Xiaomi Model, Future of Chinese Economy

Written by Zehui Wu

Picture retrieved from www.mi.com/en, Xiaomi Official Website

You might have heard that iPhone 5 sold 5 million within the first weekend after release; or Samsung sold 10 million Galaxy S4 in 4 weeks after it went on sale. On September 5^th, 2013, Xiaomi, a Chinese electronic company you have never heard of sold 100,000 Mi3 smartphones in only 86 seconds solely in online store.  Because of low price and selling online, the Xiaomi business model recently pushed the company past Apple in Chinese mobile market share with 5% to Apple’s 4.8%. Xiaomi is now the fastest-growing phone maker. It has already taken the lead in the Chinese smartphone market and is ready to come to the world.

Much like Weibo, WeChat and QQ, Xiaomi is not familiar to most Americans. However, these all are the most popular products in Mainland China.  Imagine a huge market of one fifth of world population is enjoying those products that have nothing to do with Twitter, Facebook or even Google.  But unlike Weibo and WeChat that are just website and software, Xiaomi’s company leaders were faced with more risk and competition because hardware would be involved with inventory in a smartphone market was already crowded years ago.

The challenges ahead didn’t stop Xiaomi from growing into the best smartphone maker in China. Many companies, especial electronic companies, have started to copy Xiaomi’s approach in order to achieve the same level of success. As we dig into it, we can see three main factors that drive the company:  price, business model and its clear and strong focus on Chinese consumers.

Xiaomi’s price is invincible in the mainland market, especially by comparing it to iPhones. The most popular Xiaomi phone is called Mi3, price can be as low as 1699 RMB ($270) while iPhone 5S starts from 5288 RMB ($840) at Apple Store (China). According to most recent data, the average monthly income in Beijing city, where Xiaomi headquarters is located, is 5793 RMB. This meansa Chinese consumer wanting to buy a phone can either empty out his whole month’s salary or just buy a similar quality Mi3 that is only one third of the price of an iPhone. The choice is very simple and straightforward.

Moreover, as we check out the official website of Xiaomi, we see a great deal that gives the same impression as Apple.  However, the business model is entirely different.  Lei Jun, the founder and also CEO of Xiaomi, decided to sell Xiaomi products only via online stores; and they use Weibo and WeChat for free public exposure.  In this way, large amounts of money are saved from marketing and advertising.  At the same time, they use the money to improve hardware: processor, chips and screens. This is how Xiaomi is able to achieve such a low price while still maintaining high quality level of hardware. Nevertheless, Lei Jun decided to further use this e-commerce model by developing its own app store on Xiaomi phones, and similar to Amazon with Kindle, delling near cost.  This led to Xiaomi’s monthly revenue from its app store doubling in four months.

Last but not least, Xiaomi products are all based on the needs of Chinese domestic consumers. Lei Jun designed a whole new OS called MIUI for Xiaomi phones and launches free updates every week, incorporating ideas from current users. Just as one Xiaomi fan says,”(Lei Jun) understands our wishes. He knows what Xiaomi fans want.” On Mi3 phone, there are apps, UI and all other details designed and customized only for Chinese users.

Also, as mentioned above, Lei Jun tried to lower the cost of his phones in every way. Recently, Xiaomi announced the newest and cheapest phone ever, RedMi phone. The price is as low as 699 RMB ($110). This price is about 10% of Chinese consumers’ monthly income and can be afforded by the most. As Chinese consumers are much more price sensitive than US consumers, Xiaomi’s Mi phone and RedMi models will sure win their more and more market shares. No matter it is the price or the business model, what Lei Jun has been doing is to bring the price down, because he knows for certain that most of Chinese people cannot afford a ￥5000 phone.

Now, Xiaomi is starting to expand. In product lines, Xiaomi developed their tablets, large-screen HDTVs, a set-top box and home router, phone cases, and portable chargers. Their ambition to come to the global market is very clear. Lei once said that the next goal for Xiaomi is to go into Brazil, Mexico, Russia, Turkey, India and other South Asia countries. We can even see Xiaomi in US market. If you go to Amazon.com, you can already see the Xiaomi smart TV box sold by Xiaomi directly at $70.99, comparing to Amazon Fire TV and Apple TV at 99.99.  The price is already a good deal.

This whole Xiaomi phenomenon is exciting for Lei Jun, the company and all Xiaomi fans. Just as Lei Jun himself put it,

“China, for the first time, has its own technology brand that consumers truly lust after.”

It took a long time for Chinese entrepreneurs to figure out what is the successful business model in China. They have copied from developed countries; they made money from manufacturing cheap knock-offs. Sometimes they failed and sometimes succeeded, but until now all Chinese ventures lacked innovation.

Xiaomi is different. They successfully innovated in ways of technology and business management. Lei Jun proved that only by learning from outside and creating for your own can you achieve success. Xiaomi’s success also proved that there is a unique way of Chinese development: focus on the people. Just as indicated by the company mascot, who wears a red-starred Chinese army hat, while the spirit of Chinese army and red-star is “Serve the people“. China’s growth since 2008 is just a beginning. President Xi recently mentioned the idea of the “Chinese Dream“. It won’t be long before more and more companies like Xiaomi will become pillars of industry in the Chinese economy.

Sources:

1. Samsung’s Galaxy S5 sales outpace S4’s in first month (Michael Kan, PC World, 15 May 2014)
2. Did the Samsung Galaxy S5 Beat the iPhone 5S’ Sales Figures? (Ben Sullivan, CBR, 13 May 2014)
3. Xiaomi’s Phones Have Conquered China. Now It’s Aiming for the Rest of the World (Brad Stone, Bloomberg BusinessWeek, 4 June 2014)
4. The Business Model of Xiaomi, China’s Answer to Apple (William D. Lewis, The Global Law and Business Perspective, 17 September 2013)
5. Beijing Average Income Increased by 11% over the past 3 years (Bing Han, Sina Finance, 9 June 2014)