Xiaomi’s growth paralleled India’s. But over the last fifteen months, the smartphone company has been facing turbulence, owing to several factors.
Things started to go awry for the Chinese smartphone maker last year after the Enforcement Directorate (ED) said that Xiaomi illegally transferred ₹5,551.27 crore out of India. In response, the agency froze this amount, severely impacting operations.
Then again, on June 9, the ED issued show cause notices to Xiaomi India, its former employees, including former country head Manu Kumar Jain, and three banks under the Foreign Exchange Management Act (FEMA) for an alleged financial violation.
Such actions by the government agency have hit the company’s brand reputation. Though it currently ranks third among smartphone brands in the country, its market share has also taken a hit.
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“In 2022 Xiaomi India witnessed some challenges, particularly with the shift in consumer demand and evolving market dynamics. While the above 20k segment grew and gained good traction because of the availability of 5G-enabled devices and financing options, the sub-10k segment experienced a decline,” said Muralikrishnan B, President, Xiaomi India.
“The overall market was affected by inflation, leading to an increase in pricing,” he added.
A graph showing Xiaomi’s falling market shipment share in India’s smartphone market | Photo Credit: Counterpoint Research
Xiaomi’s growth
Xiaomi landed in India at a time when Micromax and Karbonn were grappling to survive and Samsung smartphones were out of reach for the masses. The Chinese handset maker filled this gap by selling mobile phones to a young population at comparatively lower prices. Over the next nine years, it introduced Redmi and Poco sub-brands, targeted at entry-segment buyers.
The growth of e-commerce platforms propelled Xiaomi into becoming the number one smartphone brand in the country for consecutive quarters, year-on-year, occupying around 25% of the market share.
Evolving telecom infrastructure like 4G and penetration of the internet in rural areas contributed to Xiaomi’s growth.
Redmi’s attractive value proposition in terms of features, design and pricing made a huge contribution towards India’s 4G wave, said Faisal Kawoosa, founder of research firm Techarc.
The ‘Manu Kumar Jain’ factor
Former country head of Xiaomi, Manu Kumar Jain, was a key part of the brand’s journey from the time it was a startup based out of Bengaluru. He became synonymous with Xiaomi and to an extent, with the Indian mobile world. He attended all of Xiaomi’s launch events, almost taking on the mantle of the brand’s ambassador.
He was quite vocal about the government’s Make in India initiative and was a staple in power corridors. But, when ED began questioning Xiaomi for financial irregularities in 2022, Mr. Jain remained out of sight. He was summoned for questioning in April last year but Mr. Jain had left for Dubai to look after Xiaomi’s interest in the Gulf region. His quiet exit from the second-largest market did not go unnoticed.
“He was not only the CEO but also the main face of the brand among all stakeholders. His leaving did leave a momentary vacuum impacting the overall performance,” Mr. Kawoosa explained.
Few other top-level executives left Xiaomi India following Mr. Jain’s departure, further rocking market confidence in the brand.
Mr. Jain’s exit from Xiaomi India did not go down well in the industry, especially with target audiences as he had become the face of Xiaomi in India, said Prachir Singh, Senior Research Analyst at Counterpoint Research.
“His exit raised unanswered questions,” he added.
Asset freeze
When the ED froze ₹5,551.27 crore in Xiaomi’s India account, it paralysed Xiaomi’s operations. This large amount remains out of play till the case is decided in a court of law.
“It would have made an impact on payments to partners, and procurement of raw material for production,” said Mr. Kawoosa.
However, ED’s action alone may not have resulted in Xiaomi’s market decline, he pointed out, as other Chinese companies are also being investigated.
Vivo and Oppo were both accused of tax evasion, and 119 Vivo accounts were blocked. But the Chinese smartphone maker approached the Delhi High Court and freed the accounts by depositing a security amount of ₹950 crore. Vivo is now the number two smartphone brand in the country.
Xiaomi’s declining market share | Photo Credit: Counterpoint Research
Consumer sentiment
While the fraying relationship between India and China may have affected B2B and B2G businesses, it has not impacted the B2C segment to a large extent.
“Barring a few instances in the past where consumers protested against a few such brands, the sentiment hasn’t had an impact on the consumer preferences,” Mr. Kawoosa said.
Also, Xiaomi is not the sole victim here, except for the government’s ban on Mi Browser for allegedly collecting sensitive data that could be used against India.
Even the notion that online buyers in India are mature now and so Xiaomi is facing the heat, does not hold.
“The online buying was never to the extent that was being reported. Even at the time when there were claims that 60% of sales were happening through online, more than 50% of these would then eventually happen offline, where retailers would procure these smartphones online from their battery of agents and then sell in the offline channel,” Mr. Kawoosa claimed.
Average selling price (ASP) of mobile phones going up coupled with macroeconomic factors may play a role in buying decision. These factors could reduce consumer spending on non-essential item like a smartphone. A gradual uptick is visible, but not in the segments where Xiaomi operates. Except Apple, which is viewed as a luxury product, mobile shipments have declined across brands.
“The 10-20K segment was stagnant because of a longer smartphone ownership lifecycle and consumers waiting for the rollout of 5G networks. Following the spike in smartphone demand due to Covid-19, the anticipated growth in demand in 2022 didn’t materialise, leading to an inventory build-up,” Mr. Muralikrishnan said
“This partnership [with Optiemus] aligns perfectly with our focus to enhance our domestic production capabilities as we aim to increase our domestic value addition by 50% in the next couple of years,” said Mr. Muralikrishnan.
“We have kickstarted 2023 by laying out a cleaner and streamlined portfolio to build clear category winners in each segment with a focused approach,” the head of Xiaomi India concluded.
