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Xiaomi – China’s Smartphone Trailblazer

27 June 2014

Relative newcomer Xiaomi has taken the Chinese smartphone industry by storm. The Beijing-based, three-year-old, privately-held company’s flagship smartphone, the Mi2S, was the most popular phone in China, the world’s largest handset market, during the first half of 2013, followed by the Samsung S4.

Xiaomi is certainly taking advantage of the rapid growth in China’s market for mobile devices. China took less than five years to double its mobile phone accounts to 1 billion, adding subscribers at a steady pace – between 8 million and 12 million a month in recent years, reaching 318 million units in 2013 and expected to grow to 380 million units in 2014.

What’s driving this rapid smartphone growth? Industry analysts point to a combination of low unit costs and software advantages – particularly the incorporation of Android open-source platforms (AOSP) that support apps available from the local app stores. Kevin Wang, director of China electronics research at IHS, forecasts that total smartphone shipments from Chinese companies will grow to 480 million units in 2014, up 28 percent from 2013. Xiaomi currently sells in China, Hong Kong, Singapore, and Taiwan.

A Changing Mobile Landscape

Xiaomi is often called the “Apple of China,” due largely to its innovative sales and marketing efforts. Apple itself has clearly realized the market potential, finally prioritizing China as one of the initial launch countries for new products.

Apple’s expansion in China could pose a significant market share challenge to Xiaomi. While Apple continued to dominate U.S. sales in 2013, its relatively high price and a drop in iPhone subsidies from China Telecom Corporation and China Unicom have had some negative impact. But other alliances have mitigated that impact. "Apple’s partnership with China Mobile will help this United States-based smartphone vendor to sell 25 million iPhone units in China [in] 2014,” said Wang.

Xiaomi’s Product Evolution

In 2011, Xiaomi’s first model, the MiOne (Mi1), sold for $316, which was about half the price of devices sold by its big-name smartphone competitors. “The handset caters to smartphone enthusiasts on low budgets,” said IHS’s Wang. The follow-on product, the Mi2, sold for $326 and was rapidly adopted. The Mi2S is viewed as a premium device at an even more attractive $130 retail price tag. Industry analysts believe that Xiaomi’s relatively lower prices, combined with highly desirable performance features, are likely the reasons for the company’s continued success in China. In September of 2013, Xiaomi launched its first smart TV, giving the company even more opportunities to branch out into the giant Chinese consumer electronics space.

Innovative Marketing

Xiaomi operates much differently than other smartphone manufacturers, basing its manufacturing operation on keeping only enough materials on hand to produce the number of smartphones it expects to sell. And unlike many of the other companies in the industry that roll out new products every six months, Xiaomi is content to sell the same models for up to 18 months. This gives them more time to market accessories and reap profits.

While the company sells products directly on its website, plans are underway to convert its 18 service centers to a series of retail stores that will offer repair and after-sales services, as well as accessories. It’s an approach modeled after Apple’s success in the software and services areas. "The hardware is like a platform,” said Wang. “The most important thing is to breed software and services on it. Those are the things that truly generate profit.”

Xiaomi’s other unusual marketing tactics include selling on popular social networking sites such as China’s largest, Tencent Qzone; on Sina Weibo, the country’s leading microblogging site; or via Tmall.

When Xiaomi first started out, CEO Jun took advantage of the free marketing found on Internet forums, regularly posting comments and initiating discussions.

If Xiaomi continues on this path of selling innovative products people want, using creative sales tactics, analysts predict that Xiaomi can become an even more significant player in China – as well as in the global marketplace.

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