and higher tariffs on imports from China, with the wide sweeping measures potentially affecting at least 370 products [bloom.bg/3k2BOKZ]. The potentially affected products include steel, electronics and industrial machinery among others, with discussions allegedly ongoing to raise import duty on other product areas. These proposals are reportedly being evaluated by the Indian Finance Ministry as part of the government’s focus on local manufacturing. Inavate reached out to the Bureau of Indian Standards for comment but received no response. It’s a period of uncertainty, and should India choose to go down this route, the country would join other world powers such as USA, which has engaged in a lengthy, cost-inducing tariffs-based trade war for the past two years with China. So, what impact could a raising of tariffs have on the Indian AV industry? The devil in the detail For Kelvin Ashby-King, principal consultant, T2 Consulting Group, the impact of rising escalations between India and China has been immediate. Ashby-King says: “We’re not sure right now how customs are going to handle things. When this whole China thing was announced, customs stopped all imports from China, everything was held. “Every time I’m specifying from JBL, I’m specifying from China, anything from Philips’ lighting range is all from China and most amplifier makers are from China. We’ve done some large government infrastructure projects, where we’ve had to go back and revisit them to remove any product made in China. These were instructions from Prime Minister Modi’s office. We’ve had to state the country of origin for the equipment and for a certain JBL Martin Rush feature, whose origin is China, so that’s gone.” A clampdown on Chinese made products in sectors both inside and outside of the government sector will undoubtedly bring uncertainty to the market and a negative impact on project cost as Ashby-King continues: “I don’t think we have a very clear idea of how disruption will affect us. It really comes down to the interpretation of what is manufactured in China but designed in California [or somewhere else outside of China]. It really depends on how that whole aspect will be attributed by the government.” For some integrators, the impact of rising tensions has been minimal but Kuldip Kamat, managing director, Allwave AV foresees this changing if tensions product areas. These proposals are reportedly being evaluated by the Indian Finance Ministry as part of the government’s focus on local manufacturing. Inavate reached out to the Bureau of Indian Standards for comment but received no response. It’s a period of uncertainty, and should India choose to go down this route, the country would join other world powers such as USA, which has engaged in a lengthy, cost-inducing tariffs-based trade war for the past two years with China. So, what impact could a raising of tariffs have on the Indian AV industry? The devil in the detail For Kelvin Ashby-King, principal consultant, T2 Consulting Group, the impact of rising escalations between India and China has been immediate. Ashby-King says: “We’re not sure right now how customs are going to handle things. When this whole China thing was announced, customs stopped all imports from China, everything was held. “Every time I’m specifying from JBL, I’m specifying from China, anything from Philips’ lighting range is all from China and most amplifier makers are from China. We’ve done some large government infrastructure projects, where we’ve had to go back and revisit them to remove any product made in China. These were instructions from Prime Minister Modi’s office. We’ve had to state the country of origin for the equipment and for a certain JBL Martin Rush feature, whose origin is China, so that’s gone.” A clampdown on Chinese made products in sectors both inside and outside of the government sector will undoubtedly bring uncertainty to the market and a negative impact on project cost as Ashby-King continues: “I don’t think we have a very clear idea of how disruption will affect us. It really comes down to the interpretation of what is manufactured in China but designed in California [or somewhere else outside of China]. It really depends on how that whole aspect will be attributed by the government.” For some integrators, the impact of rising tensions has been minimal but Kuldip Kamat, managing director, Allwave AV foresees this changing if tensions 2022 could be good for India, but time will tell.” On the distribution front, Timothy Dsouza, managing director, Exodus Infotech, has already seen the impact of rising tensions firsthand. Dsouza says: “There are multiple levels of impact on distributors. There is a lot of sabre-rattling from politicians on the anti-China bandwagon alongside a strong anti-China feeling in the local market right now. End customers are not preferring Chinese products, they are asking what the national origin is and paying close attention to the country of origin. For us, some of the orders which integrators had placed were cancelled because some of the products were made in China. “When the escalation initially happened, there were a lot of importers like us awaiting customs clearance on imported materials. While there was no official notice issued, the clearances started to be delayed which impacts us because the longer it takes to clear a consignment, the pressure increases from the customer’s end. There were press releases saying that tariffs were going to be increased on Chinese goods, more than 350 categories earmarked for increased tariffs which is driving a lot of uncertainty, but we are still importing products made in China. Apart Audio for example has its warehouse in Belgium but make a few of their products in China. We are picking up the materials from Belgium, but we still have to declare the country of origin as China.” The potential increase in tariffs could hit the end user and the manufacturer the hardest. With a high amount of disruption in the market and slim pickings in the global AV industry as a result of the coronavirus pandemic, a perfect storm of uncertainty is being created and it is likely that these two ends of the industry will be soaking up the rise in costs. Dsouza clarifies: “I think the customer or manufacturer will be absorbing the price of increased tariffs. If manufacturers feel that the tariffs will affect the stability in the market, then they are likely to cut down their margins or cut another aspect such as the warranty. That will eventually result in a cost being absorbed partly by the manufacturer and the end customer. “We are exploring other options to see if we can avoid this situation by exploring the possibility of getting products made in Taiwan or Indonesia instead. We have also spoken to a few manufacturers to figure out whether they are interested in setting up businesses in India as well, so we will try to help them as much as possible and we are keeping our options open right now.”