Mi-ting current and future demands.
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.