Xiaomi: The Tech Giant the Western World Never Sees
In 2014 Xiaomi (Pronounced Shao-Mi) sold 61.1 million smart phones, more than tripling on previous years. Now Xiaomi is the third largest smartphone vendor in the world. But oddly enough, if you approached the majority of people in the western world, they will never have heard of the company, or at the very least be unable to name a single model of phone they produce. That being said, it really says something about the quality of these devices when they can gain this level of market share without the need for the kind of global advertising used by Apple and Samsung.
Xiaomi, founded less than five years ago, initially only sold to China, Hong Kong and Singapore. Last April after a one day sale in which they accumulated $240 million, they announced ten new countries they would start shipping to including: India, Malaysia and Thailand. Even so, eight months later, international sales still only accounted for 6% of their total sales. This is a perfect example of a company being a large fish in a small pond and they have no plans to start shipping phones to the US anytime soon, instead opting to start selling peripheral devices such as earphones and smart bands. This move is partly due to the differences in business models between the two markets, with the majority of users in Europe and the US buying contract based, subsidized devices through their network carriers. Xiaomi has never relied on carriers, instead offering customers the chance to buy their mobiles direct from them through a web only store.
These web only sales allow for a very interesting and cost effective business model. Upon launching a new device, they take a pre-specified number of orders and then procure the required number of components from other companies. These components are then shipped to Shenzen to be assembled and finally delivered to the consumer utilizing other companies warehouses. As the company negotiates lower prices with suppliers, these savings are then removed from their devices RRP meaning they can continually offer cheaper products.
In turn, the profit margins on their phones are smaller with a lot of their money coming from other areas such as themes and accessories. With no physical stores and a tiny advertising budget, it starts to become clear just how Lei Jun (Xiaomi’s founder) was Forbes Asia’s Business Man Of The Year for 2014 and has a personal net worth of $12.9 Billion (at the time of writing).
The privately held company is currently valued at $45 Billion (making it the worlds most valuable tech start-up) and with no plan to make a public offering in the next five years, has its eyes set firmly on growth first. In 2014 they applied for 2000 patents and have plans to file for double that amount this year. Last year saw an increase of 326% on phone shipments and plans to sell over 100 million in 2015. With them in talks with Ericsson following a sales ban in India after making an impressive 1 million sales in just five months in the country, we could see Xiaomi make a triumphant return to the country. This in turn could crush any hopes Samsung had with their new mobile the Z1 (their first device to run Tizen) in the country; with MIUI (Xiaomi’s Android rom) already having a strong history of development with over 100 million users and weekly updates.
When Xiaomi do settle on a strategy for the US and Europe, Samsung could rapidly lose out on sales if done correctly. Some of their devices are amazingly similar specifications wise. The Xiaomi Note Pro and Samsung Note 4 for example, apart from a few minor differences are identical (GSMarena: side by side comparison). With Xiaomi’s notoriously low prices, it is not a far reach to imagine Xiaomi being the next big thing in the western world as well as on their home turf. Competition, more often than not, is good for the consumers and in five more years we could see them as a major player world over.
Would you buy a Xiaomi phone, where do you think they will end up? Leave us a comment below!