After a 19-month wait, New Delhi has finally agreed to Vivo and Dixon Technologies' initial proposal for a partnership to manufacture smartphones. The approval, issued under Press Note 3 of 2020, paves the way for a joint venture in which Dixon has 51 percent stake and Vivo Mobile India 49 percent a seemingly standard set-up with a tremendous impact on the future of Chinese investments into India.

The mechanics are very simple. Dixon and Vivo will inject ₹5 crore of equity apiece, and the new company will use some of Vivo's existing manufacturing facilities and produce for the company's smartphone orders. It will also be free to produce on behalf of other brands, marking a shift in the single-client factory business arrangement to a more expanded contract manufacturing game. Industry estimates suggest that this venture could eventually support the production of smartphone which is equivalent to almost ₹30,000 crore annually and Dixon's own management estimates that the plant will run at full scale with 20 to 22 million handsets annually.

None of this was fast because that is the story of the delay. Vivo and Dixon's original term sheet was signed in December 2024. The file has remained in the foreign investment screening mechanism that New Delhi had developed in April 2020 to slow down and look over foreign investments from land-bound countries like India's neighbours. China is an obvious victim of that rule, and over the last few years, Chinese smartphone companies have found out that simply investing in capital is no longer the key to market access. During this time, Oppo, Vivo and Xiaomi have all had their tax disputes and regulatory probes in India, and it has been a trend that has been pushing these companies towards what can be considered as an Indian partner driving and the Chinese brand in the passenger seat.

That's what's so interesting about the Dixon arrangement going beyond the reactions of the stock market. The template of majority ownership by Indians is a viable option in the middle that allows Chinese manufacturers to continue selling in the market which they cannot afford to leave, and abides by New Delhi's demand for value creation to remain with a local player. Tarun Pathak, Counterpoint Research, has described it like a path that is easier for both the companies. Vivo has a smoother regulatory path and Dixon has the scale and value-addition that will be needed to eventually move into exports. With Vivo controlling the India smartphone market by holding about 23 percent market share, the business logic is a tough sell.

Nuance was not the market's concern. The share price of Dixon rallied up to ₹14,030 on the day of the approval in early trade and closed at a rise of around 2.5 percent with a previous close of ₹13,477. The agency, which already had a preferred listing on the list in the electronics manufacturing services (EMS) space, upgraded the share price target to ₹16,700 from ₹14,300, and maintained an overweight rating on the stock, citing that the volumes of Vivo alone could drive mobile output of Dixon by about 11 million units in FY27 and combined volumes of approximately 22 million units per annum by FY28 and FY29. In turn that is forecast to drive revenue upgrades of 24-39 percent and earnings upgrades of 13-18 percent for the period. Separate buy rating market participant UBS saw the clearance as a definite positive catalyst for Dixon's medium-term growth story.

Underneath all of this there's a larger number that deserves more attention than it usually receives. The top five Chinese smartphone brands have a near 72 per cent share in India's domestic smartphone market, but less than 10 per cent in India's exports. Apple, however, is expected to ship more than half of the units of all smartphones out of India, with iPhones accounting for approximately 57 percent of the market. That is not a coincidence that's because Chinese brands have never considered India a manufacturing hub, while Apple has aimed for an export-oriented supply chain with Foxconn, Pegatron and Tata. The Dixon-Vivo joint is in a bid to bridge that divide and if it succeeds, be the proof point that the Chinese brands can be export brands from India rather than imports.

As one might imagine, the answer from Beijing has been a form of ‘vindication' rather than concession. It has been interpreted by Chinese state media as a recognition by New Delhi that it will be difficult to replace Chinese manufacturing capability and supply-chain depth and by some Chinese analysts as a shift from confrontation to what they call co-development. Those years of conflict, the tax notices and the hand over of majority control by Chinese companies, conveniently forgotten. What is more accurate is that India has been able to leverage on its market size to impose its restructuring of the relationship on the Chinese manufacturers, and they in turn are happy to take the trade due to the continued access to it.

It will be interesting to see what happens from here on. For Dixon to make this into exports and not internal manufacture for local consumption is proof in itself of the overall concept of funneling Chinese investment through Indian entities. Otherwise all the imbalance will remain, and the approvals will be viewed as a regulatory milestone, not an economic one, for the day.