23 August 2019
Xiaomi co-founder Lei Jun has a hugely successful business model for the Chinese market but will his strategy work in India? Photo: Bloomberg
Xiaomi co-founder Lei Jun has a hugely successful business model for the Chinese market but will his strategy work in India? Photo: Bloomberg

Is Xiaomi in over its head with India plan?

Chinese smartphone maker Xiaomi has been wildly successful with the eponymous handset that has taken the mainland market by storm.

There is a simple explanation for it.

The handsets are priced nearly at cost and sold online, making them more affordable to a great many people. What Xiaomi lacks in profit margin from the hardware, it makes up for in sales of software and services to users.

That’s a double whammy of a large user base and a captive market.

Lei Jun , Xiaomi’s brash founder and chief visionary, thinks that if the strategy works in China, it could work in India.

The Hong Kong Economic Journal’s investor diary examines his chances.

Like China, India is a massive consumer market with a vast, untapped hinterland for low-cost smartphones. But unlike China, India has established domestic players with a strategy similar to Xiaomi’s.

One of them is Micromax, an Indian brand which commands 21 percent of the domestic market, second only to Samsung with 32 percent.

Micromax began in 1991 as a trader of information technology equipment, subsequently moving into software and system development. In 2008, it began making handsets on the back of surging demand for 3G services.

Micromax sells its phones at half the price of Samsung handsets, matching the Korean giant on standards and functions. This strategy helped Micromax run up market share at an astounding clip.

By contrast, Xiaomi had a 6 percent share of the Chinese market last quarter, but in December, it outsold market leader Samsung to become the best-selling brand in the country for that month.

Presumably, Xiaomi had strong sales of software and services as a result of that.

But in India, things could be a lot different.

Half of Indian phone users don’t use data services and e-commerce makes up just 1 percent of retail sales. Micromax sells its smartphones in physical stores.

A sell-out launch of Motorola’s Moto G, which saw the company clear 20,000 units of the handset within 15 minutes of an online promotional sale, appears to have been a blip. But it highlighted the role of Motorola’s Indian e-commerce partner, Flipkart, which will begin selling the Moto X.

India’s e-commerce market is largely split among Flipkart and United States giants Amazon and eBay. If Xiaomi decides to enter the market, it’s likely to partner with either of the American companies.

Is there enough room for another player in India’s crowded mobile market?

According to research house IDC, production of mobile phones in emerging markets is estimated at 749 million units in 2017 compared with 400 million units last year. In India, the number almost doubled year on year in the third quarter of 2013.

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Freelance journalist

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