From tax turmoil to declining sales, Xiaomi's double struggle in India

arts/

This year is really not a good year for Xiaomi's India to go overseas.

On the one hand, Xiaomi has to keep responding to the tax review by the Indian authorities. On April 30, the law enforcement agency under the Ministry of Finance of India issued an announcement showing that because Xiaomi (India) illegally remits money to overseas institutions, 555.1% of the bank account of Xiaomi India will be seized. billion rupees (about 4.8 billion yuan) in assets.

On the other hand, Xiaomi has to deal with personnel changes within India . According to media reports, Xiaomi Global Vice President Manu Jain has been summoned by the Indian Bureau of Enforcement to investigate its foreign exchange compliance. However, according to the LinkedIn page, Manu Jain's positioning has become Dubai, and the position of "Head of Xiaomi India" has been erased, and only the position of global vice president of Xiaomi has been retained.

Under the background of tax investigation and declining sales, how should Xiaomi's India calamity be spent?

Inseparable from India's Xiaomi

For Xiaomi, the Indian market is too important.

In 2014, Xiaomi took India as its first international stop and started a mighty overseas trip . In March of the same year, Xiaomi launched its first smartphone, the Mi 3, in India, but it was only sold through online channels at the time. Under the control of Hugo Barra, a former spokesman for Google's Android products, and Manu Kumar Jain, the head of local operations, Xiaomi chose to enter the Indian market with the well-known The e-commerce company Flipkart has cooperated to replicate the mature domestic "hunger marketing" and cost-effective strategies to India.

This model has proven to be very effective. Just two years after entering the market, Xiaomi’s India business revenue exceeded $1 billion in 2016 and achieved profitability . But what really made Xiaomi take off in the Indian market was a new policy from local operators. In September 2016, Indian telecom operator Jio announced that it would provide 4G services to Indian users for free. In less than half a year, Jio's move has won more than 100 million 4G users for it. Such a strategy also benefits smartphone synchronization.

In addition, Xiaomi also quickly started localized production . In 2015, the second year that Xiaomi entered the Indian market, it made a commitment to the Indian government with Foxconn to invest 3.5 billion US dollars to set up a production line in India, and then the production line jointly established by the two parties was completed and put into production. The enhanced version of Mi Phone 2 is produced by Foxconn's Indian factory.

In 2017, Xiaomi set up its second mobile phone factory and its first mobile power supply factory in India. In 2020, when the global epidemic disrupted the supply chain, Xiaomi immediately found three new partners - BYD, DBG and Radiant, to jointly build factories and produce Xiaomi equipment in India.

Today, Xiaomi has 7 manufacturing plants in India that can produce 3 Xiaomi phones per second. 99% of the phones Xiaomi sells in India are made in India.

In addition, in India, Xiaomi has also invested in many Indian companies with Shunwei Capital, such as online micro-loan platform KrazyBee, online music and video supplier Hungama Digital Media Entertainment, second-hand mobile phone recycling and repair company Cashify, etc., in order to form a localized ecosystem . Xiaomi India is like a separate kingdom until the international business changes at the end of 2021.

There is no doubt that Xiaomi is important to India. These factories of Xiaomi have created no less than 20,000 jobs in India, and more than 95% of them are female employees. It can be said that Xiaomi has fulfilled Indian Prime Minister Modi's "Made in India" wishes and boosted the local economy.

Of course, for Xiaomi, India is also important. Xiaomi's early presence in the Indian market can be said to be "like a duck to water". It only took three years to become the largest mobile phone manufacturer in the Indian market. At its peak, Xiaomi occupied 30% of the Indian market; for every three mobile phones sold in India, one was Xiaomi.

After that, Xiaomi was even more "dominant" in the Indian market. According to data from market research institutions such as IDC, Counterpoint, and Canalys, from 2018 to 2021, Xiaomi's smartphone market share in India was 28.9%, 28.6%, and 26%, respectively. %, 24%, basically stabilizing the status of India's largest mobile phone brand.

