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IBS Center for Management Research

Xiaomi: Reinventing the Smartphone Business Model in China

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This case was written by Hadiya Faheem, under the direction of G V Muralidhara, IBS Hyderabad.
It was compiled from published sources, and is intended to be used as a basis for class discussion
rather than to illustrate either effective or ineffective handling of a management situation.

2014, IBS Center for Management Research. All rights reserved.


To order copies, call +91 9640901313 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,
Sankarapally Road, Hyderabad 501 203, Andhra Pradesh, India or email: info@icmrindia.org

www.icmrindia.org

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Xiaomi: Reinventing the


Smartphone Business Model in China

Typically, Chinese companies have been relegated to copycat status. Lei Jun
aspires to build a Chinese brand that stands up to the legends of the industry.1

Chetan Sharma, a strategic consultant who advises mobile phone


businesses, in June 2014.

One company that particularly stands out to us as a potential game-changer is


Xiaomi, with its huge fan base and unique business model. It is enjoying success
due to super cheap high-spec phones sold on-line.2

Mark C. Newman, senior research analyst at US-based financial research


company, Sanford C. Bernstein, in September 2013.

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INTRODUCTION

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For the first quarter ended April 30, 2014, Beijing-based Chinese electronics company, Xiaomi
Inc. (Xiaomi) (pronounced Shao Me), stood as the third largest company in Chinas smartphone
market with a market share of 10 percent.3 According to market research firm, Canalys, Xiaomi
beat Apple Inc. (Apple) in the lucrative Chinese smartphone market by selling more smartphones
during the quarter.
Founded in April 2010 by Lei Jun (Jun), a serial entrepreneur and investor, in association with his
friend Bin Lin (Lin), a former Google and Microsoft executive, Xiaomi was known to produce
cheap smartphones with a nice build quality.

Xiaomi followed a unique business model where it sold its smartphones at low prices and later
took advantage of the revenue streams generated by selling its software such as apps, cloud
computing, and games. The company sold its smartphones at US$ 200 or US$ 300 whereas
smartphones developed by Samsung Electronics Ltd. (Samsung) and Apple cost at least US$ 600.
The company sold its smartphones online in flash sales at razor thin margins. Since there were no
retailers and distribution channels involved, it could afford to sell its high-tech smartphones at
lower prices.

The company followed an Internet-first strategy in addition to selling its smartphones online, it
communicated with its customers through social media channels. The company reportedly spent
no money on traditional advertising. Since its inception, the company had believed in fostering an
open, honest, and transparent relationship with its customers. Xiaomis customers, known as Mi
Fans, were regularly informed about the suppliers the company worked with and how it built its
1

Brad Stone, Xiaomis Phones Have Conquered China. Now Its Aiming for the Rest of the World,
www.businessweek.com, June 4, 2014.
Ansuya Harjani, Chinas Xiaomi New Disruptive Force in Smartphone Market, www.cnbc.com,
September 13, 2013.
Steve Kovach, Xiaomi: The Scrappy Chinese Smartphone Maker Thats Poised to Wallop Samsung and
Apple, www.businessinsider.in, June 16, 2014.
2

Xiaomi: Reinventing the Smartphone Business Model in China

products to what it was developing. This was hugely appreciated by the Mi Fans who waited
eagerly for the next product launch from Xiaomi. It was reported that Xiaomi developed its
smartphones in limited quantities. When the product went on sale online, it was sold out within a
few minutes. Some industry watchers described Xiaomi as the Apple of China since it had the
same kind of crazy following that Apple had in the West.

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Xiaomis instant success in China encouraged Jun and Lin to expand operations to other countries.
In a bid to fuel its international expansion, Xiaomi brought in Hugo Barra (Barra), former Google
executive, as Vice-President International, Xiaomi Global. By June 2014, Xiaomi had forayed into
Singapore, Taiwan, Malaysia, and Indonesia. It planned to enter other emerging markets such as
India and Brazil. Going forward, by 2015, the company had ambitious plans to enter the North
American smartphone market, which was hugely dominated by Samsung and Apple.

ABOUT LEI JUN AND XIAOMI

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Lei Jun (Jun) was born in Xintao, China, in 1969. In 1987, he graduated from the Mianyang
Middle School and soon after joined Wuhan University from where he completed his Bachelor of
Science in Engineering. In 1987, when he was still in college, he discovered a Chinese translation
of Fire in the Valley: The Making of the Personal Computer, the influential history of the US
tech industry and the early careers of Microsoft founder Bill Gates (Gates) and Apple co-founder
Steve Jobs (Jobs). Deeply inspired by Gates and Jobs, Jun decided to emulate them. According to
him, I was greatly influenced by that book, and I wanted to establish a company that was first
class. So I made a plan to get through college fast.4
In 1992, Jun joined Chinese software company, Kingsoft. In 1998, he was promoted to the rank of
the CEO of Kingsoft, thanks to his engineering talent and sharp marketing skills. From 1998
through 2007, he served as the CEO of Kingsoft. During this period, the organization expanded
from office application software to Internet security and online games.

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While running Kingsoft, Jun helped establish other Internet companies, one of them being
Joyo.com, which he co-founded in 2000. Jun built Joyo.com up into Chinas largest online retailer
of books, music, and videos. In 2004, Joyo.com was bought by American international ecommerce company, Amazon. This formed the basis for Amazons China operations.

In 2007, Jun relinquished his position after Kingsoft completed its initial public offering. He,
however, remained vice chairman of Kingsoft, holding a stake of US$ 300 million. In the next few
years, Jun served as an angel investor for many start-up companies such as Vancl, YY, and
UCweb.

In 2009, Jun met Lin. At that time, Lin was responsible for promoting Googles mobile business in
China. Jun wanted to discuss with Lin Googles relationship with UCweb, a web browser company
in China where he had invesments. It was around this time that Google announced its plans to
reorganize in China as part of the countrys growing censorship requirements of the company. This
led to Lin thinking that he could try something else. Both Jun and Lin then decided to start a
company together. They decided to start with mobile software and eventually focus on hardware.
As the Chinese smartphone market was intensely competitive and oversaturated at that, Juns idea
of starting a smartphone company generated very little interest initially among investors. However,
Jun was confident that he could make inroads into the market in spite of the Chinese smartphone
market being hugely dominated by Apple, Samsung, Lenovo, and ZTE Corp. Sure enough, some
investors soon began showing some interest in Juns venture. According to Richard Liu, managing
director of California-based venture capital firm, Morningside Venture Capital (Morningside
4

David Barboza, In China, an Empire Built by Aping Apple, www.nytimes.com, June 4, 2013.
3

Xiaomi: Reinventing the Smartphone Business Model in China

Venture), Juns track record had made it easy for him to line up investors for setting up his
company. In addition to receiving investment from Morningside Venture, Jun also received an
investment from American semiconductor company, Qualcomm Incorporated (Qualcomm).
Through several investors, Xiaomi was able to raise US$ 131 million initially.5

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Commenting on Juns capabilities to attract investors, Lin, said, Lei is very capable so no matter
what he wants to do, he has a high chance to be successful. Hes a world-class entrepreneur with
vision, leadership, and ambition to really build up a global company.6 Voicing a similar opinion,
Kai-Fu Lee, who ran Innovation Works, a Beijing-based investment firm, said, Lei Jun is a
phenomenal entrepreneur. Hes insightful about user needs and markets, and now he has this
incredible desire to create a household brand in technology.7

On April 6, 2010, Jun and Lin, in association with five engineers, set up a small shop in a small
office near the Third Ring Road in the northern part of Beijing. Jun became the CEO and product
chief while Lin was the president in charge of daily operations. Their first task was to find a
suitable name for the venture. Their first choice was Redstar after the communist symbol but the
trademark had already been taken by another company. One of the founders then suggested Mi,
meaning rice. Mi also stood for mobile Internet. They then settled on Xiaomi Inc. (Xiaomi), which
meant small rice.

