(Bloomberg) -- Xiaomi Corp. is deepening local sourcing in India, where the Chinese smartphone company seeks to regain market share it lost amid heightened regulatory scrutiny and stiff competition.

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Xiaomi contracted homegrown Optiemus Electronics Ltd. to make its bluetooth neckband earphones — the first time an Indian supplier will make an audio product for the Beijing-based tech giant, Muralikrishnan B, president of Xiaomi India, said in an interview.

“This marks our entry into a whole new set of categories,” Muralikrishnan said late last week at an Optiemus factory in the Noida suburb of Indian capital New Delhi. “We see this as a milestone, as further proof of our commitment to making in India.”

Xiaomi led India’s smartphone market for years, but allegations of money laundering and increased state scrutiny contributed to a decline of more than 20% in its shipments in the country last year, according to research firm Counterpoint. It ranked third in the last quarter of 2022, also hurt by tough competition, component shortages and an excessively wide product portfolio that confused customers and retailers.

South Korean rival Samsung Electronics Co. beat Xiaomi to the top spot in the period, and has since reinforced its manufacturing push in India by locally building its fold and flip smartphones as well as its latest Galaxy S23 flagship.

Xiaomi is now betting on the growing demand for smart TVs, bluetooth earphones and other accessories to boost revenue in the country.

Previously, Xiaomi and some of its Chinese rivals were hesitant to make earphones and smartwatches in India as it was easier to import these products from China to a market where demand was still budding. But as Indian state agencies’ crackdown on Chinese firms intensified, they’ve rushed to explore manufacturing alliances with local companies, possibly to win New Delhi’s favor.