Disney is also going to lose to India?, Vedanta | India Vedanta Group | Foreign Enterprise After Foxconn's Evacuation

After more than a year of honeymoon, on July 10th, Foxconn announced a breakup with India's Vedanta Group through a statement.

According to media reports, on July 10th, Foxconn issued a statement stating that it had withdrawn from a semiconductor joint venture worth $19.5 billion with India's Vedanta Group.

The reporter noticed that on the same day, Hon Hai Precision Industries disclosed the latest statement on the cooperation between Hon Hai Technology Group and Vedanta. According to the statement, in order to explore more diverse development opportunities, according to the agreement between the two parties, Hon Hai will no longer participate in the operation of the joint venture company.

Screenshot of Hon Hai Precision Announcement.

The statement also mentioned that regarding the past joint venture between Hon Hai and Vedanta, it will be completely owned by Vedanta in the future, and Hon Hai is no longer related to the joint venture legal entity. At the same time, Vedanta has been officially notified to remove the name of Hon Hai from the joint venture company to avoid confusion with future stakeholders of both parties.

In February 2022, Foxconn announced on its official website that it had signed a memorandum of understanding with Vedanta on the Indian semiconductor manufacturing industry, establishing a joint venture to produce semiconductors in India. In September of the same year, both parties signed an agreement to establish semiconductor and display manufacturing factories.

But in just over a year, both sides announced a breakup. The statement did not provide a reason for "no longer cooperating", only mentioning that "over the past year, Hon Hai Technology Group and Vedanta have been working together to achieve a common semiconductor concept in India. This is a fruitful cooperation experience and also lays a solid foundation for both sides to take the next step."

However, according to foreign media reports, Foxconn stated in a statement, "Both sides recognize that this project is not progressing fast enough." Foxconn also added, "We are unable to successfully overcome challenging gaps and external issues unrelated to the project."

Why is Foxconn evacuating?

According to previous reports from Reuters, negotiations for European chip manufacturer STMicroelectronics to become a technology partner in the Vedanta Foxconn joint venture have reached a deadlock, which may be one of the reasons why Vedanta no longer cooperates with Foxconn.

According to the report, although Vedanta Foxconn has successfully brought STMicroelectronics to join and obtained technology licenses, the Indian government has clearly expressed its desire for the European company to participate more, such as holding shares in partnerships. However, a source said that STMicroelectronics is not enthusiastic about this and negotiations are still in a state of suspense.

Foxconn's overseas factory. The picture is from Foxconn's official website.

Two sources told Reuters that both Indian authorities and Foxconn are concerned about Vedanta's financial situation, which is also one of the reasons why the company has decided to terminate the joint venture.

Reuters reported that Vedanta India stated in its recent annual report that as of March 31, 2023, its net debt was INR 452.6 billion, which has more than doubled in the past year due to dividend payments and capital outflows.

The well-known rating agency Moody's has also downgraded the rating of Vedanta Resources, the parent company of Vedanta based in London, this year. And it warns that the current debt related issues pose significant refinancing risks to Vedanta and exacerbate the possibility of payment defaults or non-performing transactions.

In addition, an insider told Reuters that concerns about the delayed approval of incentive measures by the Indian government have also prompted Foxconn to decide to withdraw from the joint venture.

The reporter noticed that India announced a chip industry incentive plan worth approximately $10 billion in December 2021, aimed at attracting global chip manufacturers to invest in setting up factories. The Indian government will provide financial support to eligible companies up to 50% of project costs. But the project has not made significant progress.

Previously, with a $10 billion chip industry incentive plan, India received three applications to establish factories in 2022. In addition to the Vedanta Foxconn joint venture, there are also IGSS Ventures headquartered in Singapore and the global consortium ISMC.

However, according to foreign media reports, Israeli chip manufacturer Tower has been acquired by Intel, and the $3 billion ISMC project has been put on hold, while another $3 billion plan by IGSS has also been put on hold due to the desire to resubmit an application. This means that all three major chip projects of the Indian government have encountered problems.

In the view of Bai Ming, a member and researcher of the Degree Committee of the Research Institute of the Ministry of Commerce, Foxconn, as one of the world's largest electronic manufacturers, has symbolic significance whether it is building a factory in India or withdrawing. Some foreign companies may adopt a more cautious attitude towards entering India, which in turn affects the pace of foreign companies entering India.

"Without Foxconn, it also means that India will lose many development opportunities." Bai Ming told China News Finance reporters that Foxconn's exit is expected to have a certain impact on India's semiconductor industry. Foxconn's withdrawal also indicates that India's business environment may not be sufficient to support large-scale and high-level transfer of international industrial division of labor.

Tesla CEO Elon Musk once tweeted that Tesla hopes to enter India, but India's import tariffs are currently the highest in the world.

Disney is also going to lose to India?

Just before Foxconn announced the suspension of its approximately 141 billion yuan Indian chip project, Walt Disney was also reported by foreign media to be considering abandoning its Indian business.

In 2019, Disney spent $71.3 billion to acquire Star India from Fox. At that time, Star India was considered one of the jewels on Fox's crown.

This transaction gave Disney the broadcasting and streaming rights to the increasingly popular Indian Cricket Premier League, as well as dozens of multilingual television channels and shares in a Bollywood film company. However, the good times did not last long. In 2022, Disney lost the bid for the streaming rights of the cricket game. Without the appeal of cricket games, Hotstar's user stickiness began to decline. Star is expected to incur losses in Disney's fiscal year 2024.

The Wall Street Journal reported in the 11th that Disney is exploring strategic options for its Star India business, including finding joint venture partners or selling businesses. It is currently unclear what plan Disney may adopt.

It is worth noting that, according to the data released by Indian officials, 2783 foreign companies registered in India have closed their businesses in India from 2014 to November 2021, accounting for about one sixth of the multinational companies in India. The companies evacuated include French retail giant Carrefour, American motorcycle manufacturer Harley Davidson and American automobile company Ford.

Previously, the Indian side claimed that Xiaomi and its subsidiaries were suspected of illegally remitting money to foreign entities in violation of India's local Foreign Exchange Management Law, and seized assets belonging to Xiaomi India worth approximately 4.8 billion yuan. Due to frequent suppression of foreign companies in India, India is also known as the "graveyard of foreign companies".