In a bid to lure Chinese executives from other technology companies such as Motorola, Google,
Microsoft, Kingsoft, Yahoo, and other Information Technology companies, Jun said he would
accord them the status of co-founders of Xiaomi.

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LAUNCHING THE MIUI INTERFACE

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Having founded the company, Jun, Lin, and the other co-founders started working on Googles
Android operating system (OS) to make the OS more compatible and user friendly. This led to the
launch of the MIUI (pronounced Me You I) interface.
The MIUI OS resembled the iOS and Android but replaced the traditional Android app drawer
with side-scrolling home screens full of apps. It had very iOS-like menus, toggles, and icons. The
MIUI OS also drove users to Xiaomis device security, cloud messaging, and backup features.

In August 2010, the MIUI was launched as a software package and was available for online
download. The package could be installed by technically proficient owners of Android phones
over their phones default OS. The software package was downloaded half a million times in the
first few months of the launch and, by the end of 2010, the MIUI forum had a registered user base
of 1 million users.

The MIUI system enabled Xiaomi to extend the features of Android, allowing different themes,
which were developed by third parties and which were sold on Xiaomis theme store. For instance,
if a user chose the Angry Bird theme, characters from the Angry Birds game took over the mobile
screen. Those icons could then be used to control phone functions. In essence, Xiaomi rebuilt
Android, opened up the framework, and published a Software Development Kit that allowed
different themes to be designed by third-party developers. Several Android enthusiasts lauded the
MIUI for being user friendly and for its common features, which allowed for instance, an easy way
to send text messages to a group of friends and record phone calls concurrently. MIUI could be
easily translated into other languages and was ported to more devices by interested independent
developers.
5
6
7

Chinas Xiaomi Plans to Give IPhone Cool at Half Price, www.bloomberg.com, April 9, 2014.
Chinas Xiaomi Plans to Give IPhone Cool at Half Price, www.bloomberg.com, April 9, 2014.
David Barboza, In China, an Empire Built by Aping Apple, www.nytimes.com, June 4, 2013.
4

Xiaomi: Reinventing the Smartphone Business Model in China

Jun aimed at providing the kind of additional functionality that Android was yet to offer and also
an easy to use interface. MIUI offered services such as cloud backup, music player, and their own
app store.

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Jun fostered a hard-driving culture at the organization where the employees worked from ten in the
morning to ten in the night. The team set themselves the goal of launching a new version of their
software at the end of each week. The MIUI was highly customizable and allowed hundreds of
thousands of users to invent new features. Every week, Xiaomi released a new version that it codeveloped with leading users, responding to their feedback via the Internet and online user forums.
This helped Xiaomi to keep research and development spending low and to release a new version
of the MIUI every week. By July 2011, MIUI had amassed 500,000 accounts with 300,000 active
users.8 The huge and loyal user base gave suppliers further confidence in Xiaomi.

ENTERING THE HARDWARE SEGMENT

Jun and Lin had planned to launch their smartphones after a year of starting, i.e. from 2011.
However, neither of them was satisfied with MIUIs performance on other companies hardware
and so they decided to launch their own smartphones earlier. Subsequently, Xiaomi roped in Zhou
Guangping, who was known for the Ming line of phones developed by Motorola. Zhou brought
to Xiaomi his Radio Frequency engineering knowledge, over 15 years of experience in hardware
designing, and a team of 20 ex-Motorola engineers.

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Having decided to launch their own smartphones, Jun faced the Herculean task of convincing top
suppliers of critical components too supply to them. This was not easy as Xiaomi had no factory,
no record sales, and no brand. Besides, it was reported that top suppliers were loyal to their
existing customers. Apple was known to have its components sourced from 90 of the top 100
global suppliers and often made investments in suppliers factories to buy any vital machinery.9
Moreover, there was a perception among suppliers that Chinese mobile phone companies often
developed cheaper versions of products developed by Apple. Some suppliers stated that they had
had a bad experience with some of the Chinese technological companies. These companies had
bought a huge number of components and manufactured more handsets than they could actually
sell and soon found themselves out of business. With such these instances in mind, 85 of these top
100 global suppliers rejected Xiaomis request.
Jun, Lei, and Zhou then tried to woo the suppliers by offering to pay upfront for components such
as batteries and camera models.

In a bid to reinforce its credibility, Xiaomi devised three strategies. As a first strategy, Lin, who
was responsible for product design, was asked to concentrate on negotiating with the suppliers. Lin
spent five months on the job, spending 80 percent of his time with potential suppliers. As part of
the second strategy, in March 2011, Jun and Lin flew to Japan two weeks after the tsunami,
earthquake, and radiation leak that took place in 2011. This was part of their strategy to secure
display panels from Sharp Corporation, the Japanese manufacturer of electronic products. The
visit, coming as it did when most foreign visitors were fleeing Japan impressed and touched the
Japanese company. Sharp soon started negotiations with Xiaomi. As part of its third strategy,
Xiaomi emphasized its unconventional business model and its MIUI OS to mobile chipmaker
Qualcomm. Xiaomi also contacted Inventec Corp. (Inventec) for assembling the phones.
In mid-2011, Xiaomis efforts paid off and Sharp agreed to supply LCD touchscreens while
Qualcomm said it would supply processors because it felt Xiaomis open-innovation MIUI system
could be the next big thing. Soon Foxconn, Taiwan-based multinational electronics company
agreed to assemble the new Xiaomi phones. Later, Inventec, Taiwan-based original design
manufacturer, too started assembling phones for Xiaomi.
8
9

Howard Yu, How Xiaomi Wooed the Best Suppliers, www.ft.com, May 7, 2014.
Howard Yu, How Xiaomi Wooed the Best Suppliers, www.ft.com, May 7, 2014.
5

Xiaomi: Reinventing the Smartphone Business Model in China

After convincing its suppliers, Xiaomi started working on developing its first smartphone the Mi
1. Mi in the case of Xiaomi stood for mobile Internet and also for Mission Impossible in view
of the initial challenges the founders faced when they set up the company.

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In August 2011, Xiaomi announced the launch of the Mi 1 smartphones on its website. Within 34
hours of the announcement, enthusiastic Xiaomi fans had placed 300,000 pre-orders.10 The Mi 1
was an Android-powered phone with the Qualcomm microprocessor and was priced at US$ 300
much cheaper than the smartphones developed by Apple and Samsung.

AN UNCONVENTIONAL BUSINESS MODEL

According to Jun, Xiaomi was modeled after two companies Tongrentang, a 340-year-old
traditional Chinese medicine company, and Hai Di Lao, a hot pot chain. From these companies,
Jun learnt not to produce a low quality product just to reduce costs, and the significance of
customer service.
The real invention at Xiaomi was its innovative and unconventional business model where it sold
its mobile phones online, had no stores, and avoided conventional methods of advertising.

