Xiaomi's Globalization Strategy and Challenges

CASE: SM262
DATE: 11/22/16
XIAOMI’S GLOBALIZATION STRATEGY AND CHALLENGES

We’re doing what Uniqlo, Muji, and Ikea have been doing…Our ultimate goal is to make good but
cheap things.
1
—Lei Jun, Founder and CEO of Xiaomi Inc.
I’m joining the team to help us go outside China, and I’m trying to find markets and get to them as
quickly as possible.
2
—Hugo Barra, Vice President of Xiaomi Inc.
INTRODUCTION
The job-hopping of an Android executive star in late 2013 startled the industry. At his first
public appearance after departing from Google, Hugo Barra noted Xiaomi’s “small scrappy
teams”—and its ability to move quickly in China’s mobile market.3 Before joining Xiaomi in
October 2013, Hugo Barra was vice president of Android product management at Google. Now
as one of Xiaomi’s vice presidents, he was responsible for the company’s global division, in
charge of products and operations in all markets outside of China.
1
Yuan Li, “At Xiaomi, Hurdles Arise,” The Wall Street Journal, October 1, 2015,
https://www.wsj.com/page/2_0334-20151001.html (October 10, 2016).
2
Stephen Shankland, “Hugo Barra’s challenge: Grow a Chinese phone maker beyond China,” December 11, 2013,
http://www.cnet.com/news/hugo-barras-challenge-grow-a-chinese-phone-maker-beyond-china/ (October 10, 2016).
3
Ibid.
Associate Professor Gang Zheng, Yanting Guo (Zhejiang University) and Professor Robert A. Burgelman prepared
this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation. The authors appreciate the helpful comments Dr. John Thomas provided on an earlier draft.
Copyright © 2016 by the Board of Trustees of the Leland Stanford Junior University. Publicly
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Xiaomi’s Globalization Strategies and Challenges SM-262 p. 2
Founded in April 2010 by CEO Lei Jun and seven cofounders, Xiaomi was a fast-growing
Chinese smartphone company headquartered in Beijing. “Xiaomi wants to be the world’s top
smartphone producer and has an ultimate goal of building a sound and healthy market system to
promote the development of the smartphone industry,” said Lei. 4 Within five years, Xiaomi
became not only one of the top five smartphone vendors worldwide, but also one of the world’s
most valuable unlisted businesses in late 2014, with a market valuation of $45 billion after the
fifth round of financing.5
As the Chinese smartphone market was becoming gradually saturated, and there were signs of
slower growth and limited space to expand, an international expansion plan seemed to be a
rational and crucial step for Xiaomi. With the addition of Hugo Barra to the top management
team in October 2013, Xiaomi made its ambition to become a globally important player clear.
However, Xiaomi still faced multiple strategic globalization challenges. For example, Xiaomi’s
President Lin Bin deemed it would take considerable time and efforts to tailor the company’s
Android-based MIUI 6 operating system for diversified markets—and to obtain market-access
qualifications. Moreover, Xiaomi’s patent portfolio was still thin compared to those of large
competitors, and as Xiaomi moved into different regions, it ran the risk of lawsuits from
companies who had patents rights there. Other obstacles were also conspicuous, in terms of
sales channels, output capacity, and cross-culture management development. Also, after a fast
growth spurting from 2011 to 2014, Xiaomi faced severe market competition from local players
such as Huawei, OPPO, and vivo—and its growth rate slowed during 2015. By the end of 2015,
Xiaomi ranked fifth in terms of global market share, behind Samsung, Apple, Huawei, and
OPPO (see Exhibit 1 for 2015 worldwide smartphone market; see Exhibit 2 for top smartphone
brands in 2011-2015).
The good news, though, was that there were large and potential emerging markets yet to be
explored. Also, Android, on which Xiaomi smartphone’s system was based, continued to be the
world’s leading operating system.7
Moving forward, the rapidly evolving competition in the global smartphone industry meant that
Xiaomi’s top management had to plan its corporate strategy very carefully.
4
Quanlin Qiu, “Xiaomi Corp will focus on its core businesses,” China Daily USA, March 6, 2015,
http://usa.chinadaily.com.cn/epaper/2015-03/06/content_19740349.htm (October 10, 2016).
