The Xiaomi Story

In 2013, Manu Kumar Jain, the man who built Jabong (a fashion e-commerce app, taken over by Flipkart) was on the lookout for his next venture. He wanted to do something in the hardware space and flew to China hoping to raise money from investors.

But as luck would have it, he ran into Xiaomi’s then vice president Hugo Barra who was looking at India with a keen eye. He wanted to expand. And instead of going the founder route, Jain became Xiaomi’s first executive here.

Jain’s goal was clear — topple the Indian smartphone makers that had risen to the top. Names like Micromax, Lava and Karbonn. These companies had captured the pulse of the Indian market making “value-for-money” phones. And this led to an explosion in the Indian smartphone market. Sales almost tripled in 2013 over the previous year.

Xiaomi wanted a piece of this.

And guess what was one of the first things they did?

Well, this is speculation, but they probably realized that India would find it hard to pronounce its name. So it called itself Mi. And spent a gargantuan sum of money in 2014 to buy the Mi.com domain — $3.6 million which was probably the most expensive domain name bought by a Chinese tech company back then.

And then they flipped the marketing and sales game on its head. They ditched offline stores. They decided to sell the phones online. And they shook hands with Flipkart to make it exclusive. They launched limited-period flash sales. And they did it with their flagship phones—the best of the best. But the killer was the price point. Their first flagship was priced at just ₹13,999.

It was a massive success.

And within a short span of three years, Xiaomi snagged a 24% market share in the smartphones division. It beat the long-standing leader Samsung. At one point, 1 in 2 smartphones sold online was a Xiaomi product. And the top management even felt that India was a more crucial market for it than China.

But all that success is now in the rearview mirror. And the dream run appears to have hit a speed bump.

Xiaomi has lost the crown. From topping smartphone charts once, it is now languishing in the fourth spot. And it has responded by cutting the total number of phone launches. Go leaner, target 5G and try to win it all back.

But where did it all go wrong for Xiaomi? What was the big mistake?

Well, to begin with, we have to talk about the border skirmish with China in 2020. The anti-China sentiment crept in and there were demands for a public boycott of Chinese goods and apps. That definitely set the company back a bit. But it came back with a bang. It even boldly added a “Made in India” page to its website. And spoke about its philanthropy efforts including the donations they had made to families of Indian soldiers killed in action.

But it probably wasn’t enough. The Indian tax authorities clamped down. They sent income tax notices and then alleged that there were foreign exchange violations. The Enforcement Directorate said that the company was making payments to foreign entities under the guise of royalty payments. It froze Xiaomi India’s assets worth $1 billion.

And all this probably created some internal turmoil too.

Their star executive Manu Kumar Jain quietly left India, took up a role in Dubai, and then exited the firm in January this year. Meanwhile, other top executives handed in their resignation papers too. The team that built Xiaomi India were leaving in droves. And you can imagine that would’ve affected the overall strategy.

But that may not have been the biggest problem. Maybe Xiaomi’s problem was Xiaomi itself.

You see, the company actually achieved that initial burst of success by focusing squarely on the sub ₹15,000 market. It then went and launched its budget phones to target the masses too — the Redmi sub-brand that sold at even a cheaper price. In fact, a couple of years ago, before all its troubles began, Xiaomi had 18 Redmi phones among the 22 phone models listed on its website.

But here’s the state of the market now as per a recent report in Forbes:

It is this segment [sub ₹15,000] which has considerably slowed down over the last nine months as there is a decline in the first-time users. Feature phone consumers have become reluctant to upgrade, existing users have turned conservative in spends, and mid-premium and premium end of the market (₹25,000 onwards) continue to swell. “Xiaomi has around 40 percent market share in sub ₹10,000 category, and another 29 percent share in ₹10,000-15,000 category,” says Tarun Pathak, research director at Counterpoint Research.

And just to hammer home that point, it’s not just Xiaomi that’s facing the heat here. Another budget smartphone maker Realme is seeing a drop in its market share. Meanwhile, with the premium market hotting up, Vivo and Oppo which focused on this pricey segment actually started seeing an increase in their market share.

But hey, it’s not all over. Xiaomi’s slipping but it’s not out yet. It still has a 20% market share in the smartphone space. It still has a brand name built over a decade, even if it’s Chinese. It just needs some inspiration to turn its fortunes around. But with increasing competition, it certainly looks to be an uphill battle.

Can Xiaomi make a comeback in India?

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