ONLINE SELLING

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Xiaomi projected itself as a cool and hip brand for consumers. As Charlie Custer, blogger, China
Tech industry, said, The gold iPhone 5s is the phone your corrupt official uncle and all his rich
friends will buy, while the Xiaomi is the phone your cool hipster cousin has.11 Like high-end
fashion apparels and consumer products, Xiaomi sold its smartphones online. Most of the products
it sold were through its website. In addition to projecting a cool image, Jun aimed to keep the
distribution costs low by relying on online sales rather than carrier channels.
According to Juns estimates, selling online could help Xiaomi save the 20 percent to 25 percent
cut the company would have to pay retailers.

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Xiaomi felt that by avoiding intermediaries it was fostering a robust relationship with its
customers. Some experts stated that the direct marketing approach gave Xiaomi better control over
the timing of its market entry and exit.
LOW PRICING

Attractive pricing was the key driver for the companys growth. The idea behind subsidizing the
cost of smartphones was to encourage users to pay for the services. Since it sold the handsets at
prices just a little above the cost of production, it earned only tiny margins for its hardware. The
company could afford to price its smartphones lower than other well-known brands since it had no
retailers and dealers and sold its smartphones online through e-commerce sites. Xiaomi made
money by selling its software such as the MIUI firmware and other services such as apps, games,
and themes. Commenting that the future of mobile Internet was actually about services, Lin said,
We think of hardware as just a platform to run services. We dont look to make money on the
hardware, we are looking at users who have bought the hardware, then started to use our
services Its the services that eventually bring in revenue.12

Xiaomi continued to sell its phones for a longer period compared to its competitors. This was a bid
to augment the razor-thin profit margins. The same model would be sold for up to 18 months,
giving the company more flexibility with profits and ability to sell accessories.

10
11

12

Simon Montlake, Xiaomi's Lei Jun: Chinas Answer to Steve Jobs?, www.forbes.com, July 18, 2012.
Matt Schiavenza, How Xiaomis Hip, Inexpensive Smart Phones Conquered China,
www.theatlantic.com, October 24, 2013.
Kaylene Hong, Xiaomi Co-founder on why ex-Google Exec Barra and its own Firmware are Key to
International Success, http://thenextweb.com, September 9, 2013.
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Xiaomi: Reinventing the Smartphone Business Model in China

Jun stated that Xiaomis business model was similar to that of American international e-commerce
company, Amazon.com Inc., which sold its Kindle e-Reader at cost price and later made money
through the content it sold.
Xiaomi outsourced its productions to electronics manufacturing service partners such as Hon Hai
Precision Industry and Inventec Corp, which also helped it lower its sales costs.

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FLASH SALES
Though Xiaomi sold its smartphones for a longer period of time than its competitors, it had limited
inventory. The company believed that in markets where consumer preferences were hard to predict
and changed rapidly, flash sales could help in determining which products were likely to be big
hits, driving future production. Thus, the Xiaomi smartphones were sold out within minutes of the
phone going on sales online.

Some experts felt that flash sales minimized exposure to unsold inventory whose value in the
smartphone market could experience erosions dramatically in very short periods of time.
According to Barra, Xiaomi fans know when the next flash sale will be and how many units we
will offer through our social channels; if they cant get it now, they know they can always try
again next time.13

Mi FANS

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Having understood the power of the Internet, Jun focused on getting feedback from Xiaomi users.
The concept of listening to customers was termed as rowd sourcing and Jun did this in a bid to
establish a relationship with Xiaomis customers. In addition, he felt that user interaction would
enable the company to get user feedback, which could lead to further enhancements in its products
and services such as apps, games, software, etc.

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In a bid to attract and retain customers, Xiaomi launched a cartoon character a rabbit called Mitu, made promotional mini movies, and designed T-shirts. Xiaomi called its fans Mi Fans and
also conducted a Mi Fan festival for its fans.

The Mi Fans participated in product research, development, test, marketing, and public relations.
In addition to these online gatherings, fans also organized offline city gatherings. It was reported
that these gatherings covered 31 cities in China. The official gatherings were held every two
weeks. Xiaomi invited 30-50 users in discussions involving engineers. According to Xiaomi
Globals director of marketing, Amanda Chen (Chen), For other companies, I think when it
comes to anniversaries its usually about the company itself. For Xiaomi, its about our Mi fans.
We want to please them with new products, more offerings so we held launches but this year we
hear our customers, they want more products so we have been trying to get more inventories in.
We want to satisfy our fans.14 The Mi Fan festival exemplified Xiaomis extraordinary capability
in e-commerce. By the end of 2013, Xiaomi had already become the third largest B2C e-commerce
business in China by revenue, next only to Tmall and JD.com.

The Mi Fans focused on coming up with innovations of the MIUI. Their ideas were voted on the
forum, and the company improved the system based on the best suggestion. Jun attributed
Xiaomis success to the consumers who participated in the design of its OS and smartphones. The
team also searched for senior users and picked 100 out of 1,000 of them to join in designing their
OS. These 100 users became the first batch of Mi Fans, meaning Xiaomi fans. By 2013, the
MIUI forum had several core sections such as the download center. It had 10 million registered
users with 100,000 daily posts.
13

14

Bobby Situkangpoles, Hugo Barra talks Xiaomi Business Model, International Expansion and more
Exclusive, www.androidauthority.com, June 11, 2014.
Kaylene Hong, Xiaomis Social Media Strategy Drives Fan Loyalty, Books it $242m in Sales in 12
hours, http://thenextweb.com, April 9, 2014.
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Xiaomi: Reinventing the Smartphone Business Model in China

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According to Xiaomi executives, the user experience at Xioami was different from that at Apple.
While Apple anticipated what would work for its users and limited the ability to customize the
product, Xiaomi updated its MIUI software after urging its engineers to communicate with customers
to solicit their feedback. Xiaomi also allowed its consumers to design their operating systems. Every
Friday evening at 5, Xiaomi released a new round of software updates for its MIUI to users in China
and Western countries. Jun called it Orange Friday for the color of Xiaomi was orange. Within hours,
thousands of fans would be on Xiaomi forums to give feedback and describe bugs.
Xiaomi felt that asking users to give their feedback made them feel excited and passionate about
the companys products and gave them a sense of belonging and achievement. This kind of
participation, Jun felt, involved not just the users, but also their families and friends through word
of mouth.

According to Lin, We are the only company who does that: being super open and embracing user
feedback and upgrading (our software) every week. We are the only company; no others. Thats
exactly the reason why we have built a group of fans that are super loyal to us. They dont get any
reward by giving us feedback and trying things. I think the sense of ownership and a sense of
being part of the effort to improve the system, improve the handset, make them feel being
respected and make them feel being part of it.15

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Xiaomi did not just take feedback from the users, it also acted on it. According to Barra, [A]
suggestion gets picked up by a product manager within hours. Within a few [more] hours it can be
at an engineers desk. If they think its a good idea, the suggestion can go in the next weekly build.
A number of unique features weve built are user suggestions. Things that came out of someones
head rather than product managers.16 Through user feedback, Xiaomi got its operating system
translated into 24 languages. User feedback also led to the creation of a very different and much
more flexible device. Xiaomi allowed users to swap the battery, replace a memory card, change
case backs, and remove the SIM card.

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In a bid to gain the trust of its customers, Xiaomi also disclosed the names of its suppliers for
every part and component used in designing its smartphones. According to Lin, Traditional
handset vendors treat such information as if it were trade secrets. We dont. For an Internet
company like ours, the disclosure makes our products more transparent, which we think is the key
to win trust from our customers.17 Similarly, the smartphone maker built its software taking
feedback from its consumers. Jun pointed out that paying attention and fulfilling a user request
made users excited and passionate about its products, and gave them a sense of achievement and
belonging.

