Chinese handset manufacturer Xiaomi set foot in the Indian market in 2014. Over the years, it has established a stronghold in the Indian smartphone industry. As per recent industry estimates, Xiaomi led the smartphone segment with a 29 per cent market share during the first quarter of 2019, followed by Samsung with a 23 per cent share. According to IDC, Xiaomi was the fastest growing smartphone brand in 2018. In fact, India accounts for more than a third of Xiaomi’s smartphone sales globally.
Xiaomi’s success in India can be largely attributed to the company’s astute pricing, marketing and distribution strategies, which have been fine-tuned time and again to align with Indian demands. Of course, all these strategies have been backed by substantial investments. According to regulatory filings, in 2019, Xiaomi has already invested Rs 35 billion in its India business, one of the largest investments made by the company since it began its Indian journey. These funds are expected to be used in expanding the company’s offline presence, enhancing its manufacturing capabilities as well as developing newer business avenues in the country.
A look at Xiaomi’s growth strategies in India…
Focus on offline retail
During its initial years, Xiaomi followed an online-only retail strategy, but it soon realised the importance of the offline mode of distribution in a market like India and forayed into the offline retail segment in 2017. It has acquired over 50 per cent share in the online retail segment, and is now betting big on offline retail to bolster its growth in the smartphone and smart TV segments. At present, the company operates around 1,500 Mi stores across 14 states, including Tier 3 cities and rural areas. In fact, rural has now emerged as one of the key target markets for Xiaomi. It plans to open over 5,000 small-format exclusive Mi stores across India by the end of 2019. The move is likely to increase the share of offline sales in the company’s retail mix from 35-40 per cent in the third quarter of 2018 to close to 50 per cent by the end of 2019.
In addition, Xiaomi’s offline retail portfolio includes Mi Preferred Partners, Mi Studio and Mi Home stores. At present, the company has over 5,000 Mi Preferred Partners, which are multi-brand stores focused on Xiaomi products. It also operates over 75 Mi Home stores across the top 10 cities and plans to take this number to 100 by the end of 2019. At the Mi Home stores, Xiaomi sells products like power banks, fitness bands, accessories, smart TV sets and audio products. Xiaomi is also planning to explore the white goods space so as to expand its product portfolio by the end of 2019. In this space, the company will focus on air conditioners, washing machines, refrigerators, laptops and small appliances such as vacuum cleaners and water purifiers. All these products will be smart devices and significantly contribute to the company’s overall growth in the country.
The Mi Studio store is a new concept although its features are similar to those of the Mi Home store. These stores are slightly smaller in size and so are easy to manage and operate. At present, Xiaomi is operating two Mi Studios at Bengaluru and Mumbai. Depending on the success of these, the company might add several hundreds Mi Studios across the country.
Enhancing manufacturing capability
Xiaomi has also been investing heavily in enhancing its manufacturing capabilities in India. Recently, in March 2019, Xiaomi launched a new manufacturing plant in Tamil Nadu. This is the company’s seventh smartphone manufacturing plant in India. The other six smartphone manufacturing facilities are spread across four campuses and have been set up in partnership with contract manufacturers such as Foxconn, Flex and Hipad.
With this new plant, the company will now have a combined production capacity of up to three smartphones per second during operating hours. Currently, the company is focusing on meeting the domestic demand through these manufacturing facilities, but expects to soon start exporting to markets globally.
Exploring new business avenues
While Xiaomi still holds the leadership position in the Indian smartphone market, the volume of annual shipments has started dwindling. As per Counterpoint Research, Xiaomi had a market share of 29 per cent in the first quarter of 2019, as against 31 per cent in the same period in 2018. The company’s shipment also declined by 2 per cent during the quarter for the first time since it started operations in India.
In this scenario, just focusing on devices and hardware would bring little growth to the company. Industry analysts predict that Xiaomi can only derive single-digit growth from these segments. As a result, Xiaomi now plans to foray into newer business streams like internet services, financial services and gaming in India. In fact, a significant proportion of its recent Rs 35 billion fund infusion has been earmarked for the digital content and services business.
Xiaomi plans to monetise the streaming content from Mi Video, Mi Music and Mi Drop as part of its digital content and services business. Mi Drop, a file transfer tool, has so far received around 100 million downloads. The company has also launched the Mi Pay platform in partnership with ICICI Bank and PayU, and has recently received the National Payments Corporation of India’s approval for large group usage of this platform. Xiaomi has already conducted trials and testing of Mi Pay, and has now invited beta testers for its payment service. Initially, Mi Pay would be integrated with contacts, SMSs, scanner apps as well as the app Vault in MIUI (the company’s Android interface). With the help of Mi Pay, consumers will be able to make payments using the unified payments interface, debit cards, credit cards and internet banking. In addition, Mi Pay will allow utility payments for services such as phone recharge, water bills and electricity bills with just one tap. Meanwhile, Xiaomi is planning to commercialise Mi Credit, which is a marketplace that provides consumers access to instant loan from partners like KreditBee and ZestMoney.
Xiaomi is also planning to enter the consumer finance and business-to-business lending business in India. To this end, the company has floated a non-banking financial company (NBFC), Xiaomi Financial Services India. The NBFC was incorporated as a subsidiary of Xiaomi Finance HK Limited and Xiaomi Singapore Fintech on October 10, 2018. It focuses on providing loans to consumers for purchasing electronics and home appliances and gives credit to firms for the purchase and acquisition of goods, merchandise and assets. Xiaomi Financial Services India will be providing these services through online platforms.
With a fine-tuned retail strategy and a focus on new business areas, the future seems bright for Xiaomi in India. On the smartphone retail side, Xiaomi plans to expand its presence both geographically as well as in terms of its service offerings. The company wants to focus more on catering to the rural market.
Its new businesses such as content, digital service and fintech will get a much-needed fillip from the surge in data uptake. The mainstreaming of internet of things will also help increase revenues from Xiaomi’s Mi Homes stores as the adoption of connected smart devices is expected to increase in the future. s