Manu Jain says the company’s business model has helped bring down costs drastically without compromising on quality
Image: Nishant Ratnakar
Q. What helped Xiaomi’s rise in India in a short period of three-plus years?
We were a small, young startup with competitors that had thousands of employees working for them for over a decade. Now, we have either overtaken them or reached the same level with just 300 employees. So, of course, a lot of things have gone right for us.
First, the ability to bring to the market really high-end, high-quality products at very affordable prices. That is the core. If you’re not able to do that, nothing else will help. Redmi Note 4 is a great example.
This year, all the top three selling phones in India are Xiaomi’s. Note 4 is No 1, No 2 is Redmi 4 and No 3 Redmi 4A. For each of these phones, we were able to do something remarkable. For example, phones with similar specifications as the Redmi Note 4 were being sold at ₹25,000 to ₹30,000. We were able to launch it—with 4GB RAM, 64GB internal storage and Snapdragon 625 processor—at ₹13,000. We launched a 10,000 mAh power bank on November 21, our first made-in-India power bank. It has a lithium polymer battery, and a full PCB [printed circuit board] inside, providing nine levels of protection. The case is made of anodised aluminum, versus the plastic bodies of competing products. And we have launched it at ₹799.
The second thing that has worked for us is our investments and commitment to India. We have two big factories now [Foxconn’s facility in Sri City in Andhra Pradesh] and have launched a third [in collaboration with contract manufacturer Hipad Technology in Noida] for power banks. We have set up an R&D centre in Bengaluru, we’re designing features specific to India, we’ve set up three big call centres in India—in Indore, Bengaluru and Chennai. We also have five big warehouses—two in Bengaluru, two in Delhi-NCR and one in Mumbai—26 smaller warehouses, and more than 600 service centres across the country. A lot of infrastructure development has happened over the last three years. And we’ve brought the entire ecosystem to India: Whatever we’ve done in China, we’ve done here. Infrastructure, R&D, services, logistics, we’ve built end-to-end and that has helped us a lot.
The third thing is our innovative business model. If you look at other brands, they make money from hardware. Our aim is not to make money from hardware, but from our software, our internet services, and MIUI (Xiaomi’s phone operating system, based on Android).
Our business model has helped us bring down costs drastically without compromising on quality. We have just-in-time manufacturing, whatever we produce every week we sell every week, and the leanest distribution structure in the country. We have had a very low marketing budget for the first three years. Now, we’ve started doing a few things, we’ve had a few TV ads, we’re working with actor Katrina Kaif on the Redmi Y1 series.
We cut down all these costs to pass on the benefit to our customers, and, of course, we had very little margin. We make money from the internet. We make small amounts over a long period of two to three years, rather than as a one-time amount. It’s a difference of philosophy and of business model.
Three years ago, while everybody wanted to go offline, we wanted to go online. And even when we went offline, we did it differently. In Bengaluru, some competitors will have their phones available in 1,000 stores. We are selling only through 50 stores and we have close to 25 percent market share in the offline part in Bengaluru. So we’ve gone very deep, instead of wide. Today, every other phone sold online in India is a Xiaomi and overall, in India, we have 23.5 percent market share (July-September 2017 period).
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(This story appears in the 22 December, 2017 issue of Forbes India. To visit our Archives, click here.)