Barra believed in fostering an honest, open, and transparent relationship with the MiFans and said,
We told them everything. We told them all the suppliers were working with, how long it takes to
build stuff, or what were working on, and everyone appreciates that.18

Xiaomis devoted fan base referred to the company as the Apple of China since it had developed
high-tech smartphones and projected a cool and hip image. Moreover, just like Apple created a
buzz before it launched its products, Xiaomi created a buzz for its products through its website and
social media channels. Some fans called Jun Steve Jobs since he emulated Jobss dressing style
and his way of launching products. Though Jun did not like being compared to Jobs, he did admit
that he had learned how to compete on innovation rather than imitation from Apple.
15
16

17
18

Sameer Singh, Xiaomis Growth Strategy Detailed, http://www.tech-thoughts.net, September 9, 2013.


Parmy Olson, How Chinas Xiaomi Does In A Week What Apple Does In A Year: Update Devices,
www.forbes.com, October 22, 2013.
Junko Yoshida, Exclusive: Xiaomi Unboxed, www.eetimes.com, March 18, 2014.
Bobby Situkangpoles, Hugo Barra talks Xiaomi Business Model, International Expansion and more
Exclusive, www.androidauthority.com, June 11, 2014.
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Xiaomi: Reinventing the Smartphone Business Model in China

Some industry observers called Xiaomi the Apple of the East since consumers queued up to buy
Xiaomis smartphones. However, Nicole Peng (Peng), China research director at Canalys, said, I
think they still have a long way to go before [they can be] compared to Apple. Apple has the
capability and resources to look at innovation from all different angles. Xiaomi is such a small
company, they are mostly focused on user experience.19
WORD OF MOUTH

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While most of the Xiaomi phones were sold through e-commerce channels, word-of-mouth also
helped the company in selling its phones. According to Roger Sheng (Sheng), a Shanghai-based
analyst with Gartner Inc., Xiaomis huge success was attributable to the word-of-mouth publicity
generated by millions of Xiaomi fans. Sheng added, There is no other way to purchase Xiaomi
handsets except through online channels, which resulted in more people rushing to join the line-up
because they're afraid of failing to get one.20

Some analysts commended Xiaomi for promoting itself through its network of users. According to
Wang Jun (Wang), a device researcher at Beijing-based Analysys International, Each user
becomes a seed for viral promotion. For its marketing and promotion tactics, they are all like an
internet company. This is completely different from a traditional cellphone maker.21
SOCIAL MEDIA ADVERTISING

Xioami did not use traditional modes of advertising to market its products. Most of the product
announcements were made through its website. Since it had a loyal fan base, most of its products
were sold through online advertising.

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The team at Xiaomi also built its brand through online forums. The staff spent a huge amount of
time on forums, making comments, sending posts, and advertising.
It was reported that Xiaomi devoted just 1 percent of its revenue to marketing. The money it saved
on marketing enabled it to buy top-notch components while keeping retail prices down.

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The company also advertised its smartphones through social media platforms such as Weibo and
WeChat. In December 2012, Xiaomi announced that it would sell its phones directly through
Weibo, Chinas top microblogging platform with 400 million members. This unusual marketing
tactic proved successful: within two days of the announcement, Xiaomi said it had sold 50,000
smartphones in five minutes, with 1.3 million additional reservations. It was reported that Xiaomi
was tracked on Weibo by more than 8.5 million followers. In November 2013, Xiaomi sold
150,000 Mi3 smartphones in less than 10 minutes on WeChat. 22 By the end of 2013, Xiaomis
Weibo account had 2 million followers with another 2.56 million subscribers on WeChat.23

In July 2013, Xiaomi opened its Qzone account, Chinas largest social network, and its followers
soon reached 10 million.24

Through these social networking sites, customers posted their feedbacks and the updates they
wanted in the mobile phones. The users also interacted with each other through discussion groups.
Selasa,
Apples
Iphone
Grows
to
43%
Share
among
US
Smartphones,
http://ibetyouwontrememberthisaddress.blogspot.in, September 3, 2013.
Shen Jingting, Chinas Answer to the Apple Success Story? http://usa.chinadaily.com.cn, June 7, 2012.
Can Xiaomi use its Homegrown Strategy Abroad? www.chinaeconomicreview.com, September 10, 2013.
Paul Bischof, Xiaomi Sells 150,000 Smartphones in less than 10 Minutes on WeChat,
www.techinasia.com, November 28, 2013.
Sabrina, The Secrets of Xiaomi Marketing Success in China, www.chinainternetwatch.com, November
27, 2013.
Sabrina, The Secrets of Xiaomi Marketing Success in China, www.chinainternetwatch.com, November
27, 2013.

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21
22

23

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Xiaomi: Reinventing the Smartphone Business Model in China

According to Chen, social media was very important to Xiaomi, as it was the most direct and
effective way to interact with its fans. Chen added, Its where we can easily listen to our users,
get their feedback, and tell them what we think right away. For this year from the first day on, we
ramped up users expectations and have a series of programs to be released every day.25
JUST IN TIME LOGISTIC SYSTEM

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Xiaomi was growing faster with more and more customers demanding its smartphones. The
companys logistics team grew from 400 employees to 1500 to meet the demand. The inventory
period was also shortened from 30 days to 7 days. As of May 2014, Xiaomi had 10 logistic hubs in
China, which formed the infrastructural foundation for its rise as an e-commerce giant. 26

It was reported that Xiaomi modelled its logistic system on Toyotas just in time model with the
aim of building an agile production system with minimum inventory. Xiaomi was able to develop
a speedy supply chain since it made use of no intermediaries. The company made its production
plan based on discussions on Weibo. This led to its output of one week becoming the sales volume
of the next week. Products were shipped as soon as they reached the storage center, thus ensuring
zero inventory throughout the whole process.

ASSOCIATION WITH CHINA MOBILE

Some experts stated that another factor that contributed to Xiaomis success in China was its
contract with the countrys state-owned telecom giant, China Mobile.

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INTERNATIONAL EXPANSION

In 2013, Lin hired Barra, former VP at Google, as VP for Xiaomi Global, to plot the roadmap for
the companys overseas expansion.

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In February 2014, Xiaomi kicked off its global expansion plan by foraying into Singapore. Experts
stated that the launch marked the culmination of efforts to adapt products offered by Xiaomi for an
English-speaking audience while building the Xiaomi brand on a global scale. Commenting on the
Singapore launch, Barra said bringing Xiaomi into a new market was like building a new
company essentially. The team at Xiaomi had to build a new operation from scratch including
logistics, customer support, delivery, after-sales, and warranty repair services. The company also
had to create local brand awareness to sell its products.

For the first time, Xiaomi launched its MIUI firmware which was based on the Android OS, in
English. According to Barra, And thats actually a big challenge weve had to change a lot of
things around the UI to accommodate English characters, because things are much more compact
in Chinese.27 Some experts felt that since Barra was VP for Android at Google, his expertise
could be tapped to internationalize the MIUI. Barra also felt that the experience was not so
different from launching a Nexus phone. In a bid to mark its local launch, Xiaomi created a
software theme on its MIUI with a wallpaper of Singapores skyline and Singapore-centric app
icons.

