How Xiaomi’s Hugo Barra plans to conquer India

Raise your hands if you’ve got big plans.
Raise your hands if you’ve got big plans.
Image: Reuters/Lucy Nicholson
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This post has been corrected.

Xiaomi has broken out of the pack to become China’s biggest smartphone manufacturer, surpassing Samsung and Apple and drawing ahead of domestic rivals like Lenovo. And the company, which is reportedly raising new funds that will give it a $50 billion valuation, isn’t stopping there. Its slow expansion into southeast Asia and especially India belies a grand ambition to apply its low-margin, high-spec model across the developing world and beyond.

Xiaomi’s India unit—called just Mi, which the company is using as an easier-to-pronounce brand outside of China—is run by Hugo Barra, the former Google executive in charge of Android who raised many industry eyebrows when he defected to Xiaomi last year. The Brazilian-born Barra has also been Xiaomi’s point person for  complaints that it has copied the iPhone’s design and doesn’t adequately protect customer data. He spoke with Quartz about his admiration for Apple, Xiaomi’s plans to become an e-commerce giant, and why India is the company’s biggest focus outside of mainland China.

Could you tell us your plans for Xiaomi in India?

We are essentially building a company from scratch here. It’s not Xiaomi, it’s not Xiaomi India, it’s Mi India. That is the brand.

But it is a 100% subsidiary of Xiaomi.

Of course. But I do think of it as building another company and that is an important distinction. It’s not like we are just building a sales office. That is why it was important to spend time finding the right people to run the business here.

Already we have a significant operation here. It involves getting our products from the plants to here and to Flipkart’s warehouses. That in itself is getting fairly complicated. In October, we had [an] entire plane full of products flying down from Hong Kong.

This means we need people here who are paying attention to delivery. We have a customer support operation that is well trained. And we have to focus on building an after-sales network. People from more and more remote areas in India are buying Mi phones now and right now people are having to travel long distances to get to a service centre. We only have about 40 service centers, but even when we get to 100, that is of course nearly not enough to cover the whole country.

Then of course there is the big piece, which is building our own e-commerce business here.

You are going to build your own platform here?

We are China’s third largest e-commerce company. We sell our own products from our own website.

Selling Xiaomi products alone makes you China’s third largest e-commerce company?

Soon the second. We are going to pass JD soon.

So how come you can’t seem to get enough Xiaomi phones to Indian customers who clearly can’t seem to get enough of them?

We are here not to sell phones and dominate. We are here for the long run, and we want to brand ourselves into the fabric of this country. We need to start small, we need to listen, iterate. We probably could sell 10 lakh (1 million) phones at one go—I’m not sure, but we probably could. But just imagine the burden that comes with supporting that many phones all at once. What if there is a problem?

 So we take our time, we ramp up carefully; we take feedback very, very seriously. The whole operation has to scale, we can’t just have a sales spike.

The third part is getting the whole R&D machinery to build and layer all the India-specific services into the Mi experience. There is a lot that we want to do and for that we have to build an R&D team here.

Are you going to one day make Xiaomi products in India?

We will, for sure, write software here. We certainly are also considering the possibility of manufacturing through partners. We don’t make products ourselves. We use Foxconn and others to do the manufacturing for us. We are here for the long run and it might make a lot of sense to be able to make [devices] here.

When you came to India, how many phones were you expecting to sell and how many have you actually ended up selling?

When we came here, we were planning to sell a few thousand phones and we were concerned if that target might be met. In the first two weeks alone, we sold 20,000 phones. The first sale was a bit turbulent because we had some technical issues with Flipkart facing enormous traffic. By the end of October, we will be selling up to 100,000 phones per week.

In a market with every possible kind of phone available, both by international and local brands, why do you think there is still this kind of demand for Mi phones?

 I think it’s a combination of factors. First of all we make really good products. The reviews have been amazing. I pay very close attention to reviews and see what we need to do differently and what we are doing well. For Redmi, the return rate has been less than 1%.

What about Mi 3 phones?

It’s a little bit higher because of the SIM tray issue. Because of a logistics goof-up, we couldn’t ship the micro SIM card tray with the phones. Huge mistake. Even so, the return rates were very low, particularly considering the fact that Flipkart has a thirty-day, no-questions-asked return policy.

You don’t have the same returns policy in China?

No, we don’t. There it’s seven days and there are some conditions. We go by the market standards there.

And the third factor of course is the price. We are selling incredibly high-spec devices at very aggressive prices.

Is it true that when the lifecycle of a Xiaomi product begins, you sell it at cost and make money as the cost of components come down?

We sometimes sell it at cost, sometimes a bit above cost and sometimes a bit below cost. We don’t make that many products. If you look at our portfolio, it’s very small. And we really build products that we think can sell for a long time.

To give you an idea, Redmi and Redmi 1S, which are basically the same device—as in the fixed costs are the same for us—have been selling for more than a year. And it’s ramping up. Mi 2S is just coming to end of life, two years later.

This is more than what most manufacturers manage to get out…

Much, much more. Very few products, such as the (Samsung) Galaxy S3, manage to survive that long. The Galaxy S3 is still selling. Very few products have that kind of longevity.

What has happened to the Mi 3? Have you stopped selling it?

