(Yicai Global) March 29 -- Meeting this week with Lei Jun, founder of China's smart phone brand Xiaomi, Indian Prime Minister Narendra Modi asked the smartphone tycoon whether an Indian government application could be pre-installed on locally-sold Xiaomi phones.
This vignette shows how the Chinese company has landed on the Indian market with a bang, registering annual revenue of up to USD1 billion.
On March 27, Lei revealed on his personal microblog after he met with Modi that the Prime Minister talked with him and Manu Kumar Jain, head of Xiaomi's India business, for 30 minutes.
"I introduced Xiaomi's development in India, and he (Modi) was very concerned about the progress we made and the difficulties we encountered in the country." Lei said smartphones are very important and could contribute greatly to India's internet development.
Though Xiaomi has established a presence in the Indian market for only two-plus years, the world's second-largest mobile phone market has obviously become a beachhead for Xiaomi Co.'s overseas expansion. Last year the firm reaped annual revenue of more than USD1 billion in India, and created 7,500 jobs in the country, Lei said. Xiaomi also announced the opening of a second factory in India, which will boost its local production capacity to the level of producing one smartphone per second. By then, 95 percent of Xiaomi smartphones for sale in India will be locally manufactured.
For Xiaomi's development plans in India, Lei said the primary goal is to grab half of the Indian online mobile phone market, and Xiaomi may erect a third factory there, and even export smartphones from India.
Lei's Two Trips to India
Lei made his first trip to India in May 2015, when Xiaomi launched the first smartphone designed for overseas consumers in India – the Xiaomi 4i, priced at one-fourth the cost of iPhone 6 (16GB), hoping to copy its model in China.
Xiaomi also received an undisclosed amount of investment from India capitalist Ratan Tata that year. Lei said in an interview with Indian media that the reason why he chose India was firstly because of the size of Indian market. Aside from China, India is the only other country with more than one billion people. India's economy is also taking off. Compared to the severe and homogeneous competition in the Chinese market, smartphone competition in Indian market is still relatively tame, so Xiaomi chose India as the first stop in its global expansion drive.
Lei visited India again two years later. A Xiaomi insider told Yicai Global that Lei made this trip because of the opening of Xiaomi's second factory in India and the launch of Xiaomi's Redmi 4A smartphones there.
A Xiaomi staffer said that, Xiaomi smartphones sell mainly in India through five online partners, including Flipkart, Amazon, Snapdeal, Tata Cliq and Paytm, as well as self-run e-commerce platform mi.com.
From December 2015, Xiaomi began the distribution through offline channels. Now, Xiaomi smartphones are available in more than 10,000 physical stores, with partners including Redington, Innocomm, Just Buy Live, Shotang and StoreKing.
However, online platforms have thus far accounted for 90 percent of Xiaomi sales in India. Xiaomi's performance in the Indian market, to some extent, offset its sales slowdown in China's domestic market. Relevant data shows that 2 million Xiaomi phones sold in the third quarter alone in India last year.
'Traps' in International Development
In addition to Xiaomi, Chinese brands once again won out in occupying Indian smart phone market which is growing the most rapidly in the world. Indian mobile phone market Lei regarded as 'moderate' two years ago has become increasingly intense.
In last year's fourth quarter, Chinese mobile phone brands including Vivo Mobile Communications Co., Oppo Electronics Corp., Lenovo Group Ltd. [HK:0992] and Xiaomi occupied four slots on the list of best-selling smart mobile phones in India, posing a challenge to another rival, Samsung Electronics Co. [KS:005930], which is also on the list, while the brands of Indian local smart phones Micromax Informatics Ltd. and Intex Technologies (India) Ltd. failed to make the list, said a report by Counterpoint Technology Market Research.
IDC's Indian client equipment market analyst Jaipal Singh believes that, "The eco-system of Indian mobile phone manufacturers is experiencing a multi-dimensional transition. Chinese manufacturers have been constantly investing in retailing expansion, and numerous marketing activities have disturbed the plans of local manufacturers to some extent. To protect their own market position, local manufacturers still place hopes on functional mobile phone market despite supply insufficiency of some parts. At the same time, manufacturers are also reviewing the channel strategy, attracting distributors and assigning more staff in the outlets, and apply appropriate product structure in online and offline channels."
In addition to India's market, in February, Xiaomi also announced the start of its production of mobile phones in Indonesia. Its factory there can produce 1 million phones annually, which mainly supply the domestic market. Mobile phones Xiaomi sells in Indonesia will be localized 100% starting this year. further, Xiaomi has also entered the world's sixth largest market in terms of population -- Pakistan -- and such other countries as Russia, Vietnam and the United Arab Emirates, primarily through distributors.
Yet, Xiaomi's international development has not been smooth. Three years ago, Xiaomi announced its global development. But it rushed to expand seven markets simultaneously, and suffered great losses in the face of ensuing difficulties. Xiaomi thereafter adjusted its strategy to focus on India, where it managed to make a breakthrough.
For instance, Xiaomi was once caught in a patent hurdle in the Indian market. An industry debate was triggered in late 2014, when Telefonaktiebolaget LM Ericsson [STOCKHOLM:ERICB] filed a lawsuit against Xiaomi for patent infringement and sought a ban on its Indian sales. Less than half a year before, Xiaomi announced its entry into the Indian market.
"Xiaomi's globalization process cannot be accomplished overnight, and a reckless move can only lead to disaster. Instead, we need a long-term plan, say, 10 or 20 years, to make it from one market to another," Lei candidly told Yicai Global in March this year. For example, accumulated efforts over a long period will be necessary for this process, such as the establishment of a team to become familiar with the peculiar circumstances of every country, including their policy environment, competitive links, etc. Without two to three years' sufficient preparation, achieving rapid success in one country stands little chance of success.
Due to different policies and laws in various countries, differences abound in such respects as antitrust law, environmental protection, labor and tax affairs, and industry access. Such relevant policies and laws will change in accordance with the exterior economic landscape, thus inducing incoherence in practice. All this poses problems, difficulties and exposes Chinese scientific and technological enterprises producing and operating overseas to underlying risks.
When it comes to the prevailing patent obstacle for Chinese firms that compete in the international market, Lei believes this problem is an unavoidable rule of play these companies must confront in global trade. By the end of last year, Xiaomi had obtained 3,600 patents, half at a global level.