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Xiaomi wants international suppliers to Make in India

Now running two local plants, Chinese company eyes 100 shops over two years

Manu Kumar Jain, Xiaomi’s managing director in India, has been racing in recent years to keep up with unexpectedly high local demand for Chinese handsets. (Photo by Akira Hayakawa)

MUMBAI -- Xiaomi, a leading smartphone maker from China, wants its international partners to produce in India as it develops a retail presence there with its exclusive Mi Homes chain.

Mainly online, the company has already become the second-largest mobile phone vendor in India, one of the world's fastest growing smartphone markets, and counts Gorilla, Omnivision, Qualcomm, Sharp, and Sony, among its suppliers.

"We are working with our component suppliers to see how they can set up factories in India next to our assembly plants," Manu Kumar Jain, Xiaomi's managing director in India, told the Nikkei Asian Review. He said there was plenty of scope for tapping local skills and supply chains. Other phone manufacturers also setting up in India should be a further incentive to component makers.

Xiaomi buys components around the world, including in China, South Korea, and Japan. At present, 95% of its handsets sold in India are assembled at two factories in the country's south.

"If you look at industry statistics, two-thirds of smartphones that are sold today are locally sourced," Jain said. He recalls a chicken-and-egg problem previously when component makers were disinclined to enter India because there were no phone makers, and vice versa.

"Now that we have started a factory, there is an incentive for all our component manufacturers to come and set up factories because there is now a permanent buyer," said Jain. He believes investment costs can be reduced, and production times shortened. "My belief is that in the next five years, India will become a big manufacturing hub for phones -- not just assembly."

Unexpected rise

In March, Xiaomi established its second Indian factory in Sri, a city in Andhra Pradesh. The exact capacity has not been revealed, but the company claims to be able to churn out one handset per second in country. The first plant was set up in 2015 a year after the electronics company entered India in contract with Taiwan's Foxconn, or Hon Hai Precision Industry.

The decision to move into local assembly was made four months after the successful product launch in July 2014. Jain recalls great skepticism when its Mi3 unit went on the market, both within the company and among industry watchers. There were few advertisements in traditional media, and none of the usual outdoor billboards. Promotions were instead directed at the target online segment.

"We brought in only 10,000 units because we had 10,000 followers on Facebook," said Jain. The response went way beyond such modest expectations, with 350,000 customers turning up immediately on Flipkart, a local ecommerce site. "That was when we figured we were on to something big. By October, demand had grown so much that we had to charter flights to bring in phones from China."

Xiaomi announced its local manufacturing plans in August 2015, and in its first year was turning out one million phones per quarter. According to IDC, a U.S. research company, by the second quarter of 2017 Xiaomi had the second-largest share of India's smartphone market, and enjoying nearly 40% quarterly sequential growth.

It launched two new products, the Redmi Note 4 and Redmi 4A, in the first quarter, and was online market leader with over 40% of shipments

"We are still growing," said Jain. Revenue grossed $1 billion in the first year, and had grown fourfold year on year by the first quarter of 2017. Lei Jun, Xiaomi's founder, expects revenue to "easily" double in 2017.

Despite launching itself so successfully online, Xiaomi plans to expand its offline presence and launch some 100 exclusive Mi Homes over two years. It has over 70 in China already. At present, foreign handset makers must source at least 30% of components locally to run retail outlets. The plan is to sell 25% of products over the counter this year, and eventually strike an even offline-online sales balance.

On May 20, Xiaomi opened its first Indian outlet in Bangalore, and more will follow in Chennai, Delhi, and Mumbai.

Xiaomi has invested around $500 million in India so far, and is open to investing as much again if the business requires it. It derives confidence from improved perceptions of Chinese products, and Jain believes this has everything to do with innovation.

"It is not about whether we are Chinese or not," he said. "If we cannot innovate with great quality and great prices, people will not buy. The companies that bring innovative products with distinctive features are the ones that succeed, no matter where they are from. I think we have been able to showcase that to our fans."

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