According to Barra and Lin, they chose Singapore for Xiaomis international expansion since the
country had very strong infrastructure and the company could easily figure out how to set up
logistics and after sales services. Moreover, they wanted to start their international expansion from
a country with fewer complexities before establishing their presence in other countries.
25

26
27

Kaylene Hong, Xiaomis Social Media Strategy Drives Fan Loyalty, Books it $242m in Sales in 12
hours, http://thenextweb.com, April 9, 2014.
The Art of Social E-Commerce That Xiaomi Taught Us, www.chinainternetwatch.com, May 8, 2014.
Kaylene Kong, Can Chinas Coolest Phone Maker take Xiaomi-mania International? We ask VP Hugo
Barra, http://thenextweb.com, February 19, 2014.
10

Xiaomi: Reinventing the Smartphone Business Model in China

PO
ST

Commenting on why Singapore was chosen for its international expansion despite Xiaomis
pricing strategy being more appealing to the emerging markets of Asia, Africa, and Latin America,
Barra, said, If we were a traditional handset manufacturer just looking to move products, that
would be the logical thing to do, thats where the highest demand is going to be. But were not. We
are trying to build a pretty high-touch end-to-end relationship with people. From the moment they
come to the website to buy a product, to experience our customer support and hopefully not but
if they have problems, to experience our repair and that requires a lot of work, a lot of
infrastructure, partnerships and so on. Its so much easier to do that here. Plus, the cost of failure is
low because its a small market.28
Going forward, Xiaomi planned to open a local service center for customer support and a
warehouse in Singapore once it got the hang of the market.

In April 2014, Xiaomi trimmed its domain name to Mi.com. According to Xiaomi, The new
domain is simpler and more accessible to an international audience.29 It added that the new
domain gave a more concise meaning to the Mi brand, which stood for Mobile Internet.
According to Li Wanqiang, co-founder and VP of Xiaomi, When it comes to e-commerce, a short
domain name helps obtain higher user traffic because it is easy to remember.30

In May 2014, Xiaomi entered the Malaysian market. The company planned to open four service
centers in the country. In addition to this, it planned to set up a hotline number for customers to
call in both Bahasa Malaysia and English.

CO

PY

In June 2014, Xiaomi hired Manu Jain, co-founder, Jabong, to head Xiaomis India operations.
This was the companys first step toward expanding into the fragmented but lucrative smartphone
market in India. Barra stated that Xiaomi would associate itself with Indian telecom companies
and other partners, in addition to bringing its smartphones via its own e-commerce sites. The ecommerce model was also adopted by Motorola in India, which sold its smartphones through
online e-commerce site, Flipkart. Its first few smartphone launches proved successful.

Some experts stated that Xiaomis focus on affordability and value for money could go down well
with price sensitive consumers in India. However, Xiaomi would have to tackle intense
competition from domestic players such as Micromax, Karbonn, and Lava, known for their
affordable handsets. In addition to these, Xiaomi would have to face market leader, Samsung, and
Motorola, which had successfully re-entered the Indian smartphone market. According to
Katyayan Gupta, analyst at Forrester Research, Xiaomis pricing strategies could threaten the
existing players in the Indian smartphone market. He added, Xiaomis entire play would be in the
Rs 8,000-18,000 price range, thats where Micromax, Karbonn and Lava are. Xiaomi will have to
fill in this broad range to cover most of India.31

Some experts opined that the growth outlook for Xiaomi would be positive in India as the
smartphones sales in the country were expected to touch 80.57 million units by the end of 2014,
according to IDC.32

28

29

30

31

32

Kaylene Kong, Can Chinas Coolest Phone Maker take Xiaomi-mania International? We ask VP Hugo
Barra, http://thenextweb.com, February 19, 2014.
Kaylene Hong, Xiaomi Simplifies its Web Domain to Mi.com to Appeal to an International Audience,
http://thenextweb.com, April 22, 2014.
Kaylene Hong, Xiaomi Simplifies its Web Domain to Mi.com to Appeal to an International Audience,
http://thenextweb.com, April 22, 2014.
Rasul Bailay and Danish Khan, Chinas Xiaomi Hires Jabong co-founder Manu Jain to Head India
Operations, http://articles.economictimes.indiatimes.com, June 11, 2014.
India Smartphone Sales to Touch 80.57 million in 2014: IDC, www.deccanherald.com, June 4, 2014.
11

Xiaomi: Reinventing the Smartphone Business Model in China

In June 2014, Xiaomi announced its plans to enter the Indonesian market, which it considered to
be a very huge market. Barra was dealing with the distributors and retailers to enter the country.
He was also planning to make the e-commerce platform strong in the country since Xiaomi sold its
phone online.

PO
ST

By the end of June 2014, Xiaomi planned to enter the Philippines with its Mi 3 smartphone. The
company planned to put 3,000 devices up for sale. 33 Commenting on why Xiaomi chose the
Philippines for the launch of its smartphones, Barra said, Its a huge market of 100 million people
who are incredibly social, very hungry for tech, and open to trying new things. Were here to learn.
Thats why were gonna start small, talk to as many people as we can, learn as much as we can and
then iterate.34 Barra added, It is also easy to do business in the Philippines. It is easy to get
certified and get partnerships, and logistics work really well.35
Xiaomi also had plans to adapt its Android-based MIUI operating system to international markets,
in addition to selling its smartphones. The company had made investments in an overseas team and
other infrastructure in a bid to support the needs of global users.

CRITICISMS

CO

PY

Some analysts were of the view that the company generated a buzz by creating artificial shortages
for its mobile phones. Xiaomi, however, said that it was not deliberately constraining supply to
stimulate demand. Commenting on the companys strategy of selling fewer smartphones, Huang
Jiangji, vice president and co-founder of Xiaomi, said, Theres a saying here: Dont be greedy.
Greed can kill a hardware company.36 Dismissing the claim, Barra said, It astonishes me that
people dont understand some very basic things about supply chain. Just consider the fact that
there are a dozen companies, including a handful that are very, very big, all competing for the
same components, the same production capacity theres no infinite supply of any of those. 37
Barra added, Xiaomi fans know when the next flash sale will be and how many units we will
offer through our social channels; if they cant get it now, they know they can always try again
next time. 38 He stated that ramping up production in a bid to meet the demands of its users was a
battle Xiaomi was constantly fighting. According to Barra Were constantly pushing our suppliers
to move as quickly as possible, (but) it is hard because they themselves are trying to strike a tradeoff because other customers want the same components.39

34

35

Yash Garg, Xiaomi Mi3 Launch Date, Pricing for the Philippines Announced, www.gizchina.com,
June 19, 2014.
Michael Josh Villanueva, Xiaomi Picks Philippines as 3rd Global Market, www.rappler.com, June 9,
2014.
Jacky, Xiaomi will Launch in the Philippines soon, its Third Global Market!, http://vulcanpost.com,
June 12, 2014.
Brad Stone, Xiaomis Phones Have Conquered China. Now Its Aiming for the Rest of the World,
www.businessweek.com, June 4, 2014.
Paul Nunes and Larry Downes, Big Bang Disruption: How Chinas Xiaomi Manages Catastrophic
Success, www.forbes.com, April 3, 2014.
Bobby Situkangpoles, Hugo Barra talks Xiaomi Business Model, International Expansion and More
Exclusive, www.androidauthority.com, June 11, 2014.
Bobby Situkangpoles, Hugo Barra talks Xiaomi Business Model, International Expansion and More
Exclusive, www.androidauthority.com, June 11, 2014.

33

Another criticism the company faced related to the delivery of its smartphones. Consumers who
bought the Mi 1 soon after it went on sale complained that the company took several weeks to
deliver the phone. Some customers complained about the shoddy customer service offered by
Xiaomis executives.

