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Xiaomi nips at Samsung's heels in India's smartphone market

Samsung's portfolio, limited online presence, seen as drawback

MUMBAI (NewsRise) -- China's Xiaomi is closing in on market leader Samsung Electronics in India's smartphone market, as it starts selling through physical stores to complement online sales and introduces a steady flow of models in the best-selling budget category.

In the quarter ended September, Xiaomi matched Samsung with a 23.5% share of smartphone shipments to India, up from the 17% it had in the previous quarter, tripling its shipment in terms of numbers, according to data from IDC. By comparison, Samsung's share declined marginally from 24% in the previous quarter, the data showed.

The Chinese company's Redmi Note 4 budget smartphone has been a runaway success in the country. The phone, priced around 9,000 rupees ($138), receives high marks for its design, quality chipset and extra memory.

Samsung has as many as 13 models in the 8,000-to-15,000-rupee price band that accounts for 45% of smartphone sales in India, far outnumbering Xiaomi's six models.

Yet, the South Korean company has failed to come up with a new model that can effectively compete with the Redmi Note 4, said Tarun Pathak, associate director at Counterpoint Research. "Samsung's most popular model in that price category is Galaxy J2, which is a couple of years old," Pathak said.

Sales of smartphones have been surging in India, now the world's second-largest market for such devices after China, due to the availability of high-speed internet services and low data tariffs. Last year, Reliance Jio, billionaire Mukesh Ambani's wireless venture, offered high-speed internet services free of cost for months, triggering a price war among mobile phone operators, pummeling data prices.

Samsung has been a leader in India's smartphone market since 2012 but it is Xiaomi, which entered the country in 2014, that has grabbed attention with its quick growth.

Starting as an online-only retailer, Xiaomi now holds more than a 50% share of India's online smartphone sales compared with Samsung's 20%, according to Counterpoint Research.

The company's strategy was well-timed. E-commerce has blossomed in India after a shaky start and today, smartphones are among the top sellers, accounting for 35% of all online sales.

By contrast, Samsung became known for its physical distribution network, an approach that worked well before. Samsung sells through 1,900 exclusive stores and 150,000 multi-brand retail outlets in India.

Here too, Xiaomi is beginning to pose a threat. Last year, Xiaomi entered into partnerships with distribution companies to sell through brick-and-mortar stores. It is also set to open 100 exclusive offline retail stores called Me Homes throughout the country.

Xiaomi's surge in the last quarter was particularly aided by the strong annual online sales of ecommerce companies such as Amazon and Flipkart in September, ahead of Diwali, the most prominent Hindu festival, which fell in October this year. The peak festive shopping period is marked by discounts, especially on smartphones.

"For the first time, we saw Xiaomi's models going on discount in September. They had a full supply of devices this festival season, unlike in the past when there was always a shortage," said Jaipal Singh, senior market analyst for client devices at IDC.

According to a recent report in the Economic Times, Samsung has already kick-started a process to strengthen its Galaxy J and Galaxy ON series in the budget price band with some aggressive model launches to fob off its Chinese rival. The company's strategy is to counter Xiaomi by offering retailers margins that are 2-3% higher than Xiaomi's, the report said, quoting unidentified sources.

When contacted, Samsung pointed to GfK Nielsen data at the end of September that showed the South Korean company as the market leader in terms of sales value and volumes, with a 45% and 40% share, respectively. Comparable Nielsen data for Xiaomi were not available.

Samsung has in the past said that 2017 would be a record year for sales in terms of both volume and value for smartphones. Last year, Samsung reported 470 billion rupees in revenue from India, according to data from the Registrar of Companies. Roughly 65% of its local revenue came from smartphones.

Most analysts expect Samsung to make a comeback in the current quarter when sales at physical stores tend to pick up. Still, the company needs to reassess its online strategy to be competitive in the long run, they say.

Samsung has to be aggressive in tackling Xiaomi's online presence, said IDC's Singh.

Both Singh and Counterpoint's Pathak say the company needs to improve its pricing and its product portfolio, especially in the budget smartphone category.

"Samsung's existing models have been doing well. It needs to fit new models into the existing portfolio, with appealing price points and features," Counterpoint's Pathak said. "Unless it makes those changes, its leadership in India will be under threat," Pathak added.

--Dhanya Ann Thoppil

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