Xiaomi
The “Apple of China” or something
more?
Business Model
Manufacturing
Online Retail Cut
Distribution
Services
Accessories
After Sales
Before Sales
LOW margins
LOW revenue
LOW costs
HIGH revenue
• Low hardware margins • No retailer cuts
• Flash Sales leading to low inventory costs • Low marketing costs • Longer production
periods – Moore’s Law driving costs down
• Xiaomi users spend ~2 times the time an
Android/iOS user spends on their respective play stores – higher paid service consumption
Cost Drivers
Revenue Drivers
2
Business Model
SWOT ANALYSIS
• Service based revenue system • Strong customer ties
• Crowdsourced development • Brand loyalty
• Eliminating intermediary costs • Direct distribution system • Agile Supply Chain
• Zero inventory costs
• Ability to react to trends in consumer demands • Minimal marketing expenditure
STRENGTHS
• Absence of brick and mortar stores
• Alienation of non-internet using consumers • Weak after-sales presence
• Un-scalable logistics system • Poor delivery times • No patentable technology
• Intellectual Property Rights issues • Cultural dependence
• MIUI is heavily specific to Chinese demands
• Price sensitive emerging markets in developing countries • Culturally similar markets
• South East Asian countries with significant Chinese population
• Diverse platforms part of the Xiaomi ecosystem
• Seamless integration of the services and devices • MiTVs + Mi phones + MiCloud etc
• Working towards high quality perception
• Untargeted yet attainable premium segment
OPPORTUNITIES
WEAKNESSES
• Piracy
• Cheap rip-offs of the Mi phone. • Disruptive competitors
• Price wars • Data privacy • IPR wars
• Lawsuits over IP theft.
THREATS
The Virtuous Cycle
Software
• Weekly development cycles
• Integration of services
through apps (MiCloud)
Hardware
• High build quality
• Low margins
Strong Customer
• Crowdsourced development
• Active user forum
China
The Chinese Smartphone Market
SETTING THE STAGE
Booming Smartphone Market
Government subsidies
enhanced smartphone
penetration
Sales volumes of smartphones in China – 2011 - 2016
Xiaomi and China
Capitalizing on
nationalist sentiment
Strategic partnerships
-
China Mobile
Tailor-made
for the Chinese user
Low upfront payment
in a price sensitive country
Open
honest relationships
with users
Marketed
for the youth
, the right target audience
Strong leadership
by Lei ‘Jobs’ Jun
Expansion and Challenges
Logistics
Change in operations process required as the company expands and incorporates new products in its range
Expanding to new segments
Catering to business segment by launching a robust “black-box” like hardware & software package
Brand Equity
Elaborate marketing campaign to appeal to non tech-savvy consumers
Withdrawal of government subsidies is imminent in China
Apple likely to be most heavily hit, as price-sensitive users shift to cheaper brands
Threat from disruptive competitors
Vivo, another Chinese manufacturer, has beaten Apple’s market share in Q3 ‘14
Piracy
Cheap rip-offs defaming Xiaomi’s user experience
EXP A N SI O N ST R A TE G IE S C H A LL ENG ES
8
ESTABLISHING DOMINANCE
Emerging Markets
Smartphone Battleground
CALL FOR LOW-COST
Willingness to pay for smartphones in emerging markets
Market Driven Price Wars Multitude of Low-Cost Manufacturers
Intensely
Competitive
Budget
Smartphone
Market
Markets like India already have a
wide variety of low-cost options
50%
of the Indonesian market is for phones
costing less than $100 – a market even Xiaomi
doesn’t cater to
Challenges
Low
internet connectivity
and e-commerce penetration
Higher trust for
retail store products
; lesser use of e-payment systems
Saturated
low-cost phone
segment
Absence of inventories
causing problems in meeting demand and delays in transportation
Lack of
localized content
and low customizability
Quality control
and after-sales services difficult in e-tail
Security sanctions
owing to data centres being located in China
Strategies
Traditional modes of advertising
Flagship stores to experience product
Aggressive PR and media campaigns (big-name brand ambassadors, event sponsorship – IPL, ISL, Shaastra etc)
Reorganization of distribution network
Set up inventories in the countries to ensure timely delivery of products
Tie-ups with suppliers for production in the country itself
Make localized content available on MiStore
Make local languages, apps, themes available
Diversification of devices
Foray into cheaper tablets, wearables, laptops etc.
Tie-ups with carriers to gain easy access into the market
Build on success of flash sales
12
USA
Snapshot of a Luxury Market
iDominate
Premium goods consumers
Quality Driven Market
North American markets are
the only markets with an
upward trend in average
smartphone price
Challenges
IP lawsuits
due to lack of patents
Poor
perception
of Chinese products
Low brand equity
- Heavy dependence on localized Mi Fans
Price-insensitive
users
Restriction on use of servers in China due to
data security
concerns.
Un-scalable logistics
system incurring high shipping costs and import duties
Limited capability
of MIUI OS applications to cater to the non-Chinese consumer
A Note on Innovation
Many of the companies that were once great are
now gone or on their way out largely because they
stopped innovating
. In fact, according to Forbes, the
average lifespan of a successful S&P 500 Company
was
67 years
in the 1920’s. Today it is
15 years
. More
companies need to innovate to improve these
declining numbers.
“
”
Companies can choose to compete on the technology front. Xiaomi chose to compete on the business front They revolutionized the smartphone market by avoiding the competitive hardware market
and generating revenue through services
To avoid meeting the same fate as their competitors, they must keep innovating
