Xiaomi

The Apple of China or something

more?

Abhishek Sharma

Devaansh Samant

Shalin Doshi

Business Model
Manufacturing
Online Retail Cut

LOW margins
LOW revenue
Before Sales
After Sales

LOW costs

Distribution
Services

HIGH revenue
Accessories

Cost Drivers

Low hardware margins

No retailer cuts
Flash Sales leading to
low inventory costs
Low marketing costs
Longer production
periods Moores Law
driving costs down

Xiaomi users spend ~2

times the time an
Android/iOS user spends
on their respective play
stores higher paid
service consumption

Revenue Drivers

REVENUE ANALYSIS

Business Model
Service based revenue system
Strong customer ties
Crowdsourced development
Brand loyalty
Eliminating intermediary costs
Direct distribution system
Agile Supply Chain
Zero inventory costs
Ability to react to trends in consumer demands
Minimal marketing expenditure

Absence of brick and mortar stores

Alienation of non-internet using consumers
Weak after-sales presence
Un-scalable logistics system
Poor delivery times
No patentable technology
Intellectual Property Rights issues
Cultural dependence
MIUI is heavily specific to Chinese demands

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

Price sensitive emerging markets in developing countries

Culturally similar markets
South East Asian countries with significant Chinese
population
Diverse platforms part of the Xiaomi ecosystem
Seamless integration of the services and devices
MiTVs + Mi phones + MiCloud etc
Working towards high quality perception
Untargeted yet attainable premium segment

Piracy
Cheap rip-offs of the Mi phone.
Disruptive competitors
Price wars
Data privacy
IPR wars
Lawsuits over IP theft.

SWOT ANALYSIS

The Virtuous Cycle

Software
Weekly development cycles
Integration of services
through apps (MiCloud)

Strong Customer

Hardware

Crowdsourced development
Active user forum

High build quality

Low margins

COMPARATIVE ADVANTAGE

China
Mapping the Success Story

The Chinese Smartphone Market

Booming Smartphone Market

Government subsidies
enhanced smartphone
penetration

Sales volumes of smartphones in China 2011 - 2016

SETTING THE STAGE

Xiaomi and China

Capitalizing on nationalist sentiment

Strategic partnerships - China Mobile

Tailor-made for the Chinese user
Low upfront payment in a price sensitive country
Open honest relationships with users

Marketed for the youth, the right target audience

Strong leadership by Lei Jobs Jun
THE CHINESE STORY

Expansion and Challenges

EXPANSION STRATEGIES

Logistics
Change in operations process required as the company expands and incorporates new products in its range

Expanding to new segments

Catering to business segment by launching a robust black-box like hardware & software package

Brand Equity
Elaborate marketing campaign to appeal to non tech-savvy consumers

Withdrawal of government subsidies is imminent in China

CHALLENGES

Apple likely to be most heavily hit, as price-sensitive users shift to cheaper brands

Threat from disruptive competitors

Vivo, another Chinese manufacturer, has beaten Apples market share in Q3 14

Piracy
Cheap rip-offs defaming Xiaomis user experience

ESTABLISHING DOMINANCE

Emerging Markets
Repeating the Success Story

Smartphone Battleground
Markets like India already have a
wide variety of low-cost options

Willingness to pay for smartphones in emerging markets

Market Driven
Price Wars

Intensely
Competitive
Budget
Smartphone
Market

50% of the Indonesian market is for phones

costing less than $100 a market even Xiaomi
doesnt cater to

Multitude of
Low-Cost
Manufacturers

CALL FOR LOW-COST

10

Challenges
Low internet connectivity and e-commerce penetration

Higher trust for retail store products; lesser use of e-payment systems
Saturated low-cost phone segment

Absence of inventories causing problems in meeting demand and delays in transportation

Lack of localized content and low customizability

Quality control and after-sales services difficult in e-tail

Security sanctions owing to data centres being located in China

THE DEVELOPING WORLD

11

Strategies
Traditional modes of advertising
Flagship stores to experience product
Aggressive PR and media campaigns (big-name brand ambassadors, event sponsorship IPL, ISL, Shaastra etc)

Reorganization of distribution network

Set up inventories in the countries to ensure timely delivery of products
Tie-ups with suppliers for production in the country itself

Make localized content available on MiStore

Make local languages, apps, themes available

Diversification of devices
Foray into cheaper tablets, wearables, laptops etc.

Tie-ups with carriers to gain easy access into the market

Build on success of flash sales

TAKING ON THE COMPETITION

12

USA
Turning to Premium Consumers

Snapshot of a Luxury Market

Premium goods consumers

Quality Driven Market

North American markets are

the only markets with an
upward trend in average
smartphone price

iDominate

14

Challenges
IP lawsuits due to lack of patents

Poor perception of Chinese products

Low brand equity - Heavy dependence on localized Mi Fans
Price-insensitive users
Restriction on use of servers in China due to data security concerns.

Un-scalable logistics system incurring high shipping costs and import duties
Limited capability of MIUI OS applications to cater to the non-Chinese consumer
TACKLING THE EAGLE

15

A Note on Innovation

Many of the companies that were once great are

now gone or on their way out largely because they
stopped innovating. In fact, according to Forbes, the
average lifespan of a successful S&P 500 Company
was 67 years in the 1920s. Today it is 15 years. More
companies need to innovate to improve these
declining numbers.

Companies can choose to compete on the technology front. Xiaomi chose to compete on the business front
They revolutionized the smartphone market by avoiding the competitive hardware market
and generating revenue through services
To avoid meeting the same fate as their competitors, they must keep innovating

THE NEED FOR INNOVATION

16

Thank You
Abhishek Sharma MM11B035
Devaansh Samant EE11B110
Shalin Doshi BT11B064
The Sicilian