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We are open to moving Xiaomi's engineering teams from China to India in future: Manu Jain

"We have invested in a large number of internet companies in India, including Zest Money, Krazybee, Hungama and many more. The idea is to invest in companies where we think there could be a long-term strategic partnership."

Oct 26, 2018 by Avanish Tiwary
We are open to moving Xiaomi's engineering teams from China to India in future: Manu Jain

Xiaomi’s first flagship experience store in Bengaluru located in Xiaomi India head office. Photo by Prabhu Mallikarjunan/The Passage

Earlier this month, Xiaomi India, the leading Chinese smartphone maker, announced that the company sold over 2.5 million Xiaomi devices in less than 2.5 days across platforms e-commerce sites like Flipkart, Amazon and it’s in-house sales platform Mi.com.

In less than four years, Xiaomi India has become the largest selling smartphones in India, beating all its competitors, including longstanding market leader Samsung. The company is nowo inching towards a market share of 30%.

Xiaomi, which chose the flash sales model to create hype in the market, now wants to get away with the flash sales and make the products available to all. The company, which has increased supplies by three times in the last year, now plans to go big with the offline market too.

Manu Kumar Jain, Xiaomi’s India Managing Director and Global Vice President, who has helped the company gain a foothold in the crowded Indian smartphone market, in an exclusive interview to The Passage, speaks about Xiaomi’s India strategy and its success path over the years.

Image courtesy: Manu Kumar Jain
Image courtesy: Manu Kumar Jain

Edited excerpts:

Q: What are the challenges you faced in India when you launched here?

A: I will specifically talk about two issues that we faced. One about our branding, second about our offline retail.

One of the big challenges that we had was how do we set up a brand identity for Xiaomi. It is a very difficult name for Indians to pronounce. People call it Jiaomi, Jaomi, Ziaomi, sometimes even Gionee. There are very funny names that people have for Xiaomi.

So, in India, we basically use the MI logo as our brand identity. Even though legally our name is Xiaomi, most people know it as MI. But now that we have reached a particular level, we are trying to bridge the association between MI logo and Xiaomi, and we're trying to educate customers on how to pronounce our brand name.

The second example that I will give is of offline. Offline is a very different business as compared to online, which is what Xiaomi is traditionally strong at. When we started building our offline business two and a half years ago and did a small pilot in few cities with few distributors, it was not a big hit immediately because we were trying to copy what other brands were doing offline.

For example, in Delhi, there are around 6000 shops selling smartphones and we were trying to sell through all these 6000 shops. In Bengaluru, there are 1100 shops that sell smartphones and we were trying to sell through all of them.

But we did not have the kind of margin, kind of manpower, and system processes like many of the brand like Samsung, Oppo and VIVO have. Last year we changed our strategy and instead of going wide, we went deep. We work with limited amount of partners, but one partner in every cluster, and we really have a deep relationship with each of these partners.

As a result, we had only 260 odd shops in Delhi, 90 odd shops in Bengaluru and few others in the country. With only 265 shops in Delhi, our market share is high and we became number 1 only in offline in Delhi. Other brands have 6000 shops in that region.

Q: Although Xiaomi has manufacturing units in India, most of the components are still imported from the other countries. When do you plan to have all the components to be manufactured locally in India?

A: Four years ago, when we started manufacturing, no other component manufacturer wanted to come here because there were no OEMs (Original Equipment Manufacturer) like us.

Today, there are a lot of OEMs that have a factory here. Huawei, VIVO, Samsung, all of us have factories here. So of course, there is an incentive for suppliers and component manufacturers to also come and set up manufacturing plants here. Government is giving a lot of incentives and they have a phased plan. Every year they give incentive to companies for certain components to be locally produced.

Beginning of this year, we called 50 publicly listed suppliers and invited them to set up local factories here—all 50 of them. One of the big partners, Holitech from China has already signed a MoU with the Indian government and is setting up a pretty big manufacturing plant across 75 acres to manufacture multiple components for Xiaomi, beginning Q1 2018.

The hope is, in future, a lot of component manufacturers will come to India and will support us.

Q: When Xiaomi started in China, it mostly focused on the low-end market. In India also, it sells phones mostly within the low-end price range. Will you also sell medium and high range devices?