36

37

38

39

12

Xiaomi: Reinventing the Smartphone Business Model in China

THE SUCCESS

PO
ST

Some industry experts opined that Xiaomis pricing strategy of offering a good phone at a price
lower than that of its competitors in an area where the consumers were price sensitive had led to its
instant success in Chinas smartphone market. Another significant factor that led to Xiaomis
success in the rapidly intensifying Chinese smartphone market was the relationship it had with its
customers.
According to a survey by Jana, a mobile marketing company for emerging markets, Xiaomis
success was attributable to the markets it served as the consumers in those markets could not
afford smartphones developed by Apple and Samsung. Instead, their price range was served by
Xiaomi and hence Xiaomi was expanding its business in those countries.40

Xiaomis success in China was quantified by major venture capital investors in the country. In
June 2012, the investors valued Xiaomi at US$ 4 billion, nearly half the market value of Finlandbased communications major, Nokia Corporation, which stood at US$ 9.57 billion, and on a par
with that of Canadian telecommunication and wireless equipment company, BlackBerry Limited
(formerly known as Research in Motion). Commenting on Xiaomis performance in China, Hugo
Shong, a founding partner of venture capital firm, IDG Capital, said, Xiaomi has exceeded our
original expectations. I think other investors feel the same way you just have to look at the
numbers. Xiaomi went from zero revenue to 8 billion renminbi in just a year.41

PY

For the Financial Year (FY) ended 2013, Xiaomi reported that consumers had downloaded over 1
billion apps through Xiaomi products. The company stated that it received 1.3 million searches
everyday from around 17 million active users and the users reportedly downloaded 5 million apps
per day.42 For the same period, Xiaomi reported that it had sold 18.7 million mobile phones, an
increase of 160 percent from FY 2012.43

CO

In December 2013, Xiaomis MIUI had 30 million users worldwide out of which 2 million were
from markets outside China.44
Some experts commended Xiaomi for its ability to offer low priced high tech phones. This was
quite unlike the strategy adopted by other Chinese smartphone makers who targeted the low end of
the market with cheap phones. Commenting on its high tech phone business, Jun said, Were not
just some cheap Chinese company making a cheap phone. Were going to be a Fortune 500
company.45

In February 2014, Xiaomi was ranked as the third most innovative company in the Fast Companys
2014 list of Worlds Most Innovative Companies behind Google Inc. and Bloomberg, for
reinventing the smartphone business model in the worlds largest mobile market, i.e. China. Xiaomi
was appreciated for its radically new approach in the smartphone business model.

In February 2014, Xiaomis two phones the Hongmi Redrice and the Mi 3 found themselves on
the worlds top ten smartphones list, according to global market research firm, Counterpoint
Technology Market Research (Refer to Exhibit I for a list of Worlds top ten smartphones).
Steve Kovach, Cheap Smartphones Are Going To Take Over The World,
www.thebusinessinsider.com, June 16, 2014.
Sue-Lin Wong, Challenging Apple by Imitation, www.nytimes.com, October 29, 2012.
Paul Bischof, Xiaomi App Store Reaches 1 Billion Downloads, www.techinasia.com, August 30, 2013.
Xiaomi Sold 18.7 million Smartphones in 2013, Eyes Singapore as the Next Market, www.bgr.in,
January 3, 2014.
Kaylene Hong, Xiaomi Simplifies its Web Domain to Mi.com to Appeal to an International Audience,
http://thenextweb.com, April 22, 2014.
Dan Seifert, What is Xiaomi? Heres the Chinese Company that just Stole one of Androids Biggest
Stars, www.theverge.com, August 29, 2013.

40

41
42
43

44

45

13

Xiaomi: Reinventing the Smartphone Business Model in China

Commenting on Xiaomis brands being ranked on the list, Peter Richardson who managed
Counterpoint Researchs Tech Strategies, said, At the global level there has been little brand
diversity over recent months. However the appearance of Xiaomi on the best sellers list highlights
an increasing trend local brands moving up the sales rankings in their respective countries. Its a
consequence of commoditization of hardware and software. Provided the price is sufficiently
attractive, consumers are willing to try local brands over the higher profile global brands.46

Table I

PO
ST

In the first quarter of 2014, Xiaomi stood as the third largest vendor of smartphones in China with
a market share of 10 percent (Refer to Table I for market shares of mobile phone vendors).

Market Share of Mobile Phone Vendors (First Quarter ended March 31, 2014)
Market Share (in %)
18

Lenovo

12

Xiaomi

11

Coolpad

10

Apple

10

Huawei

Oppo

6
3

22

CO

Others

PY

ZTE

Samsung

Vendor

Adapted from Chris P, Xiaomi Continues to Sell more than Apple in China, Samsung and Lenovo still at
the Helm, www.phonearena.com, May 8, 2014.

CHALLENGES

One of the most pressing challenges facing Xiaomi was the issue of piracy in China. Since there
was a huge demand for Xiaomi smartphones, some counterfeiters and pirates had swooped in to
capitalize on the trend and to sell low-quality products disguised as the Xiaomi brand. This led to
Xiaomis reputation being tarnished and customers complaining about poor experiences with the
products. Lin was working with the Chinese government to crack down on the piracy issue.

Another significant challenge that Xiaomi faced related to branding and localization in some of the
markets it had entered. In Hong Kong, Xiaomi did not achieve much success among consumers as
it was not a popular brand. This was because the company had not advertised itself well in the
country. According to Ruby Lee (Lee), an employee at a Hong Kong outlet of 3, Hutchison
Whampoas telecom service brand, Xiaomi was not that well known compared to international
brands such as Apple and Samsung. According to Lee, Our most-purchased handsets are Apples
iPhone. Though we do promotions on Xiaomi, Hong Kongers are still reluctant to buy one because
it is not that popular.47

46
47

Ansuya Harjani, Chinas Xiaomi makes strides in smartphone race, www.cnbc.com, April 2, 2014.
Shen Jingting, Smartphone Maker Xiaomi Woos Buyers off Mainland, http://usa.chinadaily.com.cn,
April 9, 2014.
14

Xiaomi: Reinventing the Smartphone Business Model in China

Some consumers in Hong Kong complained that Xiaomi smartphones did not deliver localized
applications. According to Sophia Chen, analyst with the Taiwan-based tech research group,
Market Intelligence & Consulting Institute, Xiaomi has to develop localized software and Internet
services to complement its expansion strategy in overseas markets. 48

PO
ST

Some industry observers stated that in addition to adapting to foreign language markets, Xiaomi
also had to provide apps in the local language and after-sales support in a bid to grow sales in the
country it was venturing into.
Xiaomi was expected to face some challenges in the Singaporean smartphone market as the
country was saturated with smartphones. According to IDC, as of January 2014, smartphones
accounted for 92.1 percent of the mobile phone market in Singapore.49
Some analysts pointed out that Xiaomi could also face challenges relating to intellectual property
rights in global markets as it did not have any patents.
Xiaomi could also face challenges related to cultural differences, limited experience in
international operations, and a talent crunch while operating in international markets.

Some analysts pointed out that Xiaomis online business model could hamper its international
expansion initiatives as Internet penetration was low in markets such as Indonesia and the
Philippines.

