Xiaomi's India business is like a needle felt: the former leader was summoned, and billions of assets were frozen

Source | Zhixiang Network (ID:passagegroup)

Author | Peng Hui

Edit | Xie Weiping

\ This article totals 3616 words, expected to read 9 minutes /

In the past two months, Xiaomi India can be described as a needle felt.

On the one hand, india authorities seized $725 million from the company's bank accounts in India last week, saying it was illegally sending money overseas "in the name of royalties." Curiously, on May 6, indian courts lifted the freeze on Xiaomi's $725 million (about 4.8 billion yuan) assets.

On the other hand, there is also a need to deal with internal personnel changes in India.

In April 2022, foreign media reported that Manu Kumar Jain, xiaomi's global vice president (hereinafter referred to as Manu), has been summoned by the Enforcement Directorate of India to investigate its foreign exchange compliance. "The Enforcement Agency has been investigating the company since February as early as February and has asked Manu, xiaomi's former india general manager, to appear in court in recent weeks," the sources said.

While the subpoena itself is surprising, what is even more striking in the industry is that Manu's close relationship with Xiaomi is gone, and his position has become the former general manager of Xiaomi India. At the end of last year, he stopped taking responsibility for the operation of the Indian office and quietly left the country and moved to Dubai.

According to the LinkedIn page, Manu's positioning has become Dubai, and the position has been erased as the head of Xiaomi India, retaining only the position of Global Vice President of Xiaomi. News on India Today mentions that both Xiaomi and Manuben are silent about Manu's job adjustments.

Over the years, Manu has played a pivotal role in the development of Xiaomi India. In 2014, Xiaomi India settled in Bangalore, and at that time, the office had only 6 seats, with Manu as the head of Xiaomi India business. Under his leadership, Xiaomi India has gradually become the largest smartphone manufacturer in the country.

In 2017, Manu was promoted to Vice President of the World and is also the Managing Director of Xiaomi India, where he is also responsible for other subcontinent markets such as Bangladesh and Sri Lanka.

At the time of Manu's adjustment, Xiaomi is being harassed by the Indian government.

A person familiar with the matter, speaking on condition of anonymity, said Manu would oversee the company's global strategy, adding that Manu was only a temporary role when he arrived in Dubai late last year, which in itself was a rather unusual move.

Indian heroes live in Dubai

Public reports show that at the end of 2021, Xiaomi carried out a drastic reform of the international business department, in order to open up various regions and channels, focusing on the overseas sales regions originally divided by regions, the international network-wide e-commerce sales department, operators and business development departments divided by channels, and the Indian regional operation department that originally did not belong to the international business department, etc., into the international "sales department", which was responsible for Xiang Zheng and reported to Lu Weibing, president of the international business department.

The change in Manu's position has led to much speculation.

According to people familiar with the matter, Manu resigned as managing director of the Indian subsidiary in October 2021. In An interview with Business Standard in February, Manu, still head of Xiaomi's India business, talked about the challenges Xiaomi faced in India last year.

According to documents filed with the Registrar of Companies, Manu remains a member of Xiaomi India's board of directors and resigned as a director in February. Manu wrote in his resignation letter: "I moved abroad for my global position."

However, just a month later, in March, Xiaomi India held its first offline press conference since the new crown epidemic, and Manu was unexpectedly absent. At that time, the media responded that Manu was working in Dubai at the time and was unable to attend the event. But the Indian media pointed out that the fact that Manu no longer leads the Indian company has never been mentioned.

Manu's current job in Dubai is unknown. The UAE and the wider Arabian Peninsula are a much smaller market compared to the Indian subcontinent, so Manu is unlikely to be in charge there. In addition, Xiaomi already has a country manager in Arjun Batra, UAE, who was only promoted to that position in April 2021.

All along, Xiaomi has not commented on Manu's job change. While Xiaomi may soon announce Manu's new jobs and responsibilities, it remains an indisputable fact that the past few months have been a thrilling time for Xiaomi India.

It is worth mentioning that Manu did not participate in Xiaomi's recent launch in India, and he is not as active on Twitter as before. Rumor has it that he now lives and works in Dubai, and it wasn't until recently that Manu's profile on LinkedIn updated the location of Dubai.

To this end, when Zhixiang asked Xiaomi's domestic public relations team for relevant information, it was told that its public relations team was transferring, and there was no response to the business changes in the Indian market and Manu's position changes. At the same time, Zhixiang also sent a verification email to Kasturi Paladhi, the head of public relations of Xiaomi India, and did not receive a reply as of press time.

According to a person familiar with the matter, there is no designated successor after Manu, and Xiaomi India is currently mainly operated by chief operating officer Muralikrishnan B and chief commercial officer Raghu Reddy. All of this is a good illustration of how Manu's move could have been a hasty, ill-conceived decision. Speculation is that Manu could easily detect the government's impending censorship. Given his connections and influence, this is not entirely impossible.

Tax conundrum

According to a court document seen by Reuters, Xiaomi claimed its executives faced threats of "physical violence" and coercion when questioned by India's financial crime fighting apparatus.

Xiaomi said in a filing filed on May 4 that officials on the executive board warned Manu and current chief financial officer Flamer B.S. Rao, as well as their families, that there would be "dire consequences" if they did not submit a statement as required by the agency. After public media coverage, India's Law Enforcement Agency issued a statement calling Xiaomi's allegations "untrue and baseless" and that company executives "voluntarily resigned in the most favorable circumstances."