In 2021, Xiaomi's international revenue will keep pace with domestic revenue. In 2020, Xiaomi already has 41 million shipments in India, more than a quarter of Xiaomi's global shipments. According to Xiaomi’s latest financial report, Xiaomi’s overseas market revenue in 2021 is RMB 163.6 billion, a year-on-year increase of 33.7%, accounting for 49.8% of total revenue. As the first stop of Xiaomi's internationalization, India naturally occupies an important position in the international market.

Good flowers don't bloom often, and the situation is difficult to be clear

It seems that the cooperation between Xiaomi and the Indian government is a mutually beneficial win-win situation, but in fact, India has always been very cautious in dealing with these swarms of overseas manufacturers. The government's enthusiasm is limited, and it is more about interests game.

India certainly does not want to be a dumping ground for goods. In 2014, the Modi government proposed the "Make in India" program, which raised import duties. By 2016, India had demanded an import tax of up to 29% on accessories such as batteries and chargers, which is why companies such as Xiaomi conduct localized production in India. Interests are forever friends, and because of interests, Xiaomi and India have been able to go smoothly in the past few years.

However, when Chinese manufacturers are too strong, India is no longer satisfied with the existing gains. You must know that the Indian mobile phone market is huge, selling 161 million units a year, but they are all dominated by Chinese mobile phone manufacturers. In India's smartphone market in 2021, Xiaomi accounted for 25%, ranking first; Samsung ranked second, accounting for 19%; ViVO accounted for 16%, ranking third; realme accounted for 15%, ranking fourth; OPPO accounted for 12% , ranked fifth. In other words, Chinese mobile phone manufacturers occupy more than half of the Indian market and grab most of the profits.

You must know that exchanging the market for employment and the market for the supply chain is the original goal of India to open the market to Chinese mobile phone brands. After several years of development, India's mobile phone manufacturing industry chain has matured. Therefore, in order to foster local mobile phone brands, it is necessary to suppress Chinese mobile phone manufacturers, which is also the only way for local mobile phone manufacturers in India to rise.

In this context, the once friendly and mutually beneficial situation quickly changed. In June 2020, India followed the footsteps of the United States and permanently banned 59 Chinese apps under the pretext of "national security", among which the Xiaomi browser was listed impressively. In response to India's blacklist, Xiaomi launched a new MIUI system in India, which does not pre-install any apps banned in India, including Xiaomi's own browser. This is the first time that the Indian authorities have attacked Xiaomi. Of course, banning Chinese apps is not just for Xiaomi. On July 27, 2020, another 275 Chinese apps were included in the banned "list".

The ban was followed by frequent censorship. In October 2021, India's Ministry of Electronics and Information Technology issued a notice to vivo, OPPO, Xiaomi and OnePlus for data and details on these phones and their components, saying a second notice could be issued in the next few weeks, Involves requiring these phones to be tested.

After the investigation, in January 2022, the Ministry of Finance of India asked Xiaomi India to pay an import tax of 6.53 billion rupees (about 550 million yuan). Xiaomi, which has always been smooth sailing in India, suffered such a huge setback for the first time. It is worth noting that after Xiaomi entered the Indian market, the most profitable year was only 350 million yuan. The tax bill issued by India can be said to be sky-high for Xiaomi .

Just four months after the tax review, on May 1, Xiaomi was hit again. Indian authorities said that an investigation found that Chinese smartphone maker Xiaomi Group had illegally sent money to foreign entities in the form of pretending to pay royalties. Authorities had seized 55.51 billion rupees (about 4.79 billion yuan) from Xiaomi's local bank account in India. .

At the same time, Manu Kumar Jain (hereinafter referred to as Manu), the global vice president of Xiaomi, was summoned by the Indian Law Enforcement Agency to investigate its foreign exchange compliance. While the subpoena itself is surprising, what is even more interesting is that Manu's position at Xiaomi has become the former general manager of Xiaomi India. Late last year, he ceased running the India office and left the country to move to Dubai.

