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Phones

The smartphone battleground of India -- and why Xiaomi wants in

India is the world's fastest growing smartphone market, predicted to overtake the US in just two years. And it's already becoming one of the most bitterly fought-over pieces of turf in the global smartphone war.

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Xiaomi execs alongside Indian politicians at the press conference of the announcement. Xiaomi

Xiaomi, China's No. 1 smartphone maker, is set to ramp up its operations in India with the announcement earlier this week that it is opening up a manufacturing facility in the Indian state of Andhra Pradesh.

The move by Xiaomi is a sign of a change in the global smartphone wars. Simply put, the gold rush in China is slowing down and smartphone makers are looking for the next big chance arena in which to do battle for the hearts and minds of consumers.

That arena, as far as Gartner is concerned, will be emerging markets in the developing world. According to the analyst firm, worldwide sales of smartphones to end users reached 336 million units, an increase of 19.3 percent during the first quarter of 2015.

Gartner's report further added that the fastest growing regions were in Asia Pacific, Eastern Europe, the Middle east and North Africa, with a 40 percent increase in sales during the first quarter of 2015.

Among all these markets though, one country in particular is getting a fair bit of attention, the world's second most populous country: India.

Battlefield India

India is, quite simply, the next big battlefield in the smartphone wars. According to an IDC report, India was the fastest growing smartphone market in the third quarter of 2014 and by 2017, according to international research firm Strategy Analytics, India is expected to overtake the US as the world's second largest smartphone market after China.

"India's growth is being driven by low smartphone penetration, expanding retail availability of devices, wealthier middle-class consumers, and aggressive promotions from local smartphone brands like Micromax," said Linda Sui, director at Strategy Analytics.

HSBC suggests that the reason for this movement toward India is probably because China's smartphone penetration has already reached 95 percent, meaning most customers in the Chinese market own a smartphone, while India's is roughly 30 percent.

According to IDC, while Xiaomi is now fifth in market share in India, it still far behind the likes of Samsung and local leader, Micromax. With India being the next big battlefield, it makes sense that Xiaomi intends to set up camp on the front lines.

At the moment, it is likely that Micromax, the world's 10th largest smartphone maker, will be Xiaomi's main target. The company, which produces anywhere between 700,00o to 1 million handsets a month for customers in countries like India and Russia, has been growing at a breakneck pace trailing only Korean giant Samsung among Indian consumers.

This success has come out of Micromax focusing squarely on the problems of the Indian consumer. For example, the company's first phone, the X1i, boasted a massive battery life because in many towns in India, the electricity supply was not even stable enough for one to charge their phone on a regular basis so the X1i was designed to go weeks between charges.

The second was probably something that only local designers could have come up with -- in India, different carriers serve different areas of the nation with differing service quality. The solution to this problem of poor network service was simple: offer a phone with two SIM card slots. Most users have two SIM cards, one for the permanent incoming number and the other for whichever provider is strongest in the area.

At the time, no phone made by then-market leader Nokia had this feature, so Micromax swooped in and cashed in on that niche. Today, dual SIM card phones are among the most commonly sold types of handsets in India. Micromax still dominates that sector.

Similar yet different

Another issue Xiaomi will have to contend with is that is very similar to Micromax. Both companies offered products that maximized the potential of their local markets and supply chains and brought solutions that were tailored specifically for a certain kind of market.

Like Xiaomi, Micromax is all about viral branding and has varied its products to include things like TVs.

It remains to be seen how Xiaomi, which does have a small but very dedicated following in India, will deal with Micromax and other companies that operate with similar claims to fame.

Xiaomi seems to be playing it cool. The company's head of operations in India, Manu Jain, told CNET that, "We don't focus on competition. The main objective of local manufacturing in India is to bring us closer to Indian consumers."

However, this is not one battle that Xiaomi, or for that matter, any phone manufacturer can back down from. It's like the Strategy Analytics report says, "No serious global hardware or software player can afford to ignore the huge Indian smartphone market today."

The Xiaomi Mi 4i is a flagship phone designed for India. Aloysius Low/CNET

Welcome to India

Xiaomi's move into India comes on the back of Indian Prime Minister Shri Narendra Modi's "Make in India" initiative. The initiative is one of Modi's economic reform plans and its purpose, basically, is to encourage companies, both foreign and local, to manufacture their products in India through a variety of incentives and benefits and targets sectors such as IT, automobiles, textiles and electronics.

"Manufacturing smartphones locally is a significant step towards incorporating Xiaomi into the fabric of India in the years to come," says Hugo Barra, Xiaomi's vice president.

"Thanks to Prime Minister Shri Narendra Modi's visionary plan to transform India into an attractive destination for manufacturing, we have a great opportunity to make our products in India, bringing us even closer to Indian consumers and contributing to India's evolution in the technology sector."

However, the actual manufacturing will be done, as it is in Brazil and China, by the local subsidiary of Taiwanese manufacturing giant Foxconn.

The first Xiaomi phone to be manufactured in India will be the Redmi 2 Prime, an enhanced version of the company's entry level Redmi 2 smartphone, which retails for around $110 -- this converts to approximately £70 and AU$150 respectively -- and packs a Qualcomm Snapdragon 410 64-bit processor, 4G dual-SIM support, and a 4.7-inch HD display under the hood.

The phone will be sold, like most Xiaomi devices, through its online store and other e-commerce platforms like Amazon and Flipkart.

A spokesperson from Xiaomi told CNET that the company intends to eventually start producing a larger variety of products at the new Indian plant.

"We have great faith in young leaders and young companies like Xiaomi," said Shri Nara Chandrababu Naidu, chief minister of Andhra Pradesh. "These new generation companies and entrepreneurs will be key to the success of Andhra Pradesh and India."