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Fuelled by value-for-money phones, Xiaomi draws level with leader Samsung in India

Online shoppers in India have powered Xiaomi to unprecedented success at the expense of Indian manufacturers. Now, it's Samsung's turn to be worried.

In 2014, Chinese smartphone maker Xiaomi made people sit up and take notice in India when its 40,000 Redmi 1S phones were snapped up in a fleeting 4.2 seconds.

By the end of that year it had managed to grab on to a respectable 4 percent of the market share, but it's over the last year that Xiaomi has really turned the jets on. It has soared from 6 percent towards the end of 2016 to a staggering 22.5 percent in the quarter ending September this year, tripling its shipments by selling 9 million units, and drawing abreast with market leader Samsung.

WHY XIAOMI SOARED IN INDIA

This has been a remarkable achievement for a few reasons. One, it was generally understood that any Chinese company, especially Xiaomi, would have a long and arduous road to becoming a major player. Sure, Xiaomi is the online king in India today -- holding more than a 50 percent share of smartphones sold over the internet -- and yes, smartphones comprise a hefty 35 percent of stuff sold online. However, only 25 percent of India's population is online.

For a smartphone company to win in India meant establishing a streamlined national distribution channel, or so it was thought. It was also understood that the ones with the expertise, local knowledge, and scale to do so were either Indian companies or the well-entrenched goliath Samsung. And yet, it is Xiaomi, not the Indians or Samsung, that has turned out to be the outsized success. And distribution hasn't been the linchpin of its fortunes.

The second reason for the company's gaudy numbers has been its products. Phones like the Redmi Note 4 have seen blockbuster sales in India largely because of the value it provides for its price. In fact, three of the five highest-selling smartphones in India between July and September this year were made by Xiaomi, according to Counterpoint Research.

While Xiaomi has sky-rocketed, Indian companies like Micromax and Intex, who once were predictably in the top five, have simply been smashed by the Chinese smartphone onslaught. They lost 35 percent of the market share collectively,because they just don't seem to be innovating enough, say industry insiders.

Companies like Xiaomi, along with its Chinese brethren Oppo and Gionee who now collectively own over 50 percent of India's smartphone market, do so continuously. Their combination of chic designs as well as superior cameras and chipsets have blown the Indian competition, with their near identical, indistinguishable phones, away.

But surely a company like Samsung, with its well-knit distribution and storied brand in a notoriously price and brand sensitive country should be doing better?

LESS IS MORE

The fact is, Samsung's wide array of products may actually be its Achilles' heel. The Korean company has a flood of products, 13 to be precise, in the popular 8,000 rupee ($125) to 15,000 rupee ($234) band, which makes up 45 percent of sales in India versus Xiaomi's six. Yet, it has been unable to even come close to the runaway successes that phones like the Xiaomi Redmi Note 4 have been, and any potential rival is an outdated model.

In a short period of time, Xiaomi has basically cornered the market in what has turned out to be the most important smartphone category. It is not the low-end, mass market one or the premium slot, but the 10,000 rupee ($156) to 15,000 rupee ($234) value-for-money end where the real action seems to be taking place. Here, Samsung is a virtual no-show.

ROLE REVERSAL

Ironically, both companies want to be a little more like the other. Xiaomi is aggressively spreading its tentacles in the offline world, opening direct stores called Mi Home, forging alliances with larger retail chains like Croma, and planning to have a presence in 1,500 retail stores across the country in 30 cities, up from its current 600 in 12. Samsung, meanwhile, is scrambling to beef up its online presence so it can stem the flow of its erstwhile fans that are heading to its Chinese rival.

The volatile realm of smartphones means that fame and success are often fleeting. Both companies would do well to remember the fortunes of Nokia, once India's most famous phone brand. It had an impregnable fortress of wildly successful phones which commanded a 75 percent market share in feature phones a decade or so ago, and which virtually disappeared overnight when the smartphone craze took over.

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