CO

PY

Some experts raised doubts over Xiaomis ability to establish a presence in international markets
since they felt that Xiaomi lacked the brand profile of Blackberry and Nokia beyond China. They
stated that the task grew more complicated for Xiaomi since it did not advertise itself and it sold its
smartphones online to keep prices low. According to Jeongwen Chiang, chairman of the marketing
department at China Europe International Business School in Shanghai, If nobody knows about
you, certainly they are not going to buy online. There will be some difficulty to overcome. 50
Voicing a similar opinion, Sandy Shen, the regional director of research at technology consultancy
Gartner, said, The biggest challenge of going abroad is still to get brand recognition. I dont think
theyre going to deviate a lot from the current product positioning, which is value- and fashionconscious. In the international market, there should be such a demand for the product.51

Some analysts opined that the conditions that led to the success of Xiaomi in China might not
bring the same kind of success in other markets. According to Wang, The market conditions,
online consumer habits, and the entire internet industry and e-commerce came to bring about the
company's success. In a different market, where all these conditions are different, its far from
certain theyd have the same success. 52

Barra said a major challenge for Xiaomi would be to elicit the same level of passion for its
products in the overseas markets. Barra added, Its a huge challenge. It will not be easy. Its going
to take a huge amount of work. But yes, I think we can do it. 53

Shen Jingting, Smartphone Maker Xiaomi Woos Buyers off Mainland, http://usa.chinadaily.com.cn,
April 9, 2014.
Mark Milan, China Loves Xiaomi Phones. Will Anyone Else? www.bloomberg.com, January 6, 2014.
Chinas Xiaomi Plans to Give IPhone Cool at Half Price, www.bloomberg.com, April 9, 2014.
Can Xiaomi use its homegrown strategy abroad? www.chinaeconomicreview.com, September 10,
2013.
Can Xiaomi use its homegrown strategy abroad? www.chinaeconomicreview.com, September 10,
2013.
Kaylene Kong, Can Chinas Coolest Phone Maker take Xiaomi-mania International? We ask VP Hugo
Barra, http://thenextweb.com, February 19, 2014.

48

49
50
51

52

53

15

Xiaomi: Reinventing the Smartphone Business Model in China

LOOKING AHEAD

PO
ST

In June 2014, Xiaomi teamed up with Taiwan-based Web portal PChome Online Inc., to build the
formers overseas e-commerce platform. PChome was allotted 10,000 units of the RedMi Note
budget handset.54 Lin intended to form similar e-commerce partnerships in a bid to accelerate its
expansion in countries such as Singapore, Malaysia, Indonesia, India, the Philippines, Thailand,
Russia, Brazil, and Mexico.
Xiaomi had plans to enter the emerging markets of India, Brazil, and Russia. Some experts stated
that Xiaomis products and pricing could help it succeed in emerging markets such as India and
Brazil, where the growth of smartphones was still at the nascent stage. The company was planning
to position itself as the product of choice for those consumers who could not afford Apple.

According to ABI Research, low-cost smartphone shipments were expected to rise to 758 million
units in 2018. Experts felt that this could help Xiaomi tap the tremendous potential offered by the
global smartphone markets where low-cost phones were in demand.

According to IDC, cheap smartphones would be a key driver of sales in the low-cost segment of
emerging markets outside China. Voicing a similar opinion, Mykola Golovko, senior consumer
electronics analyst at research firm, Euromonitor International, Asian markets have burgeoning
young populations who want the latest smartphone technology, but (they have) restrictive
budgetary constraints.55

PY

Commenting that many Asian consumers of brands like Xiaomi were early adopters who aimed
to have a first-hand experience, Peng said, This segment of the market are the geeks, if I can say
that. They just want to experience the latest gadgets and are not so cost or brand-conscious. 56
The immediate challenge for Xiaomi in emerging countries was that the Internet penetration was
low and hence the company might have to use channels other than direct distribution and that
could push up costs.

CO

Jun stated that it needed some time for customers in developed countries to recognize and accept a
Chinese brand. He said Xiaomi had plans to enter markets where the e-commerce environment
was good and there was a well-established social network since the company had built its
reputation through the Internet. Jun added, Similarly, Xiaomi will form a fans group in every
country in which we plan to have a presence.57

According to Barra, the US smartphone market was very competitive and was dominated by
Samsung and Apple. But he felt that he would have to convince consumers in the US that Xiaomi
was not just another cheap Chinese smartphone company. Experts felt that this could be Xiaomis
biggest challenge. However, Barra stated that Xiaomi had ambitious plans to enter the North
American smartphone market in 2015.

Steve Wozniak (Wozniak), co-founder of Apple, was confident that Xiaomi would achieve success
in the US smartphone market. According to Wozniak, Xiaomi has excellent products; theyre
good enough to crack the American market. This company has a good, strong vision. The products
the company has built so far are very key elements to that future.58

54

55
56
57
58

Chinas Xiaomi Finds First Overseas e-commerce Partner in Taiwan, www.chinapost.com.tw, June 17,
2014.
Chinas Xiaomi Leads Asias Low-cost Smartphone Drive, www.channelnewsasia.com, May 11, 2014.
Chinas Xiaomi Leads Asias Low-cost Smartphone Drive, www.channelnewsasia.com, May 11, 2014.
Shen Jingting, Chinas Answer to the Apple Success Story? http://usa.chinadaily.com.cn, June 7, 2012.
Michael Kan, Steve Wozniak Visits Xiaomi in China, Endorses its Products, www.macworld.co.uk,
January 12, 2014.
16

Xiaomi: Reinventing the Smartphone Business Model in China

PO
ST

Some experts opined that Xiaomi should focus on foreign markets with low-penetration of iPhones
and high-end smartphones such as Africa and India. They could target feature-phone users and
convince them to buy their phones. To target, high-end smartphone users, Barra would have the
Herculean task of convincing these consumers, experts felt. Some analysts opined that young
consumers in the West were looking for phones with low prices and sleek designs so the challenge
for Xiaomi was to convince the consumers that it was not just another Chinese company
promoting a cheap product.
To expand into other overseas markets, Barra planned to target techies who appreciated technology
and were gadget freaks. Barra aimed to take feedback from them. This, he felt, could be used to
understand a particular market and eventually launch a product that could appeal to more
customers.

Some analysts stated that even if Xiaomi failed to garner a presence in some international markets,
its potential to grow in China was enormous. According to Custer, Theres still a big percentage
of the Chinese population that isnt going to spend $300 on a phone, period, no matter how much
bang for their buck theyre getting.59

Experts felt that the growth outlook for Xiaomi in China was positive as it planned to ship 100
million smartphones in 2015. The company had plans to garner revenues of US$ 16 billion by
2016. 60
In addition to expanding into new markets, Xiaomi also focused on new product launches such as
a smart TV, Wi-Fi router, and a tablet. In May 2014, Xiaomi released its first tablet, the MiPad.

PY

According to Jun, Xiaomi had no plans to go public till 2019. Jun added, If we have an IPO, we
may be distracted from delivering good products.61

CO

Commenting on Xiaomis future prospects, Barra said, Were just starting to think about building
truly, truly global products. I think Xiaomis already good at that because of the mentality of some
of the senior engineers. A lot of them have worked at Google or in Silicon Valley, and we have a
bunch of ex-Facebook engineers. We have people with the global mentality. In a year or two,
were going to shift even harder towards building inherently global products. Whenever we think
about a new feature, we try to think about it from a Chinese perspective and a global
perspective.62

59

60

61
62

Matt Schiavenza, How Xiaomis Hip, Inexpensive Smart Phones Conquered China,
www.theatlantic.com, October 24, 2013.
Hamish McKenzie, Xiaomi has Boldly Predicted Annual Revenues of $16 billion by 2016,
http://pando.com, September 5, 2013.
Qin Quanlin, Xiaomi not Seeking Public Listing, http://europe.chinadaily.com.cn, March 7, 2014.
Aloysius Low, Xiaomis Hugo Barra: True World Phones in 2 years, Android all the Way,
www.cnet.com, March 24, 2014.
17

Xiaomi: Reinventing the Smartphone Business Model in China

Exhibit I

Top Ten Smartphones in the World


Model

Apple

iPhone 5S

Apple

iPhone 5C

Samsung

Galaxy S4

Samsung

Note 3

Apple

iPhone 4S

Samsung

Galaxy S4 Mini

Xiaomi

Hongmi Redrice

Samsung

Galaxy S3

Samsung

Galaxy S3 mini

10

Xiaomi

PO
ST

Brand

Rank

MI 3

CO

PY

Source: Tom, Top Ten Smartphones in February 2014, www.counterpointresearch.com, 2014.