Manu has been instrumental in the development of Xiaomi India over the years. In 2014, Xiaomi India settled in Bangalore. At that time, the office only had 6 workstations, and Manu was the head of Xiaomi India business. Under his leadership, Xiaomi India has gradually become the largest smartphone maker in the country. The change of Manu's position has caused a lot of speculation. After all, when Manu's position was adjusted, Xiaomi was being made difficult by the Indian government.

On May 6, the Indian court lifted the freeze on Xiaomi’s assets of 55.51 billion rupees (about 4.79 billion yuan). However, the Indian authorities required Xiaomi to notify the transfer of funds such as royalties.

Good flowers don’t bloom often. Since 2020, the Indian authorities have banned hundreds of Chinese apps, and foreign investment policies have been changed rapidly. Xiaomi’s situation in India has become increasingly unclear.

Xiaomi's double struggle in India

In addition to facing allegations of illegal remittances by Indian financial enforcement authorities, Xiaomi also needs to face fierce competition in the Indian market in order to maintain its dominant position.

You know, India is the largest country in South Asia, the fifth largest economy in the world, the world's fastest growing large economy identified by the International Monetary Fund (IMF), and the fourth most attractive investment market in the world. At the same time, India also has the second largest population in the world, and is the third largest consumer market in the world due to rapid urbanization. The huge total population means that the country has a huge market demand and also contains huge development potential .

In the face of India's cake, specific to the mobile phone industry, each mobile phone manufacturer naturally wants to find its own position in India, such as Xiaomi's cost-effectiveness and OnePlus' focus on high-end. All price segments in India are dominated by Chinese manufacturers, and Chinese mobile phones have accelerated the popularity of smartphones in India.

Of course, the Indian market does not bring much profit. In addition to the high price that OnePlus once sold, the core of the Indian market is the price war . This is not a problem for Chinese manufacturers with extremely developed supply chains.

The OPPO-based realme entered the Indian market three years later than Xiaomi. By the first quarter of 2022, it has rushed to the third place in the market and is the only Chinese brand that is still growing. Realme's strategy is almost a replica of Xiaomi. The average price of realme is the lowest among domestic manufacturers, only $142. And these low-cost competitors from China are now threatening Xiaomi's market share. It is obviously more and more difficult for Xiaomi to share food in India - Xiaomi's mobile phone market share in India is declining year by year .

From the development of Xiaomi, it is not difficult to see the logic of Xiaomi's market layout, that is, the first step to open the domestic market, when sales in the domestic market declined, the Indian and Southeast Asian markets rose strongly, and when the wind was smooth, Xiaomi opened Japan, Europe, and the Americas. The market, so far, the Xiaomi brand has blossomed all over the world. On the surface, Xiaomi is going all the way up, but in fact, Xiaomi is replicating the trajectory of the domestic market every step of the way.

Today, the crisis in Xiaomi's largest overseas market, the Indian market, reflects Xiaomi's crisis. You must know that the biggest problem of the machine sea tactics is that the product characteristics are gradually blurred in the user's psychology, which finally affects the influence and sales of the entire brand. The fundamental reason for the decline of Xiaomi's domestic market and the current decline in the Indian market is the blurring of brand characteristics.

In the past, the most prominent label on Xiaomi was cost-effectiveness, but it was successful because of cost-effectiveness, but now it is trapped in cost-effectiveness. Although in the past two years, Xiaomi's digital product series has consciously got rid of the shackles of cost performance and can compete with the most high-end products in the mobile phone market, it is obvious that the lack of core technology and autonomous systems still makes Xiaomi's development to the high-end route cautious and difficult. .

In the final analysis, Xiaomi has not been able to tell a clear story to the capital market so far, which also determines that Xiaomi’s ideal of multiplying the market value of Tencent by Apple is unrealistic, because the capital market does not pay. Lei Jun has promised in public that the comprehensive profit margin of Xiaomi hardware will not exceed 5%. Looking at all the listed companies in the world, those companies whose price-earnings ratios are dozens or hundreds of times will eventually land with extremely high profit margins .

It's time for Xiaomi to reflect on how to operate a product in a market for a long time, instead of repeatedly expanding into new markets, otherwise it will be futile in the end. The market developed by itself is just an early education for users.