XIAOMI

Mi-ting cur­rent and fu­ture de­mands.

HWM (Malaysia) - - FEATURE -

mag­ine the fol­low­ing. You start a smart­phone­cen­tric com­pany in 2010, with a sim­ple modus operandi. Four years roll by, and you’ve sold 60 mil­lion units. Ev­ery tech­nol­ogy news out­let and ru­mor site hails your com­pany as the new Ap­ple. What was once an un­heard startup milling amongst tech giants have sud­denly be­come the 5th largest smart­phone maker with a val­u­a­tion of US$45 bil­lion (RM190.3 bil­lion) in 2014. As of Q2 2015, mar­ket in­tel­li­gence body, In­ter­na­tional Data Cor­po­ra­tion (IDC), cur­rently lists Xiaomi as the 4th largest with a 5.3% smart­phone mar­ket share. In com­par­i­son, it took Black­Berry a good 19 years to go from start-up to earn­ing a place in the NAS­DAQ-100 In­dex.

For many, this type of per­for­mance is just a dream. For Xiaomi, it’s their re­al­ity. The ques­tion now is, how do you stay on top?

Be­ing a late en­trant to an over-sat­u­rated smart­phone mar­ket, Xiaomi’s op­tions were clear: they are to blow com­pe­ti­tion out of the wa­ter with phones that matched high­pow­ered hard­ware that Sam­sung of­fers, the ease-of-use of which iPhones are known for, plus a lit­tle bit of magic in the form of mar­ket­ing and cost-cut­ting.

The Chi­nese phone maker is led by none other than Lei Jun - a bil­lion­aire val­ued at US$13.4 bil­lion (RM56.7 bil­lion) and cur­rently ranked 87th in Forbes’s list of suc­cess­ful bil­lion­aires (he’s ranked 6th, if we are look­ing at China alone). Lei Jun has vast ex­pe­ri­ence as a busi­nessper­son, hav­ing acted as CEO for a near-bank­rupt soft­ware com­pany, King­soft, and strug­gled with in­ven­tory prob­lems dur­ing his short Vancl (an online ap­parel and house­hold goods re­tailer) stint. Both ex­pe­ri­ences are di­rectly re­lated to Xiaomi’s cur­rent stratagem - avoid­ing a ma­ture sec­tion of the mar­ket, and stream­lin­ing sup­ply to match de­mand.

Xiaomi’s strat­egy is an el­e­gant ex­am­ple of play­ing nat­u­ral ad­van­tages into mar­ket de­mands. The nat­u­ral ad­van­tage refers to

Ihow Chi­nese en­trepreneurs have a knack for re­verse en­gi­neer­ing and im­i­ta­tion. In fact, it’s writ­ten in the Hand­book of East Asian Entrepreneurship (by eco­nomic and entrepreneurship pro­fes­sors Tony Fu-Lai Yu and Ho-Don Yan, no less) that most en­trepreneurs in China learn by im­i­ta­tion, and re­verse en­gi­neer­ing is a lu­cra­tive op­tion, es­pe­cially when com­ing into ma­ture mar­kets.

By ap­pli­ca­tion, to dom­i­nate the smart­phone scene, Xiaomi does not need to be a first­mover, since Ap­ple and Sam­sung are do­ing all the heavy-lift­ing for smart­phone in­no­va­tion.

In­stead, Xiaomi needed to meet the late-mover de­mand - an ed­u­cated mar­ket seek­ing af­ford­able smart­phones that don’t suck. Sim­ply find out what the new­est Ap­ple or Sam­sung phone can achieve, learn the essen­tials that make the latest fea­tures pos­si­ble, fol­low feed­back for other phone in­ter­faces to im­prove their own, tap into the lo­cal man­u­fac­tur­ing strength for af­ford­able parts, and fi­nally cut out the mid­dle­man by ap­peal­ing di­rectly to fans. Xiaomi phones are half the price of a ri­val flag­ship prod­uct, with all the im­por­tant flag­ship parts in­tact.

Of course, we’re not for­get­ting how clever the flash-sale tac­tic is when it comes to cre­at­ing con­sumer de­mand. And yet, the flash sale tac­tic isn’t ex­actly an ideal method for the young Chi­nese smart­phone maker ea­ger to ex­pand glob­ally.

Specif­i­cally, Xiaomi was al­ready hav­ing trou­ble with the In­dian mar­ket - de­spite selling more than 500,000 smart­phones in the span of five months since its July 2014 In­dian de­but. Xiaomi had to con­duct ur­gent de­liv­ery runs by flight (in­stead of re­ly­ing solely on sched­uled cargo flights) to In­dia in or­der to cope with de­mand - and it barely al­le­vi­ated buyer frus­tra­tion. Xiaomi also had to rope in Fox­conn Tech­nol­ogy Group - iPhone’s man­u­fac­turer - to in­crease pro­duc­tion, as their then-slew of man­u­fac­tur­ers (which in­cluded Fox­conn In­ter­na­tional Hold­ings, the non-iPhone mak­ing Fox­con­ners) was in­suf­fi­cient to han­dle de­mand.

In­stead of ag­gres­sively ex­pand­ing to ten other new mar­kets ini­tially planned, Xiaomi had to cut down to five mar­kets for now, putting Brazil, Rus­sia, Thai­land, Mexico, and Tur­key on the 2015 pipeline. Hugo Barra also con­firmed that break­ing into the U.S. mar­ket is “no less than a year-plus away”, in a July 2015 Bloomberg video in­ter­view.

The tem­po­rary ces­sa­tion of Xiaomi’s In­dian sales in late 2014 due to a patent in­fringe­ment tus­sle with Eric­s­son damp­ened fur­ther growth plans. Tem­pered by ex­pe­ri­ence, Xiaomi is a lot more cau­tious to­day, do­ing patent home­work dili­gently for their even­tual U.S. break­through.

Xiaomi’s cur­rent suc­cesses and strug­gles are a clear ex­am­ple of what it re­ally takes to un­der­stand and ap­pre­ci­ate the com­plex mar­ket, mak­ing the most out of the sit­u­a­tion by ad­dress­ing flaws in an hon­est, no-frills man­ner while play­ing to strengths. In­deed, Xiaomi is find­ing out that it takes more than just be­ing cheap and good.

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