Xiaomi has been under investigation since February. Last week, Indian authorities seized $725 million from the company's bank accounts in India, saying the company illegally sent money overseas "in the name of royalties."

Xiaomi's court documents say that during the investigation, Indian agency officials "ordered and coerced" On April 26 ,"under extreme coercion" Rao, Xiaomi's chief financial officer in India, added a verdict to the statement, writing: "I acknowledge that XTIPL (i.e. Xiaomi India) has paid royalties on the instructions of certain members of the Xiaomi Group." A day later, on April 27, Rao withdrew his statement, saying it was "not voluntary, it was made under duress." Two days later, the board issued an order to freeze assets in Xiaomi's bank account.

On May 6, Indian courts lifted the freeze on Xiaomi's US$725 million (about 4.8 billion yuan) assets, but the Indian authorities asked Xiaomi to notify xiaomi of the transfer of funds such as royalties. According to the Indian court website, the case will go to trial on May 12.

Xiaomi has denied any wrongdoing, saying its royalties payments were legitimate. At present, Xiaomi and the Indian Law Enforcement Agency have not immediately responded to requests for comment, and the relevant written court order has not been made public.

The changes began to ferment as early as last October, when the Indian government sent a notice to all Chinese smartphone makers asking for detailed information about the phones and components. In the months that followed, things escalated. In December, India's income tax department raided the offices of Xiaomi and Oppo, and india's Revenue Intelligence Agency searched the factories of Foxconn India and Bharat FIH (two Foxconn conglomerates), as well as local contractor Dixon Technologies. A considerable number of people associated with these companies have also been scrutinized.

One conclusion of these raids is that the Tax Intelligence Agency accused Xiaomi India of evading tariffs of up to Rs 653 crore between 2017 and 2020 and has issued three notices showing the reasons to recover the money. Reuters reported that the Enforcement Agency is investigating the existing business structure between Xiaomi India, its contract manufacturer and its parent company in China. The agency even asked Manu for various company documents in February. This information includes foreign funding, equity and financing models, financial statements, and information on key executives operating the business.

Among The Chinese smartphone makers in India, Xiaomi's targeting by the government is the most incredible. As we all know, Manu can navigate the Indian political circle with ease to avoid many troubles. He was often able to meet with the Chief Minister, the Federal Minister and occasionally received by the Prime Minister.

Now that Xiaomi's relationship with India is cold, Indian media have revealed that Xiaomi has promised to invest in Uttar Pradesh, but has not been able to deliver. The expectation of a rebound on the issue is likely to be an important reason for Manu's move to Dubai.

The blow of the industrial chain

In 2014, Xiaomi took India as the first stop of internationalization and began a huge journey to the sea. By 2017, Xiaomi, which had only been in India for 3 years, had become the number one smartphone brand in India, and had maintained its leading position ever since. Today, India is not only the starting point for Xiaomi's internationalization, but also its largest overseas market.

Good flowers don't bloom very often. The situation in India is becoming increasingly uncertain. Since 2020, the Indian authorities have banned hundreds of Chinese apps, foreign investment policies have changed overnight, and the fire has now spread to smart hardware and its upstream and downstream industrial chains, coupled with the peak of Xiaomi's shipments in India in the past two years, it is urgent to find new growth points. Macro business integration, coupled with changes in the external environment, has also made Xiaomi International gradually reduce its dependence on India.

In April 2020, the Indian government revised its FDI policy to allow countries bordering India to invest in India that must be on the government path, a move also seen as curbing investment from China.

On July 27, following the decision of India's Ministry of Electronics and Information Technology to ban 59 apps, including TikTok (Douyin International), Weibo, WeChat, UC Browser, etc., another 275 Chinese apps were included in the so-called "list", and more Applications of Chinese Internet companies may be banned by the Indian government.

India's tossing and turning will not stop in 2021. Meanwhile, in October 2021, India's Ministry of Electronics and Information Technology (MeitY) issued a notice to Chinese smartphone brands vivo, OPPO, Xiaomi and OnePlus requesting relevant data and details about the phones and their components, and said it could issue a second notice in the coming weeks, involving a request to test these phones.

An executive of a Chinese brand revealed that the purpose of the Indian government to explore China's mobile phone parts is to prepare for the next step, curb Chinese mobile phone companies, and restrict the production and operation of parts companies in India.

After September 2015, all mobile phone products entering the Indian market must obtain Indian BIS (Indian Bureau of Standards) certification before customs clearance, and mobile phone products without BIS certification will not be able to enter the Indian market. According to relevant sources, India may be considering whether to issue BIS certification to Chinese mobile phone parts companies.

The Indian government's move does not seem to be only for the terminal of the Chinese mobile phone brand, its "prey" may be the entire Chinese mobile phone industry chain in India, from the upstream parts to the terminal of the whole machine enterprises.

Not only that, India also needs to restrict the introduction of Chinese technology from 5G technology. In India, huawei was not on the list when the government named foreign network equipment suppliers to conduct 5G trials in India.

Things are getting worse. In February this year, according to Indian media reports, the Indian tax department conducted a search of Huawei's multiple places in the country on the 15th. The raids involved Huawei's business premises in New Delhi, the satellite city of Gulgram, the capital, and Bangalore, India's tech hub. Officials reviewed financial documents, books and company records as part of a tax evasion investigation into Huawei's Indian operations and overseas deals, the sources said. Some of the documentation was taken away.

One thing is certain in this series of farces: Chinese companies will increasingly feel that it will be harder to continue doing business in India without being affected.