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Chinese smartphone maker Xiaomi Corp. is facing more than just monetary difficulties in India almost a year after the Income Tax (I-T) Department and the Directorate of Enforcement (ED) together froze ~US$1 billion in the bank accounts of its local unit and brought it to its knees.

Last week, the Karnataka high court reportedly reportedly Reuters India court quashes tax dept's $448 mln block on Xiaomi's deposits -sources Read more lifted the I-T Department’s block on the company’s fixed deposits worth Rs 3,700 crore (~US$450 million).

But the Beijing-headquartered company has seen at least six top-management exits following the transfer of its head of operations in the Indian subcontinent, Manu Kumar Jain—pivotal to its success in the country—and the subsequent raids. The flurry of resignations is not limited to higher-ups; personnel at all levels have been looking for alternatives.

Moreover, in order to deal with the financial strain, the company has been closing non-core operations, such as its financial-services offerings in India.

Xiaomi’s smartphone sales, meanwhile, are losing momentum in India even though it enjoys the dominant position in the country. According to market research firm International Data Corporation (IDC), Xiaomi’s market share declined to 21% in the quarter ended September 2022, from 23% a year ago, just before the regulatory storm hit the smartphone maker.

During the September-quarter earnings call in November, Xiaomi’s vice-president and chief financial officer Alain Lam said said The Economic Times Xiaomi India a drag on parent Q3 results Read more that its profit margins in India also took a hit as the company resorted to huge discounts to clear piling inventory during the festive sales.

For Xiaomi, which shot to prominence after outperforming South Korean smartphone giant Samsung in India in 2017, this is a pivotal moment in its otherwise glorious rise in the country.

But regulatory action and the internal human-resource turmoil are not the only factors responsible for its woes. Its India strategy, poor brand positioning, high competition, and supply-chain issues have also contributed to its dwindling fortunes in the country.

The domino effect

Just a couple of months before the income-tax raids raids NDTV Tax Raids On Chinese Phone Makers In India Read more in December 2021 and the subsequent actions actions Enforcement Directorate Enforcement Directorate Press Release 29.04.2022 Read more by the Enforcement Directorate, Xiaomi moved Jain out of India.

AUTHOR

Anushka Jain

A tech law and policy enthusiast Anushka reports on technology policy for The Ken. She was previously with MediaNama.

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