Kolkata: In just two years of operation, Xiaomi Technology India Pvt. Ltd—the Indian unit of the Chinese mobile handset maker—has for the first time reached sales of two million units in the July-September quarter.
That represents a growth of almost 150% over one year, said Manu Jain, country manager and a director at Xiaomi India. It came almost entirely from online sales of handsets such as Redmi Note 3, Redmi 3S and Redmi 3S Prime.
According to Jain, about 90% of Xiaomi’s sales in India, at present, come from online marketplaces, apart from its own website mi.com/in—almost three times the industry average of 30%. When Xiaomi launched its India operations two years ago, online sales accounted for only 15%.
Online sales are more “profitable and scalable” for any company. Still, Xiaomi India is now looking to expand offline sales so that in one year, its contribution goes up to 30%—the same as in China, Jain said in an interview. Edited excerpts:
Why this change in strategy?
Xiaomi has already cornered 22-23% share in online sales. It is indeed more profitable and scalable. We are currently selling across 15,000 pincodes in India—numerically, that’s about 40% of the whole country. Time has come for us to ramp up offline sales also.
Xiaomi handsets are now available at 8,500 retail stores, sold through five key partners, compared with 1,500 in January.
To grow our offline sales, we have introduced a new model of distribution called DTR (direct-to-retailer), which eliminates intermediaries. With our model, we have removed at least two intermediaries in the trade-distribution channel. We don’t push; retailers place orders according to their needs.
Your company has started to manufacture in India. What has been the experience like?
We have a partnership with the Foxconn Group (of Taiwan), and we use its facility to manufacture handsets in India. At least three-fourths (or 75%) of our 2.4 million handsets sold in the September quarter were made in India. We have shored up our margins significantly by manufacturing locally.
The tax benefits alone increased margins by a few percentage points.
That apart, it also creates opportunity for better working capital management. Whereas to import, one has to place orders many months in advance, the cycle contracts to a few weeks if you are manufacturing locally. We are currently manufacturing all our products locally except the Mi5 handset, which is still imported.
What led to Redmi Note 3’s huge success?
We launched Redmi Note 3 in March this year after a month’s beta testing. In the April-June quarter, it emerged to be the highest-selling handset online. In three months till June, we sold 880,000 units of the Redmi Note 3 handset, whereas the nearest competitor was less than half. We have always offered a strong product line based on our “innovation-for-everyone” philosophy.
It essentially means high quality products but at affordable prices. If you consider Redmi Note 3, it came with a Qualcomm Snapdragon 650 processor—for three months, there was no comparable product at its price. We have sold 2.3 million Redmi Note 3 handsets in the first six months since launch.
What are the key contributors to Xiaomi’s rapid growth in India?
Quite a few things have helped us to grow. After the huge success of Redmi Note 3, we launched Redmi 3S with a battery that typically lasts two days. If you look at the other end of the spectrum, our Mi Max handset has 90% share in the six-inch plus category.
Unlike our competitors, we do not advertise through conventional channels. This results in huge savings, which is factored into our pricing. Also, we allow our products to have a long lifecycle.
For instance, we sold Redmi 2, which was launched in March 2015, for 18 months. Towards the end of the lifecycle, components become very cheap and our margins go up.
As a policy, we keep margins thin on hardware—our idea is to make up for it by selling services through our operating system, MIUI.