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Xiaomi doubles down on India with second smartphone factory

Devices make up only half of all mobile sales, indicating vast, untapped market

Manu Jain, head of Xiaomi India, at the company's first Indian Mi Home store in Bangalore.   © (Courtesy of Xiaomi)

NEW DELHI -- Smartphone maker Xiaomi recently brought online its second factory in India amid expectations for rapid growth thanks to the country's relatively low ownership rate for the devices.

From January to March, smartphone shipments in India rose 15% on the year to 27 million units, according to International Data Corp. Xiaomi controls the second-largest share at 14%, increasing sales by 40% from the October-December period.

"We expect to create a total of 20,000 jobs in three years," said founder and CEO Lei Jun at a conference in New Delhi. The company, which entered India in July 2014, currently employs an office staff of 200, with another 7,500 directly and indirectly associated with its factories, according to local unit Xiaomi India Technology.

The Beijing-based manufacturer aims to double its Indian sales from over $1 billion in 2016 to $2 billion in 2017. It pegs worldwide smartphone sales at $15 billion for the year.

In March, Xiaomi opened the second factory in Sri, a city in the southeastern state of Andhra Pradesh. Production is being handled by a Chinese subsidiary of Taiwan's Hon Hai Precision Industry, also known as Foxconn. The plant currently just assembles the devices, but the company is exploring methods of vertically integrating all production, from components to handsets.

"We are working with our component suppliers to see how they can set up factories in India next to our assembly plants," said Manu Jain, head of Xiaomi India. The company does not publish its production capacity, but it is thought to be around 1 unit per second.

In May, Xiaomi opened its first Mi Home offline retail store in India, in the southern city of Bangalore. The company is targeting up to 100 stores in various Indian cities in the next two years.

Xiaomi became No. 2 in India's smartphone market solely from online sales, a segment it topped with a 35% share. By opening its own retail stores, the company hopes to strengthen sales on both the brick-and-mortar and digital fronts.

In India, Xiaomi is distinguishing itself from Chinese budget smartphone rivals with which it bitterly competes at home. The company's best-selling devices go for about 6,000 rupees to 15,000 rupees ($93 to $232) -- relatively inexpensive compared with competitors Oppo, at 8,500 rupees to 30,000 rupees, and Vivo, at 7,000 rupees to 26,000 rupees.

Oppo has recruited well-known Indian actress Deepika Padukone as its brand ambassador and plastered cities across the country with advertisements. On the other hand, Xiaomi has shied away from ads, focusing on retail instead.

Although India is the world's third-largest smartphone market, the devices only accounted for 50% of all cellphone sales from October to December 2016, according to U.S. research firm Gartner. That contrasts with America and China at 96%, Brazil at 92% or Indonesia at 68%.

As markets like the U.S. and China become saturated, companies must rely on demand for replacement smartphones to grow sales there, explained a Gartner analyst. In India, however, manufacturers see an opportunity to convert many mobile users to smartphone fans.

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