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Chennai, July 15, 2014 Anuj Srivas
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The Apple of China, Xiaomi, has entered India. Will it be able to recreate its magic here?

Will Xiaomi's strategy, which has largely been China-centric, translate well to Indian conditions?
Will Xiaomi's strategy, which has largely been China-centric, translate well to Indian conditions?

The last two years have seen China plant its flag in the Indian smartphone market. The floodgates opened in the end of 2012 when Lenovo entered the market, followed quickly by Gionee, Oppo and co.

Today’s entry of the West’s favourite Chinese technology company, Xiaomi, epitomizes how much the Indian market has changed in the last two years.

Firstly, the higher-end smartphone segment (>Rs. 35,000) is quickly becoming a blood-shedding ground. Nobody, apart from Apple, has any decent market share in this range. Anybody who grows in this segment can only grow by taking away market share from other players, as most of the ‘high-end’ volume has moved to the <Rs. 20,000 price segment, where phones such as the Moto G offer an experience equal to that of a Rs. 30,000 smartphone.

Secondly, as a result of the first point, the typical price touch-points that most companies offer has changed. In 2012, a multinational smartphone company would offer three types of phones. There would be the flagship (Rs. 30,000-Rs. 40,000), the mid-end (Rs. 20,000 – Rs. 30,000) and the junk (sub-Rs. 10,000 phones that barely worked).

With the smartphones getting much better in terms of hardware and software, this has changed. Prices have dropped, without any notable depreciation in the quality of the smartphone in question. Companies like Micromax, Karbonn, Nokia have a more important order that they look after first. The new order is now: Rs. 15,000 – Rs. 25,000 (The new flagship, best symbolized by the Moto X), Rs. 10,000 – Rs. 15,000 (The new mid-range, with notable examples being the Lumias and Moto G), and the sub-Rs. 7,000 segment becoming the new low-end.

Xiaomi fits in perfectly with these changes along with a few other details such as online-only smartphone sales channels picking up. While the company has done amazingly well in China, their strategy may or may not be able to translate to India.

A few points worth raising:

BUSINESS MODEL – The reason why Xiaomi’s phones are so cheap is because they sell almost at cost. The company makes its money on the sale of accessories, Internet services and applications. Indians, however, are quite stingy when it comes to paying for applications. This model won’t work here.

MARKETING: Another reason why the company can keep its costs so low is by forgoing on marketing expenditure. While this can work in China, where it gets a bunch of free press, it will have to definitely increase its advertising budget here. Unless it can get Flipkart, its online retail partner, to pony up some of that cash, this will be an added cost for Xiaomi.

COMPANY NAME: Xiaomi, actually pronounced ‘shee-yow-mee’, needs to be able to have Indians pronounce its name without difficulty. While some of its Chinese compatriots like Lenovo are already household names, this isn’t the case for Xiaomi, who is primarily popular amongst the Indian geek and techie audience. They need to either run marketing campaigns the way Huawei did, or find some way for customers to Indian-ize the name by adding some desi flavour.

PRODUCT STRATEGY: While the company has gotten its pricing right, its flagship smartphone, the Mi3, is a one year old model. On top of that, the Mi3’s successor, the Mi4, will be released in less than two weeks from today. Wouldn’t it have been better to wait and launch the Mi4 in India? Adding to this is the fact that they can barely keep churning out phones to keep up with the demand for their products in China. Will they be able keep up with the demand here?

PATENT WORRIES: While India is a rather weak protector of intellectual property rights, which is why Xiaomi can enter here with no problems, there have been instances of litigation in the last two years. Local smartphone companies Micromax and Intex are fighting lawsuits filed by Ericsson. It’s possible that Xiaomi could be drawn into this as well.

- - - -

When you take into account its online-only strategy, it becomes clear that Xiaomi's prime rivals will be Samsung and HTC at the high-end and Motorola (and therefore Lenovo) at the low-end. This means continued bleeding for Samsung and a competent rival for the Lenovo-Motorola combine, which has managed to shake up things so well here in India.

Keywords: XiaomiIndiaMotorolaLenovostrategy

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