5
Menchie Mendoza, “Xiaomi Raises $1.1 Billion in Additional Funding, Becomes Most Valuable Tech Startup at
$45 Billion,” December 30, 2014, http://www.techtimes.com/articles/23575/20141230/xiaomi-raises-1-1-billion-in-
additional-funding-becomes-most-valuable-tech-startup-at-45-billion.htm (October 10, 2016).
6
MIUI was an Android-based mobile operating system developed by Xiaomi. “MIUI” means mobile Internet user
interface.
7
IDC, “Worldwide Smartphone Forecast by Region, Shipments, Market Share and 5-Year CAGR,”
http://www.idc.com/getdoc.jsp?containerId=prUS41425416 (October 10, 2016).
HISTORY OF XIAOMI
Rapid Growth
Xiaomi quickly became China’s rising smartphone star. Only three years after its 2010 start-up,
Xiaomi sold a total of 18.7 million phones in 2013 and achieved RMB 31.6 billion ($5.14 billion)
in sales. Xiaomi was valued more than $10 billion in August 2013, on par with Lenovo’s market
value and almost twice BlackBerry’s market valuation at that time. 8 Xiaomi’s performance
during 2014 was even stronger. Despite a Chinese market which showed an economic
slowdown, Xiaomi was able to sell 61.12 million smartphones, a 227 percent increase over the
previous year’s sales. The company achieved revenues of RMB 74.3 billion in 2014 (about $12
billion), a year-over-year increase of 135 percent. 9 In 2014, Xiaomi claimed the top spot in
China’s smartphone market for the first time. Comparatively, on January 15, 2016, the
company’s president Lin Bin confirmed that Xiaomi sold “over 70 million’ mobile phones in
2015” (see Exhibit 3 for Xiaomi annual sales volume and revenues).10
Core Products
“We will rely on our core businesses—smartphones (e.g., smart phones and pads), TV
accessories (e.g., smart TV and Mi TV Box) and routing devices—to maintain growth,” said
CEO Lei Jun (see Exhibit 4 for Xiaomi’s list of primary products).11
The MIUI system, an Android-based operating system, was the basis of Xiaomi’s mobile phones,
pads and TVs. Mi 1, Xiaomi’s first smartphone, was announced in August 2011. In September
2013, Xiaomi announced its Mi TV, a 47-inch 3-D Smart TV, and soon Xiaomi’s first Mi Pad
was launched in May 2014, which was also based on a MIUI TV system. The company launched
a Wi-Fi router with a built-in 6 TB (terabyte) hard drive on June 10, 2015. It was designed to
store all of users’ multimedia content. “The 6 TB disk is big enough to store all data one may
produce in a lifetime,” Lei Jun said at a press release in Beijing. With a hard drive inside, the
router could automatically make backups from cameras and smartphones. Users could also use
Android and iOS apps for remote access to media stored in the router. The company was aiming
to create a home device that could control smart appliances and allow cloud computing, all while
linked to a smartphone.12
Xiaomi was more than just “the Apple of China,” as some called it. It had announced a broad
range of lifestyle products, ranging from blood pressure monitor to air purifier, and those
products were generally launched by Xiaomi-invested start-ups. By January 2016, Xiaomi had
8
Catherine Shu, “Xiaomi, What Americans Need To Know,” August 28, 2013,
https://techcrunch.com/2013/08/28/xiaomi-what-americans-need-to-know/ (October 10, 2016).
9
Russell Flannery, “China’s Smartphone Sensation Xiaomi Says Sales Tripled in ’14; Eyes More Int’l Growth,”
Forbes, January 3, 2015, http://www.forbes.com/sites/russellflannery/2015/01/03/chinas-smartphone-sensation-
xiaomi-says-sales-doubled-in-14-eyes-more-intl-growth/#6c966bd14ee9 (October 10, 2016).
10
IDC, “Worldwide Wearables Market Soars in the Third Quarter as Chinese Vendors Challenge the Market
Leaders,” http://www.idc.com/getdoc.jsp?containerId=prUS40674715 (October 10, 2016).
11
Qiu, loc. cit.
