Bangalore: On Februrary 22, Redmi Note 5 and Redmi Note 5 Pro, the entry-level brands of Chinese smartphone maker, Xiaomi, were up for sale for the first time in India at a discounted price. The products went out of stock within three minutes of their launch, leaving thousands of customers angry. Those who missed the opportunity had to wait for the next flash sale date. Xiaomi claimed to have sold about 3,00,000 units on that day. It was a milestone for the company.
Online Flash sales are a hot trend in the Indian market and Xiaomi mastered its plan through exclusive deals with leading e-commerce players. Within a month, its Chinese rival, OPPO, which had ceded ground to Xiaomi in the Indian market, launched a product with a similar flash sale. And recently another competitor, Huawei, too followed suit.
For Xiaomi and other Chinese players like, Huawei and Oppo, India is the next biggest market outside their primary market – China. The collective share of smartphone sales of China-based vendors touched 57% in the first quarter of 2018, up from 34% a year ago.
In Q1 of 2018, Xiaomi had become the number one smartphone company in terms of units sold in India, overtaking the South-Korean maker, Samsung, in less than four years of its launch. As per the latest regulatory filings, in 2016-17, Xiaomi India’s revenue stood at Rs. 8,379.33 crore (¥ 8 billion), a seven-fold increase since the preceding year, while already earning profits.
Analysis by Canalys, showed Xiaomi shipped more than 9 million units in the quarter that ended in March, the highest amount for a vendor since the first quarter of 2014. Samsung shipped just under 7.5 million, while Oppo took third place with 2.8 million shipments and Vivo, fourth with 2.1 million shipments.star
Commenting on the reasons for the rise of Chinese players in India, Jaipal Singh, Senior Market Analyst at International Data Corporation (IDC) said, “At first, Indian vendors who used to dominate the market were dependent on original design manufacturers (ODMs) based in China and were not ready with products when the shift from 3G to 4G happened. Except Reliance, no other Indian player capitalized on it. All others failed to compete and lost. Secondly, in terms of the overall market spending/expenditure, Chinese players invested heavily and performed well to have a brand recall. And finally, the approach they took by placing a heavy bet on the online market helped them.”
Xiaomi, Coolpad, Lenovo, Oppo were soon to take over the entry level and mid-segment market share from Indian vendors.
Xiaomi’s entry into India came at a time when the country was witnessing a rise in the e-commerce revolution. Much on the lines of how it partnered with JD.com and Suning.com in China in the early days, Xiaomi came up with exclusive deals on e-commerce platforms like Flipkart and Amazon, making it an instant hit in India.
The e-commerce players were also pushing for the products as smartphones were among the highest selling commodities. This increased their annual gross merchandise value, which in turn reflected in the higher valuation of the companies. So, it was a win-win scenario for all.
Clearly balancing the price competitiveness, and with discounted flash sales, the company rightly set the demand for its products in the online market. Also, with a local research and development team, the company customized products and services to suit India’s local conditions. For instance, the company claims that it uses dual pyrolytic graphite sheets specifically designed for its smartphones to decrease the phone temperature and handle India’s fluctuations in power supply.
This gave an edge over other players who were still struggling to understand the emerging smartphone market while giving tough competition to homegrown players like, Karbonn and Micromax. The launch of Mi Video and Mi Music in India, a free video and music streaming app respectively, had leveraged its content platform, much on the lines of Amazon Prime video and music services.
The company, which is going for a public listing later this year, has made it clear in the IPO document, that India was a key market that the company wishes to capitalize on. Xiaomi also ensured that assembling, in whole or in parts was done in India, and much of the transportation and logistics movement was outsourced to partners located India. This lowered operating costs and reduced direct control over production and distribution, the company informed Hong Kong Stock Exchange.
The company’s total revenues derived from sales outside mainland China, more than quadrupled from 6.1% in 2015 to 28% in 2017. This indicates the significance of its growth in India. However, the future is fraught with challenges and opportunities.
Xiaomi, which now holds close upto 30% market share, should be worried about the entry of Huawei into the India market. While Oppo and Vivo competed in the mid-range segment, Huawei is emerging as a rival in the budget segment of phones priced at Rs. 7,000-Rs 10,000. In fact, Huawei’s Honor 7A smartphone was sold out within 120 seconds, soon after its launch in the Indian online space.
According to the technology research firm, Counterpoint, Huawei’s Honor brand captured the fifth position for the first time ever in the Indian smartphone market due to the strong performance of Honor 9 Lite and Honor 7X across online channels.
“Huwaei’s Honor was able to take on Xioami in China and now they are giving neck to neck competition to themin India. While the latter is equally strong in the offline market unlike Huwaei, it still cannot match the distribution network that Korean player Samsung has. So it will be a tough ride for Xiaomi in the days to come,” Singh said.
Learning from its mistakes in China and India, the company is already making strategic changes with a shift in focus to offline. It is entering into exclusive framework agreement with local authorized stores, called MI preferred partners and has tied up with retail chains like, Croma and Univercell among others. Apart from this, Xiaomi is opening more Mi Home stores, which serve as a centralized platform for users to learn about the product and services.
As of 2017, internet penetration in urban India was 64.84% as compared to 20.26% in rural India. However, it was growing at the rate of 14% y-o-y in rural India. This leaves the company with hope for scope in offline retail which could supplement online retail, enabling further penetration into underdeveloped areas. The untapped demand in lower-tier cities remains the key attraction for the company to explore and exploit.
“Xiaomi will lead the market for at least the next two quarters. They are strong in terms of their product launches and the company is aggressive in the offline market. As Huwaei do not have offline presence, it would be difficult for them to beat Xiaomi in the Indian market. That said, if Xiaomi does not address the supply constraints (less supply) of its products, buyers will start to look for other vendors,” Counterpoint research analyst, Karn Chauhan said.
In 2015, MIT Technology Review ranked Xiaomi number 2 on their list of 50 Smartest Companies, only next to Telsa Motors. Other companies in the list including Apple, Google and Microsoft were rated far below the Chinese smartphone and smart home products maker. Ever since, the company has grown faster outside the Chinese market.
Will this growth sustain? If so, for how long? Will the IPO boost the company’s expansion in markets outside of China? Will it dominate the market, beating rivals like Samsung and Apple? Answers to these questions will be evident after the IPO, for which we will have to wait a month or two. But for now, Xiaomi has won in India.