Xiaomi fights law enforcement and competition in India


As the managing director who brought smartphone vendor Xiaomi to India in 2014, Manu Kumar Jain was the face of the Chinese company. He even danced in his advertising campaigns.

Under Jain, Xiaomi’s rise was rapid. It has grown from 6% of the Indian smartphone market in 2016 to 27% three years later, beating Indian brands and South Korean Samsung and paving the way for other Chinese brands. Today, about three-quarters of the Indian market is controlled by Chinese companies.

With Jain leading India’s mobile phone revolution, Xiaomi claims to have sold over 200 million smartphones in a $38 billion market. But that meteoric rise is under threat, with Indian financial law enforcement authorities accusing Xiaomi of illegally transferring $725 million overseas.

The case is being watched for what it means for the future of Chinese tech groups in India, as previously decimated local competition tentatively revives. Billionaire Mukesh Ambani launched the affordable “JioPhone Next” last year, although it has yet to make an impact.

India has a difficult relationship with the Chinese technology on which it relies. After deadly border clashes in 2020, it banned many Chinese apps, including several made by Xiaomi, while making clear that telecom companies should not use Huawei technology.

Given “escalating geopolitical tensions between India and China, many might be tempted to view this investigation as part of an orchestrated campaign against Chinese economic interests in India,” said Promod Nair, a lawyer. major.

Indian courts must “resolve the dispute quickly and dispassionately to dispel any misgivings foreign investors may have about the investment climate”, Nair added.

Although Xiaomi is not provisioning losses, problems with Indian authorities create more challenges as it defends its dominance in the rapidly growing market and faces investor doubts – the share price of Xiaomi has fallen 40% in Hong Kong this year.

When it arrived in India, “Xiaomi came and took the market by storm,” said Prachir Singh, an analyst at Counterpoint Research.

Xiaomi moved faster than competitors to deliver 4G-enabled handsets when Ambani’s Jio mobile network turned India’s telecom market upside down in 2016 with cheap 4G services. He cut costs by selling Redmi phones online for less than 10,000 rupees ($130) through e-commerce platforms such as Amazon and Flipkart, at a time when, Singh said, “nobody thought that could be done in an online scenario”.

Through partnerships, including with Taiwan’s Foxconn, Xiaomi’s phones were largely made in India under the government’s “Make in India” program. Jain posted selfies with Prime Minister Narendra Modi.

But rival low-cost Chinese brands are now threatening its market share – Oppo, Vivo and realme arrived after Xiaomi disrupted the market.

Xiaomi said it reduced its “small changes” to its market share to “supply chain disruption”. We are waiting [the] the supply situation normalizes by the end of this year.

In an effort to reduce its reliance on the Redmi brand, still its biggest seller, Xiaomi is expanding into the high-end smartphone segment. It has dabbled in wearable devices and is India’s top smart TV seller. Increasing its physical presence, Xiaomi says offline now accounts for “half” of its smartphone sales.

But Xiaomi India has taken a hit to its financial results during the pandemic. Documents filed with India’s Ministry of Commerce show that Xiaomi India’s after-tax profits fell 31% for the fiscal year ending March 31, 2021, from 4 billion rupees ($51 million) to 2. 8 billion rupees.

“No one bothers to discuss profitability,” said a former executive. “You can’t stay a start-up for more than four years.”

In India, legal experts say Modi’s government is aggressive in prosecuting companies. Samsung was stung by tax evasion charges last year, and US company Amway had its assets frozen this year.

“The regulatory intensity in the country under this government has generally been very high,” said Debanshu Mukherjee, co-founder of the Vidhi Center for Legal Policy in New Delhi. “Their (law enforcement) prioritization sometimes seems loaded with politics.”

However, Mukherjee added, “It’s not that they would go after people without any violations.”

Xiaomi’s woes began in December when Indian tax authorities raided the premises of “foreign-owned” mobile phone companies. A few days later, the Tax Intelligence Directorate alleged that Xiaomi had “escaped[ed] customs duties,” and asked Xiaomi to pay around $85 million.

Then last month India’s Law Enforcement Directorate alleged that since 2015 Xiaomi had breached strict foreign currency laws by sending $725 million out of India labeled as royalties. , “on the instructions of the entities of their Chinese parent group”.

Xiaomi denies the illegal payments and its lawyers say other companies made payments to an uncensored U.S. company.

But the $725 million freeze on Xiaomi’s bank accounts left Xiaomi “unable to pay wages/salaries to its employees”, Xiaomi lawyers told a High Court judge, who cleared Xiaomi to use his accounts for business expenses, according to court documents.

The dispute turned acrimonious when the Law Enforcement Branch denied allegations that its officials threatened Xiaomi executives, including Jain, triggering a diplomatic salvo from China.

The Chinese Embassy said it hoped “the Indian side can provide a fair, just and non-discriminatory business environment for Chinese companies.”

Meanwhile, Jain, once a symbol of how Xiaomi burst onto the Indian tech scene, is no longer in charge. He is located in Dubai and is now global vice president of Xiaomi, according to his Twitter profile.

Xiaomi said that since mid-2021, its India business has been managed by chief operating officer Muralikrishnan B, chief commercial officer Raghu Reddy and chief financial officer Sameer BS Rao. Despite Jain’s departure, Xiaomi insisted “there is no leadership vacuum”.


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