We are shifting the production capacity for Mi 3. In India, Mi 4 will replace Mi 3. Mi 3 is a great example of a product where the cost of the materials and components came down fast enough that we were able to bring the prices down. So rather than making very large margins, we are able to keep prices aggressive.

Why did you decide to move to Bangalore?

Because we are here to build Mi India. We are not here to open a sales office or a branch office. India is currently the company’s biggest focus after our domestic market.

What new things are you planning to do in India?

We want to build an Internet platform that is delivered through these devices. We plan to partner with a whole lot of companies and build layers of services into the operating system. Take for instance the process of topping up your phone account or checking the balance. It’s incredibly cumbersome with a majority of the operators. Why isn’t it just integrated into the operating system? Why can’t you just go to the dialer on a phone and just use a tab there to recharge? You shouldn’t need a whole app or a web platform for this. We are going to do a whole lot of these, many of which involves working with startups.

It’s a major undertaking. It’s a task with the same level of complexity as building an operating system.

Truecaller, for instance, is a great example of a company that is not an Indian company but has done really well in India. They have built a whole dialer app. The dialer is a special kind of app. Nobody will let them replace the native dialer with their product. We are going to partner with them and integrate their dialer directly into our dialer. The result would be a native dialer that is much smarter and much more interesting that what is commonly found.

Why do you need your own e-commerce business to sell your products?

Because it becomes an integrated experience. You can log on to our website with the same username and password that you use to set up the Mi account on your phone. You feel like you are home the whole time. If you have a problem, you are talking to our people. You can track your order on our website. We like to have control over the complete experience for a customer.

Flipkart is our partner for life. We will work with them a very long time. Flipkart is one of the world’s foremost e-commerce companies. I put them right up there with Amazon and I put them ahead of most other e-commerce companies anywhere in the world.

Since you moved here, what has been your assessment of India’s tech ecosystem?

I think India is right in the middle of a tech renaissance, where it is definitely transitioning from being an IT outsourcing, business process automation, back-end type of work to a source of innovation.

Where our office is in Bangalore, we are right next to InMobi and a bunch of other exciting companies. It feels like Silicon Valley. Bangalore feels like Silicon Valley in many ways already. India today has the same number of Internet users as China had, say, in 2007-08.

You see that as sort of an inflection point?

Yes, except that India is going to go through that inflection point at a much faster rate. If you compare what the internet and startup scene was in China seven or eight years ago, it doesn’t even begin to compare with how thriving it is in India right now.

In many ways I feel privileged and honoured to be here at this point in time. Because I know that five years down the line, I’ll be able to say, I was there, in 2014!

The amazing thing about India is that India has scale, both as a consumer market and as a source of talent. You have amazing engineering schools. We also have an influx of people coming back. One of my friends from Google is coming back. Flipkart is in fact hiring most of them. It is on a mission to hire from around the world all the Indian engineers who wants to come back and they are very successful at it.

One of the things I’m trying to do here is to build bridges with the local startup scene with a couple of things in mind. One of the things is to find companies that are building stuff that we can integrate into our system. We also believe that being part of the ecosystem, being a local, means we should try and help develop it. So we firmly intend to make small, seed investments in companies, alongside, of course, bigger investments. That is a small contribution, but that is also a good way to build friends. We love to have as many friends as we can.

How did the controversy over Mi phones sending data back to Chinese servers affect your business? What are you doing about it?

We take personal data very seriously. They were reports in the media that were both exaggerated and inaccurate in many ways. We have addressed most of the concerns that were raised. I myself wrote a couple of very detailed posts explaining the accurate position.

You will also see more communication from us in coming months about what exactly happens with our servers, and what kind of data is collected or stored and what isn’t.

But as a consequence, are you for instance considering moving some of the servers to India?

So we are in the process of moving most of our servers dealing with our international users to Singapore, which is, from a network perspective, an ideal hub, because Singapore has good connections both to the US as well as to Asia. We use AWS (Amazon Web Service) and they have their data centre in Singapore. We will eventually move most of our backend to Singapore with one goal in mind—performance optimization.

The consequence of that is that it brings some level of confidence in some people.

Does Apple still make the best smartphones in the world, or are competitors like Xiaomi and One Plus One closing the gap?

Well, I’m a huge Apple fan. I’m very biased. I don’t think there is a company in the world today or there will be a company in the world today that operates at such a distance from its rivals. I think Apple is extraordinary.

What are your thoughts on One Plus One?

I really like what they are doing. I really love the One Plus One phone. I love some of the backs [rear phone panels] that they have introduced. I think it’s a beautiful device. The software is not quite my preference, it’s not something I would choose, but I think it’s an extraordinary device.

What other devices are you bringing to India?

Redmi Note is next. We have already brought the power bank. Then we will see. There is the Mi4. And the TV is something we want to do. We have an amazing TV. It’s 4k, 49 inches. It retails for under Rs40,000. I’m not saying this will be the price in India, I’m just converting the price.

An earlier version of this post quoted Barra saying that Xiaomi had 100 service centres in India; it actually has 40. The post also quoted Barra saying that by the end of October, the company had sold 100,000 phones in India; it actually had reached a sales rate of up to 100,000 phone per week by the end of October.