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Mobile Communications

The Apple of China's Eye: How Xiaomi Pipped Samsung to #1

In early August a smartphone manufacturer little known to most users around the world soared into the global top five and leapfrogged Samsung to number-one spot in the largest mobile market in the world. That manufacturer was Xiaomi, a moniker few outside the Middle Kingdom can pronounce, let alone know what it represents. According to analyst firm Canalys, Xiaomi has risen in just over a year from being a niche player – albeit with a fanatical following – in its domestic market to grow shipments 240%. Its market share now stands at 14% in China, a country which accounts for 37% of global shipments.

The question now facing the Beijing-headquartered business – from charismatic CEO and founder Lei Jun to VP of International and ex-Android man Hugo Barra – is how to replicate this astonishing success abroad.

There is a slight caveat to this apparently meteoric rise. Its success in Q2 was helped by “an anticipated, temporarily under-strength Samsung performance”, according to Canalys analyst Jingwen Wang. It’s also true that the firm has been the subject of much media hype and adoring fandom in its home country for some time – ensuring that it is often referred to as the “Chinese Apple”. But still, these are pretty remarkable figures. So how has Xiaomi climbed so far so quickly? 

Low price, high quality

Most of the smartphone watchers I’ve spoken to describe the same elements: high-spec products at low prices; a quality user interface (MIUI); an innovative and cost-effective approach to marketing using social media and blogs; and an Apple-like “cool factor”. It’s also said to have a laser focus on user engagement, and “regularly acts on feedback to improve its products”, according to IDC analyst Tay Xiaohan.

The firm is making particularly good headway at the low end of the smartphone space, a huge market in China where millions of feature phone users are now looking to upgrade their handsets. As such, its RedMi range, which typically sell for around $150, has dominated sales figures despite all the headlines devoted to its flagship models, according to Canalys VP of analysis, Rachel Lashford.

She told me that the firm could also be benefitting from the fallout over Edward Snowden’s NSA revelations. “At a time when the government is taking Microsoft and Apple off its procurement lists, perhaps that anti-American sentiment at a government level due to NSA PRISM tit-for-tats is filtering through?” she said.

Taking it global

However, it’s not all plain sailing from here on in. China’s huge domestic market may have allowed Xiaomi to scale its capabilities in a way that a start-up in the UK could only dream of, but outside of the Middle Kingdom monoculture it will face a demanding new set of challenges.

“It may have to spend a certain amount on marketing to mass consumers for it to compete with the local brands,” IDC’s Tay told me.

“Xiaomi may also not be able to focus on customer experience as much as it moves into new markets, with each market having different needs. It will require a much larger team to engage users from each market, and make specific updates to its phone/software based on the needs of each market.”

In addition, Lashford wondered whether the firm has the patents to compete in the US and Europe.

“Clearly they are building their own portfolio, but even Lenovo had to buy Moto to be able to scale globally. I wonder if Microsoft has chased them for licences for the Android payments?” she said.

Xiaomi also has to push on with getting more LTE models to market, especially in China but elsewhere too. In fact, supply has been a source of frustration for customers already in the few countries outside of the Great Firewall where Xiaomi is operating. Barra was even forced to apologise last week for underestimating demand for its Mi3 device in India. The first batch of devices sold out in under 40 minutes, the second in five seconds and the third batch of 15,000 units in just two seconds, according to BGR India.

Here, Xiaomi’s method of gauging demand via interactions on its Facebook appeared to backfire because, as Barra told the site, “India is a different market where word-of-mouth spreads”. 

“We can’t react that quickly,” he added. “The products in India are made for India – packaging, labeling and software. Unlike other brands we cannot react so quickly since we are a startup. We do have a manufacturing constraint that many won’t understand. We don’t have idle manufacturing capacity.”

Aside from this, there are question marks over whether the firm is able to manage carrier distribution channels effectively as it expands into various markets, according to Lashford.

It should be pointed out that Xiaomi is certainly not a one-trick pony. It also manufacturers connected TVs and set-top boxes, and has produced a low cost range of wearable tech products, which could all be important to its chances of staying competitive and reaching a wider range of users abroad.

“It recently launched the Mi Band fitness band at a very low price. At such a low price, it is a cheap way that it can pull in new users into the Xiaomi ecosystem upon which future services and products can be sold,” said Tay.

The storm approaches

Another problem to manage will be answering increasingly vocal accusations that Xiaomi, like many Chinese technology companies, has only got this far by copying, not innovating with its products. A particularly aggressive TechCrunch article last month even alleged that the firm had lifted images from other sources and passed them off on its website as being taken by the Mi3.

“Again, here, Xiaomi apparently shows complete disregard for the intellectual property of others,” the report noted.

According to Lashford, the firm needs to show a more “professional” approach to copyright. “Being in start-up mode is no longer an excuse when you are a market leader and four years old,” she argued.

The bad news was multiplied for Xiaomi after it was fined a record TW$600,000 (£11,894) for exaggerating online sales of RedMi in Taiwan, although the real figures turned out to be not too far off.

Both incidents show that the firm needs to do some growing up pretty quickly, probably starting with some major international PR hires. Even with these challenges, though, Xiaomi’s influence on the international smartphone scene is shaping up to be a lasting one. With Huawei consolidating its position and Lenovo a major new entrant with its Moto buy, it’s already taking on an irresistibly oriental flavour.

 

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong, writing for The Register, MIT Technology Review and others. Now back in London, he always has one eye on what's happening out East.

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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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