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$\"<p>FILE$
FILE PHOTO: A commuter using his mobile phone passes an advertisement of Chinese smartphone maker Oppo at a train station in Singapore May 8, 2014. REUTERS\/Edgar Su<\/span><\/figcaption><\/figure>The seed of the decision to separate the three companies was sown in October 2021 when India reportedly first put pressure on the BBK group companies to stop relying on Chinese partners and instead use local partners for product distribution. Come December 2021, Oppo<\/a> was accused by Indian regulators of tax evasion and payment of lesser custom duties through misdeclaring imported items and failing to include royalty and license fees in their value.

What we are seeing today in terms of separating Realme<\/a> and One Plus as independent entities is to protect the current and future operations of these two companies in case of any government action against Oppo. While this may have been the reason given for the separation, the other reason could be the external commercial borrowing providers agreeing to infuse further cash in Oppo if they see it showing a profit after 7 years of losses.

The breakup should bring Oppo in profits for sure. Realme may have a little more time to show profits considering it was launched in 2018- 4 years later than Oppo.

It is also reported that Oppo will sell directly to distributors and large retail chains. The original business model was Chinese entities as distributors (in every state except Gujarat) selling to micro distributors who were reaching out to the retailers. Oppo’s major concerns seem to have been addressed.

However, the “separation” of brands and replacement of Chinese entities by Indian distributors comes with certain implications for the brands, distributors, and the retail channel. Not much changes in the day-to-day operations should be expected as the front end and back teams for all (except possibly for R&D) were separate in any case.

So, what are these implications?
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Brand
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With separate balance sheet and P & L for all 3 companies, Oppo and One Plus may be able to show good profits and increase their investments in the market in terms of marketing, margins and operational expenses. It should be noted that Oppo’s losses had reduced to just Rs 46 crore in 2022 and it would be logical to assume that if taken independently,

Oppo and One Plus would have been profitable companies with Realme in losses. So against 1 of the 2 BBK companies showing profits today, it would be 3 of the 4 BBK companies showing profits. On the other side, Realme as an independent company will possibly get saddled with big losses negatively affecting their offline drive which requires heavy investments and recurring high operational costs.

Distributors<\/strong>

The decision opens opportunities for the bigger Indian distributors to take up Oppo distribution for a state in case Oppo goes for a state distributor set up- an opportunity for distributors with high investment capabilities to get a bigger role. Also, an opportunity for those Xiaomi<\/a> distributors who were used to high business volumes earlier now facing a downturn, switching loyalties. May be a blessing in disguise for the BBK group and a challenge for Xiaomi and to some extent Samsung<\/a> in such a scenario.

The possibility of the existing Chinese distributors in the back end with the Indian distributor only as a front cannot be ruled out initially as they understand the way the brand works better. In case they go for direct smaller distributors by cities, there would be no impact as the existing micro distributors are already up and running.

Retailers
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Not much impact operationally on the pop and mom stores as they will continue to deal with the distributors of their area as is the model today.

However, this will have a positive impact on the large chain stores with whom the brands would like to deal directly with higher margin supports. The concept of large chain stores is gaining ground in India and as per my estimates out of the 56% contribution of offline stores in India in Q1 2023, at least 50% business was from large chain stores.

This would go up further with large chain stores increasing their footprint with many pop and mom stores merging with them. Those pop & mom stores who don't align could find their survival difficult. Expect chain stores to go all out on board as many pop and mom stores as possible in the coming days.

(Ajay Sharma is presently Advisor, Techarc. Views expressed as personal.)<\/em><\/strong>
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