18

Xiaomi: Reinventing the Smartphone Business Model in China

Suggested Readings and References:


1.

Yash Garg, Xiaomi Mi3 Launch Date, Pricing for the Philippines Announced,
www.gizchina.com, June 19, 2014.

2.

Chinas Xiaomi Finds First Overseas


www.chinapost.com.tw, June 17, 2014.

3.

Steve Kovach, Cheap Smartphones Are Going to Take over the World,
www.thebusinessinsider.com, June 16, 2014.

4.

Steve Kovach, Xiaomi: The Scrappy Chinese Smartphone Maker Thats Poised to
Wallop Samsung and Apple, www.businessinsider.in, June 16, 2014.

5.

Jacky, Xiaomi will Launch in the Philippines soon, its Third Global Market!,
http://vulcanpost.com, June 12, 2014.

6.

Bobby Situkangpoles, Hugo Barra talks Xiaomi Business Model, International


Expansion and More Exclusive, www.androidauthority.com, June 11, 2014.

7.

Rasul Bailay and Danish Khan, Chinas Xiaomi Hires Jabong co-founder Manu Jain
to Head India Operations, http://articles.economictimes.indiatimes.com, June 11, 2014.

8.

Michael Josh Villanueva, Xiaomi Picks Philippines as 3rd Global Market,


www.rappler.com, June 9, 2014.

9.

India Smartphone Sales to Touch


www.deccanherald.com, June 4, 2014.

Partner

in Taiwan,

PO
ST

e-commerce

million

PY

80.57

in

2014:

IDC,

10.

Brad Stone, Xiaomis Phones Have Conquered China. Now Its Aiming for the Rest
of the World, www.businessweek.com, June 4, 2014.

11.

Chinas
Xiaomi
Leads
Asias
www.channelnewsasia.com, May 11, 2014.

12.

The
Art
of
Social
E-Commerce
www.chinainternetwatch.com, May 8, 2014.

13.

Chris P, Xiaomi Continues to Sell more than Apple in China, Samsung and Lenovo
Still at the Helm, www.phonearena.com, May 8, 2014.

14.

Howard Yu, How Xiaomi Wooed the Best Suppliers, www.ft.com, May 7, 2014.

15.

Kaylene Hong, Xiaomi Simplifies its Web Domain to Mi.com to Appeal to an


International Audience, http://thenextweb.com, April 22, 2014.

16.

Chinas Xiaomi Plans to Give IPhone Cool at Half Price, www.bloomberg.com, April
9, 2014.

That

Smartphone
Xiaomi

Drive,

Taught

Us,

CO

Low-cost

Kaylene Hong, Xiaomis Social Media Strategy Drives Fan Loyalty, Books it $242m
in Sales in 12 hours, http://thenextweb.com, April 9, 2014.

18.

Shen Jingting, Smartphone Maker Xiaomi


http://usa.chinadaily.com.cn, April 9, 2014.

19.

Paul Nunes and Larry Downes, Big Bang Disruption: How Chinas Xiaomi Manages
Catastrophic Success, www.forbes.com, April 3, 2014.

20.

Ansuya Harjani, Chinas Xiaomi


www.cnbc.com, April 2, 2014.

21.

Aloysius Low, Xiaomis Hugo Barra: True World Phones in 2 years, Android all the
Way, www.cnet.com, March 24, 2014.

22.

Junko Yoshida, Exclusive: Xiaomi Unboxed, www.eetimes.com, March 18, 2014.

17.

19

Makes

Woos

Strides

Buyers

in

off Mainland,

Smartphone

Race,

Xiaomi: Reinventing the Smartphone Business Model in China

Qin Quanlin, Xiaomi not Seeking Public Listing, http://europe.chinadaily.com.cn,


March 7, 2014.

24.

Kaylene Kong, Can Chinas Coolest Phone Maker take Xiaomi-mania International?
We ask VP Hugo Barra, http://thenextweb.com, February 19, 2014,

25.

Michael Kan, Steve Wozniak Visits Xiaomi in China, Endorses its Products,
www.macworld.co.uk, January 12, 2014.

26.

Mark Milan, China Loves Xiaomi Phones. Will Anyone Else? www.bloomberg.com,
January 6, 2014.

27.

Xiaomi Sold 18.7 million Smartphones in 2013, Eyes Singapore as the Next Market,
www.bgr.in, January 3, 2014.

28.

Tom, Top Ten Smartphones in February 2014, www.counterpointresearch.com, 2014.

29.

Paul Bischof, Xiaomi Sells 150,000 Smartphones in less than 10 Minutes on WeChat,
www.techinasia.com, November 28, 2013.

30.

Sabrina,
The
Secrets
of
Xiaomi
Marketing
www.chinainternetwatch.com, November 27, 2013.

31.

Matt Schiavenza, How Xiaomis Hip, Inexpensive Smart Phones Conquered China,
www.theatlantic.com, October 24, 2013.

32.

Parmy Olson, How Chinas Xiaomi Does In A Week What Apple Does in a Year:
Update Devices, www.forbes.com, October 22, 2013.

33.

Ansuya Harjani, Chinas Xiaomi New Disruptive Force in Smartphone Market,


www.cnbc.com, September 13, 2013.

34.

Can Xiaomi use its Homegrown Strategy Abroad? www.chinaeconomicreview.com,


September 10, 2013.

35.

Kaylene Hong, Xiaomi Co-founder on why ex-Google Exec Barra and its own
Firmware are Key to International Success, http://thenextweb.com, September 9, 2013.

36.

Sameer Singh, Xiaomis Growth Strategy Detailed, www.tech-thoughts.net, September


9, 2013.

37.

Hamish McKenzie, Xiaomi has Boldly Predicted Annual Revenues of $16 billion by
2016, http://pando.com, September 5, 2013.

38.

Selasa, Apples Iphone Grows to 43% Share among US Smartphones,


http://ibetyouwontrememberthisaddress.blogspot.in, September 3, 2013.

39.

Paul Bischof, Xiaomi App Store Reaches 1 Billion Downloads, www.techinasia.com,


August 30, 2013.

PO
ST

23.

in

China,

CO

PY

Success

Dan Seifert, What is Xiaomi? Heres the Chinese Company that just Stole one of
Androids Biggest Stars, www.theverge.com, August 29, 2013.

41.

David Barboza, In China, an Empire Built by Aping Apple, www.nytimes.com, June


4, 2013.

42.

Sue-Lin Wong, Challenging Apple by Imitation, www.nytimes.com, October 29, 2012.

43.

Simon Montlake, Xiaomi's


www.forbes.com, July 18, 2012.

44.

Shen
Jingting,
Chinas
Answer
http://usa.chinadaily.com.cn, June 7, 2012.

40.

Lei

Jun:

20

Chinas
to

the

Answer
Apple

to

Steve

Success

Jobs?,
Story?