A: Yes, definitely. We want to keep moving our average price up so that it’s aligned with the average market price and the GDP of the country. The average price point of a smartphone in India was about 550 RMB four years ago when we started our business. Today it increased to 1000 RMB. It is increased over the last four years. So, four years ago, our cheapest phone was costlier than the average price point in India. Today, our average price point is very similar to the average price point of India, which is 1,000 RMB. We've been consciously upgrading our prices as the market goes up. Redmi Note 4G started at 799 RMB. And today it's sold at 999 RMB onwards.

It has taken five years to move from Redmi Note to Redmi Note Note 5, but we have moved up by 600 RMB during this period. We realised, as the market moves up, we want to launch a lot more (products), even premium devices. For example, we just launched a newer model POCO F1, which falls in 2,000 to 3,000 RMB segment, which has become the market leader in this price segment. So as the market moves up, we will also move up.

There is one more difference between the China and India market. In China, there are four million smartphones sold every year and everybody has left feature phones and started to use smartphones.

In India, while there are 250 million phones sold, half of them are feature phones. There is still a population of 400 million people in India who are still using features phones. At least 400 million people will be coming up with a smartphone over the next five to eight years. They are not going to buy a 1000 or 2000 RMB phones, but they would buy a 500-600 RMB phone. So, while we upgrade even the low price point we can continue to be very important for Indian consumers for the next five years. If you look at our Indian and China portfolio, they are very different because of the needs of the two countries are different.

Q: What are the plans for research and development in India (both hardware and software)?

A: We already have four R&D teams in India: Phone hardware, phone software - MIUI, TV and other ecosystem products. Right now, we have product teams in India for designing products, but the whole implementation and engineering still happens out of China.

We are open to moving some of (not all of them) the engineering teams to India in future. But it may take some time.

Q: What percentage of your overall sales comes through flash sales and what is the repeat customer rate?

A: Let me answer the second question first. About loyalty, more than 60%, that is, two out of three people, come back to us and buy a Xiaomi phone. The rate is much higher compared to other brands.

I have two statistics to substantiate it. One, there was a report by Counterpoint which says Xiaomi today has the highest amount of loyalty in the country amongst all smartphone markers, and secondly, we do our internal surveys and it indicates, every customer who is happy with us ends up converting three more customers to buy a Xiaomi product. Loyalty wise, we are the highest in the country.

We started flash sales four years ago. However, today, as we are number one and have more than 30% market share, we do not want to do flash sales.

We want our products to be easily available to all our customers so that they can buy whenever he/she wants to buy. The only way to do that is to increase the supply. That's why we have been increasing supplies. If you look at it, in the last one year, it has increased more than three times. Today, most of our products are actually on open sales and not flash sales. Only a few products which have crazy demand, (even though we have ramped up supply, but still the demand is so high) they end up being on flash sale. I hope by next year we ramp up supplies so that all our products or most of the products should be on open sale.

Q: What is your strategy of investments in internet companies?

A: We have invested in a large number of internet companies in India, including Zest Money, Krazybee, Hungama and many more. The idea is to invest in companies where we think there could be a long-term strategic partnership.

For example, we invested in Hungama, which is one of the largest content aggregators in the country. We invested in them two years ago because we knew we are going to be in the TV business and the key thing about TV business is not the hardware, but the content.

We invested in Zest Money and Krazybee because they are fintech companies and they aspire to build a fintech business in India. We have already launched Mi Credit platform in India, where we give out loans. The platform is ours, but the loan is given by other brands listed on the platform.

Similarly, with Sharechat, we believe they are the fastest growing vernacular language social media network in the country and we would want to work with them in building more local content.

By working with all these local companies, we really hope we can build the local internet products which the local users will see value in and benefit from.

Q: What is the reason for Xiaomi’s success in India?

A: I would give credit to our philosophy—of innovation for everyone—where we really want to build amazing products, with great specs (specifications), great quality, at an honest price. Most of the other companies, they focus on marketing and spending a lot of dollars on advertising while we always focus on building great products.

(Wanying Zhang, an intern at The Passage has contributed to this story)

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

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