Upwardly Mobile

By+Zhou+Xiaoyan

Li Hong， a 33-year-old investment project manager in Beijing， has two smartphones—an iPhone and an Mi2. The ubiquitous iPhone is the flagship product of the California-based Apple， while the lesser known handset is produced by a homegrown Beijingbased maker of smartphones， tablets and televisions—Xiaomi Technology.

“I think the Xiaomi smartphone is better than the iPhone in so many ways. Compared with the iPhone， the Xiaomi handset is cheaper. Its battery lasts longer， with programs running faster and its operation system being more tailored to Chinese customers，” Li said， adding that he is surrounded by people who use Xiaomi smartphones.

“The only disadvantage of Xiaomi phones is that their Android operation system may not be as safe as the Apples IOS system.”

“Both Samsung and Xiaomi use the Android system， but Samsung handsets are generally much more expensive than Xiaomi， which will inevitably lead to a sweeping victory for Xiaomi in price-sensitive markets，” Li said.

Just last year， Xiaomi was a relatively obscure Chinese handset maker. But now， it has become one of the top smartphone vendors in the worlds largest handset market—China.

According to data from market research and advisory company Canalys， Xiaomi became No. 1 in China by shipping 15 million devices in the second quarter， a 14-percent share of the market， against Samsungs 12-percent share.

Lei Jun， CEO and one of the founders of Xiaomi， claimed the company sold more than 26 million smartphones in the first six months of this year， a year-on-year jump of 271 percent. Sales revenues from the first half of 2014 marked a year-on-year growth of 149 percent. The high-profile 45-year-old businessman pledged to sell more than 60 million smartphones this year and 100 million in 2015.

Xiaomi also nabbed fifth place by global market share for smartphone makers in the second quarter， according to research firm Strategy Analytics， which is headquartered in Boston， the United States.

After becoming a huge success at home， the ambitious smartphone vendor started its foray into the international market this year. But its shortcomings in patents， innovation and telecom operators may all become obstacles standing in its way.

Secrets of success

Xiaomi， whose name translates into the grain“millet，” was founded in April of 2010 by Lei and his friends in Zhongguancun， Beijings technology hub dubbed Chinas Silicon Valley.endprint

On August 16， 2011， Xiaomis first smartphone quietly debuted， selling a healthy， but unremarkable 10，000 smartphones in the first month. In less than three years， Xiaomi had rolled out five fast-selling smartphone models and sold a total of 57.36 million units， the companys CEO Lei said.

Xiaomis biggest edge lies in its reasonable price combined with high-performance hardware and highly customized software. This is very attractive to many Chinese consumers who try to strike a balance between the price and performance of their smartphones.

Their latest model， the Xiaomi Mi4， which was introduced on July 22， runs on a quadcore chipset and is claimed by Xiaomi to be the worlds fastest smartphone. The Mi4 retails at 1，999 yuan （$326） for the 16G model and 2，499 yuan （$407） for the 64G model. In sharp contrast， the price of smartphone models by Samsung with similar performance could easily go up to more than 4，000 yuan （$652）. Its also by far more affordable than the flashy iPhone.

A rabid fan base is another key to Xiaomis instant success. The company has built a loyal following through the marketing tactic of creating a sense of exclusivity around its products， much like Apple does. Most of Xiaomis smartphone models were snapped up by fans minutes after the online product launch.

Charismatic company head Lei views Steve Jobs as his icon and Xiaomi has thus largely followed Apples model of integrating the Internet， hardware and software.

Lei has always borne in mind the new way of doing businesses in the mobile Internet era. When it comes to improving the quality of Xiaomi phones， he wants to allow fans to feel highly involved.

“Most fans have many thoughts about what makes a perfect smartphone. Although they are not able to realize their dreams by themselves， they can provide advice to Xiaomi and Xiaomi will realize these functions after soliciting suggestions. Every fan feels like part of the process and they are willing to spread the message about Xiaomi phones to their friends，” Li elaborated.

Xiaomi has skyrocketed to success by capturing the enthusiasm of young people in China for the Internet， said Boston Consulting Group. According to them， it has also been gaining ground by shunning costly retail stores and by selling online.

Ready to go abroad？

Four years after its inception， Xiaomi has gained a dominant market share in China as well as a vast cult following. On the basis of this， the company has decided to make a foray into overseas markets.endprint

In April last year， Xiaomi started business operations in Taiwan and Hong Kong. In 2014， Xiaomi entered markets in Singapore， Malaysia， the Philippines and India. The company proudly claims its online product launches sold out in minutes in Singapore and in less than an hour in India. According to data from Canalys， 97 percent of Xiaomis shipments in the second quarter were into the Chinese mainland. The company is now looking to expand into other markets， with Indonesia， Mexico， Russia， Thailand and Turkey in its sights for the second half of the year.

Li Wanqiang， Vice President and another founder of Xiaomi， said business models in overseas markets are mainly copied from its business model in China.

In order to make preparations for its global foray， Xiaomi hired the Hugo Barra， former Vice President of Android Product Management for Google. Barra is now responsible for the companys business outside the Great China Region.

Lydia Bi， a research analyst at Canalys， said hiring Barra means Xiaomi definitely has its eye on the international market， although the company is not yet in a position to roll out its devices on a large scale internationally.

She said issues such as gaining trust from overseas buyers， differentiating itself from existing smartphones， and navigating international intellectual property issues were challenges for the Xiaomi brand.

“It is totally feasible [for Xiaomi to globalize]，”Mark Tanner， Managing Director of Shanghaibased China Skinny， a market advisory firm， told ChinAfrica magazine. “Id say they will be especially huge in the most price-sensitive markets of Asia， Africa and Latin America， however， they will still do well in the developed markets， with the United States being the toughest market for them.”

Tanner acknowledged that barriers do exist， however. “Their thorniest issue will be the negative perception around China， for both quality and， more likely， ‘Big Brother[government oversight]. The United States obviously has a lot of paranoia about Chinese products—just look at the barriers Huawei has faced there.”

Experts say a lack of patents and its low-cost strategy will do harm to Xiaomis capacity in innovation， which will also present a roadblock on its path to conquering mature smartphone markets such as the EU and the United States.

Wang Yanhui， Secretary General of CNMO.com， a website that offers information about the latest mobile phones for Chinese customers， said cost performance is the goal that Xiaomi is constantly pursuing. “But targeting the mid-range and low-end markets wont do much good for the companys future. A good smartphone company should focus on innovation， instead of perennially following others.”

Li Hong， the 33-year-old project manager， said he has absolute confidence in Xiaomis global success.

“It will only be a matter of time before it takes Samsungs market share around the world because of its low price and high performance，” said Li Hong.

“However， I dont think it will deal a heavy blow to the iPhone. Most iPhone users buy iPhones because of its safer IOS system and they are already quite used to it. It is hardly likely that they will all of a sudden up and shift to Xiaomi.”endprint