Xiaomi

The “Apple of China” or something

more?

Abhishek Sharma Devaansh Samant Shalin Doshi

Business Model
Manufacturing • Low hardware margins
• No retailer cuts
• Flash Sales leading to
low inventory costs
Online Retail Cut
LOW margins • Low marketing costs
• Longer production
LOW revenue periods – Moore’s Law
driving costs down
Before Sales Distribution

LOW costs After Sales • Xiaomi users spend ~2

Services times the time an
HIGH revenue Android/iOS user spends
on their respective play
Accessories stores – higher paid
service consumption

Cost Drivers Revenue Drivers

REVENUE ANALYSIS 2
Business Model
• Service based revenue system • Absence of brick and mortar stores
• Strong customer ties • Alienation of non-internet using consumers
• Crowdsourced development • Weak after-sales presence
• Brand loyalty • Un-scalable logistics system
• Eliminating intermediary costs • Poor delivery times
• Direct distribution system • No patentable technology
• Agile Supply Chain • Intellectual Property Rights issues
• Zero inventory costs • Cultural dependence
• Ability to react to trends in consumer demands • MIUI is heavily specific to Chinese demands
• Minimal marketing expenditure
STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS
• Price sensitive emerging markets in developing countries • Piracy
• Culturally similar markets • Cheap rip-offs of the Mi phone.
• South East Asian countries with significant Chinese • Disruptive competitors
population • Price wars
• Diverse platforms part of the Xiaomi ecosystem • Data privacy
• Seamless integration of the services and devices • IPR wars
• MiTVs + Mi phones + MiCloud etc • Lawsuits over IP theft.
• Working towards high quality perception
• Untargeted yet attainable premium segment

SWOT ANALYSIS 3
The Virtuous Cycle
Software
• Weekly development cycles
• Integration of services
through apps (MiCloud)

Strong Customer Hardware

• Crowdsourced development • High build quality
• Active user forum • Low margins

COMPARATIVE ADVANTAGE 4
China
Mapping the Success Story
The Chinese Smartphone Market

Booming Smartphone Market

Government subsidies
enhanced smartphone
penetration

Sales volumes of smartphones in China – 2011 - 2016

SETTING THE STAGE 6

 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

THE CHINESE STORY 7

Expansion and Challenges
Logistics
Change in operations process required as the company expands and incorporates new products in its range
EXPANSION STRATEGIES

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
CHALLENGES

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

ESTABLISHING DOMINANCE 8
Emerging Markets
Repeating the Success Story
Smartphone Battleground

Markets like India already have a

wide variety of low-cost options

Willingness to pay for smartphones in emerging markets

Market Driven
Price Wars

Intensely
Competitive 50% of the Indonesian market is for phones
Budget costing less than $100 – a market even Xiaomi
Smartphone doesn’t cater to
Market
Multitude of
Low-Cost
Manufacturers

CALL FOR LOW-COST 10

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

THE DEVELOPING WORLD 11

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

TAKING ON THE COMPETITION 12

USA
Turning to Premium Consumers
Snapshot of a Luxury Market
Premium goods consumers

Quality Driven Market

North American markets are

the only markets with an
upward trend in average
smartphone price

iDominate 14
 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

TACKLING THE EAGLE 15

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

THE NEED FOR INNOVATION 16

Thank You
Abhishek Sharma – MM11B035
Devaansh Samant – EE11B110
Shalin Doshi – BT11B064

The Sicilian