Chinese smartphone giant Xiaomi is likely to bite the bullet and keep its operations running in India despite mounting regulatory headwinds and recent rumours that it may pull out of the market, according to analysts, as sales soften in China.
In the latest chapter of Xiaomi’s ongoing legal saga in the South Asian nation, the High Court of Karnataka in southwestern India earlier this month rejected the firm’s fresh appeal seeking interim relief from a court order to seize US$676 million worth of its assets, a move that Xiaomi said had “effectively halted” its local operations.
India’s federal financial crime agency froze the assets in April, accusing Xiaomi of making illegal remittances under the disguise of royalty payments. The company denied any wrongdoing and said the payments, made to US tech firm Qualcomm, were legitimate.
Despite the legal challenges, Xiaomi has been quick to stamp out any suggestion that it may move its operations out of India to Pakistan. In a tweet on October 7, the company called such allegations “completely false and baseless” while reaffirming its “Made in India” commitment.
Xiaomi is “deeply invested in manufacturing in India”, where the company has at least six factories, said Rajeeve Nair, a senior analyst at Strategy Analytics. The Chinese company also has a “strong portfolio” of mid- and entry-level mobile phones in the Indian market that it cannot easily give up, he said.
In the second quarter, Xiaomi shipped over 7.1 million handsets in the world’s second-largest smartphone market, commanding a market-leading 20 per cent share, according to the consultancy.
As the market leader, Xiaomi has very good brand positioning in India, according to Ashutosh Sharma, a research director at market consultancy Forrester.
But “Chinese firms need to know that they’re operating in an environment that is not going to be very friendly, both from the Indian government’s and consumers’ standpoint,” Sharma said.
Beijing-based Xiaomi entered the Indian market in 2014, the year that it dethroned Samsung Electronics as China’s bestselling smartphone vendor. It repeated the feat in India in the fourth quarter of 2017, edging out Samsung again to become the nation’s most popular smartphone brand. It has since maintained the lead there, although it has fallen behind at home.
However, Xiaomi’s troubles in India began after a deadly military clash broke out on the country’s border with China in the summer of 2020.
Just months before India’s Directorate of Enforcement froze Xiaomi’s assets, the company – along with fellow Chinese smartphone makers Huawei Technologies Co and Oppo – were raided by Indian authorities over alleged money-laundering activities.
In Xiaomi’s latest quarterly report, the company said it had been involved in various investigations initiated by Indian authorities, including the Income Tax Department, the Directorate of Revenue Intelligence and the Directorate of Enforcement, over a range of matters, such as “income tax regulations, custom duties regulations, as well as foreign exchange regulations” since 2021.
It added that those issues could take a long time to settle.
The headwinds come at a time when Xiaomi’s smartphone sales, which generated more than half of the company’s total revenue, dropped 29 per cent in the second quarter of 2022, mainly due to weak Chinese consumer spending and Covid-19 disruptions.
Meanwhile, India’s smartphone market was valued at US$139 billion last year and is expected to reach US$281 billion by 2028, according to a report in March by data analysis firm Research and Markets. That makes India one of the few key growth markets for Chinese smartphone makers.
Chinese brands, which also include Oppo siblings Vivo and Realme, accounted for more than 76 per cent of India’s smartphone market last year, according to research firm Canalys. South China Morning Post