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The Competition Commission of India approves the acquisition of 100 percent of equity share capital of Wistron Infocom Manufacturing Private Limited by Tata Electronics Private Limited under Section 31(1) of the Competition Act, 2002. The commission finds no appreciable adverse effect on competition because of market dynamics and low combined market shares. The order is subject to revocation if the provided information is incorrect.
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COMPETITION COMMISSION OF INDIA Combination Registration No. C-2023/12/1086
23rd January 2024
Notice under Section 6(2) of the Competition Act, 2002 given by Tata Electronics Private Limited
CORAM:
Ms. Ravneet Kaur Chairperson
Mr. Anil Agrawal Member
Ms. Sweta Kakkad Member
Mr. Deepak Anurag Member
Order under Section 31(1) of the Competition Act, 2002
On $6^{\text{th}}$ December 2023, the Competition Commission of India (‘Commission’) received a Notice under Section 6(2) of the Competition Act, 2002 (‘Act’) given by Tata Electronics Private Limited (‘Acquirer’/ ‘TEPL’). The Notice was filed pursuant to the (i) Share Purchase Agreement dated $8^{\text{th}}$ November 2023 (‘SPA’) executed between SMS Infocomm (Singapore) Private Limited (SMS InfoComm), Wistron Hong Kong Limited (Wistron HK), Acquirer and Wistron Infocom Manufacturing Private Limited (‘Target’); (ii) Letter Agreement dated $8^{\text{th}}$ November 2023 executed between SMS InfoComm, Wistron HK, Acquirer and Target; and (iii) Letter of Comfort dated $13^{\text{th}}$ November 2023 in relation to the SPA.
The Proposed Combination envisages acquisition of 100% of the equity share capital by the Acquirer of Target from SMS InfoComm and Wistron HK, who are the sellers. SMS InfoComm and Wistron HK hold 99.99% and 0.01% of the Target’s share capital on a fully diluted basis, respectively.
In terms of Regulation 14 of the Competition Commission of India (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011 (‘Combination Regulations’), the Acquirer was required to provide certain information(s)/clarification(s) relating to the Proposed Combination vide letter dated $19^{\text{th}}$ December 2023. The response was filed by the Acquirer on $5^{\text{th}}$ January 2024.
The Acquirer is a wholly-owned subsidiary of Tata Sons (principal holding company of the Acquirer Group) with expertise in manufacturing high precision components for large customers. It manufactures smartphone enclosures (i.e., the frame of the phone on which other components of a smartphone are assembled), a high precision component for smartphones. The Acquirer has four wholly owned subsidiaries i.e. Vidiyal Residency Private Limited (VRPL), Tata Semiconductor Assembly and Test Private Limited (TSAT), TEL Components Private Limited (TEL Components) and Semifab Private Limited (Semifab). TEL Components, which does not have any business operations at present, proposes to provide electronic manufacturing services for smartphones.
The Target is engaged in electronic manufacturing services (EMS) (i.e., third-party contract manufacturing of electronics) for smartphones in India. It was incorporated in 2017 and operates a manufacturing plant in Kolar, Karnataka. The Target is a wholly owned subsidiary of SMS Infocomm, which in turn, is a wholly owned subsidiary of Wistron Corporation, which is listed on the Taiwan Stock Exchange and is part of the Wistron group [Hereinafter, Acquirer, Acquirer Group and Target are collectively referred to as Parties].
Considering the activities of the Parties, it is noted that the Acquirer and the Target exhibit a potential horizontal overlap in the market for provision of EMS for smartphones in India as the Target is currently present in this market and the Acquirer (through TEL Components) proposes to provide EMS for smartphones in the near future. Further, the Commission notes that the Acquirer and Target exhibit a potential vertical linkage as the Acquirer is present in the upstream market for manufacture and supply of smartphone enclosures in India and the Target is present in the broad downstream market for manufacturing of smartphones and in the narrow downstream market for provision of EMS for smartphones in India.
The Commission assessed the Proposed Combination considering all plausible relevant markets and decided to leave the delineation of the relevant market open as the Proposed Combination, for the reasons detailed in ensuing paragraphs, is not likely to cause an appreciable adverse effect on competition in any of the plausible alternative relevant markets that could be delineated.
Before delving into the strength of the parties in their respective segments, the Commission finds it imperative to make some observations with regard to market dynamics as have emerged from a perusal of the information furnished in the Notice.
The market for EMS (assembling of smartphones) and manufacturing of components with regard to smartphones is characterised by high degree of countervailing power exerted by the smartphone brands. For entry into the market, an EMS provider must be certified by a smartphone brand and adhere to the technical specifications prescribed by the said brand. The manufacturing value chain of smartphones is supervised by the smartphone brand, including the decision on which authorised component suppliers will supply to which EMS provider, all of which are subject to strict technical specifications as mandated by the smartphone brand. Orders are placed upon the component manufacturers by the smartphone brand who are required to make supplies to points of destination (nationally or internationally) as specified by the smartphone brand. Likewise, the EMS providers do not have the discretion to decide which component suppliers it will procure required components from, since this decision lies with the smartphone brand for whom the EMS provider manufactures the phones. Further, the smartphone brands avail of the services of third-party EMS providers only if they deem it commercially prudent as opposed to captively manufacture the components or assemble the smartphone in-house. And, even when the smartphone brand chooses to outsource the assembling of phone to an EMS provider, it outsources to multiple EMS providers, instead of going through a single contract manufacturer. Therefore, the addressable market for EMS providers is limited to the extent the smartphone brands decide to outsource their manufacturing requirement, which also can be multi-sourced through available EMS service providers. For the foregoing reasons, the ability of players in the smartphone manufacturing value chain seems to be rather constrained.
Further, based on the submissions of the Acquirer, the Commission noted that the market shares of the parties do not raise a concern, either from the perspective of horizontal overlap or the vertical linkage. The combined market shares of the Acquirer and Target (CY 2022) in the market for Provision of EMS for smartphones in India (excluding captive EMS) is [10-15] %, solely attributed to the activities of the Target as the Acquirer is yet to enter the market. As regards the vertical linkage, in the upstream market for manufacture and supply of smartphone enclosures in India, the market share of the Acquirer in terms of volume, is less than 1%. As regards the downstream market, the market share of the Target is [0-5] % in the broad downstream market for manufacturing of smartphones in India, and [10-15] % in the narrow downstream market for provision of EMS for smartphones in India (excluding captive EMS). Even otherwise, the Commission observes that market share in provision of EMS for smartphones in India or manufacture and supply of smartphone enclosures may not truly be reflective of its market strength, given the high degree of countervailing power exerted by the smartphone brand in the overall value chain of manufacturing of smartphones as submitted by the Acquirer in the Notice. Therefore, neither the parties seem to gain any ability nor they seem to have any incentive to foreclose competition in any of the markets, post the Proposed Combination.
Considering the material on record, including the details provided in the Notice and the assessment of the Proposed Combination based on the factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have any appreciable adverse effect on competition in India. Therefore, the Commission approves the Proposed Combination under Section 31(1) of the Act.
The order may be revoked if, at any time, the information provided by the Acquirer is found to be incorrect.
The information provided by the Acquirer shall be treated as confidential in terms of and subject to provisions of Section 57 of the Act.
The Secretary is directed to communicate to the Acquirer accordingly.