12
Yishi Zhu, “Closer Look: Xiaomi Bets the Next Big Internet Thing Is Your Wi-Fi Router,” December 17, 2013,
http://english.caixin.com/2013-12-17/100618608.html (October 10, 2016).
invested in 56 start-ups to construct its business ecosystem.13
Business Model
An Internet Company and its Ecosystem

Lei Jun defined Xiaomi as an Internet company with a “triathlon” business model, which
included hardware, software, and Internet service. For hardware, the company designed its own
phones but relied on contracted manufacturing. For software, the company customized the
Android-based operating system and ran its own apps store. It looked to make money not by
selling hardware, but by selling apps, games, and Internet services on top of the customized
MIUI.14
Xiaomi competed aggressively on the price of hardware. Its hardware business had very low
margin—or even lost money, according to CEO Lei Jun.15 However, the software and Internet
services embedded in the hardware were highly competitive, and attracted a significant number
of customers. The customized MIUI system provided users with cloud messaging, device
security, and backup features.16 In addition, the company had its own online commerce platform,
Mi.com, to sell a diverse range of products. Over 90% of Xiaomi's products in India were sold
online, primarily through partner sites. In China, roughly 70% of its sales were online and a
majority of this was through its own site, Mi.com.17
Xiaomi was able to capture value from both sides of its technological platform. On one side, app
developers generated revenue, by posting their products and services on Xiaomi’s platform.
Xiaomi charged these app developers using cost-per-download or cost-per-click calculation
method on its app stores and other channels. On the other side, Xiaomi generated revenue from
its customers. One important source of revenue on this side was from game players who paid for
the games and the indirect ads.18
Investors were excited about not only Xiaomi’s smartphones but also its ecosystem of online
services and smart-home products, which could turn phone buyers into loyal customers for years
to come. Xiaomi’s ecosystem was “open and nonexclusive,” building a network of products,
13
Eva Dou, “China’s Xiaomi Under Pressure to Prove Value to Investors,” The Wall Street Journal, January 1, 2016,
http://www.wsj.com/articles/chinas-xiaomi-under-pressure-to-prove-value-to-investors-1452454204
(October 10, 2016).
14
Abhash Kumar, “How Xiaomi sells its high-end phones at low prices: a short lesson in the Economics of Pricing,”
September 15, 2014, http://yourstory.com/2014/09/xiaomi-pricing-strategy-hugo-barra/ (October 10, 2016).
15
Xueshi Wang, “Xiaomi: how to capture value with ‘such a low margin?’,” March 8, 2015,
https://openforum.hbs.org/challenge/understand-digital-transformation-of-business/business-model/xiaomi-how-to-
capture-value-with-such-a-low-margin (October 10, 2016).
16
Dan Seifert, “What is Xiaomi? Here’s the Chinese company that just stole one of Android’s biggest stars,” August
29, 2013, http://www.theverge.com/2013/8/29/4672668/what-is-xiaomi-china-smartphone-hugo-barra-android
(October 10, 2016).
17
Kalyan Parbat, ET Bureau, “Xiaomi plans to push India sales through its ecommerce site Mi.com,” September 15,
2015,
http://economictimes.indiatimes.com/articleshow/48964332.cms?utm_source=contentofinterest&utm_medium=text
&utm_campaign=cppst (October 10, 2016).
18
Wang, loc. cit.
services, and recurring revenues, both in China and around the world (see Exhibit 5 for the
Xiaomi ecosystem).
Its idea of ecosystem was more ambitious than that of Apple. Apple focused on services like
iTunes, as well as a tightly focused suite of tablets, computers, and smartphones. Xiaomi
envisioned a sprawling Internet of things. Liu De, a 43-year-old former dean of industrial design
at Beijing University of Technology, led the ecosystem effort with a “blanket approach”, which
meant almost everything “fit.” At present, Xiaomi sold headphones, Bluetooth speakers, a
fitness wristband that doubled as a buzzing alarm clock. The bigger goal was to create an entire
synced smart home, embracing a hope that consumers would someday control their Xiaomi
water purifier, Xiaomi air filter, and Xiaomi mood lighting—an entire Xiaomi smart home,
essentially—with a few taps on a Mi phone.
The ecosystem campaign aimed to get as many users as possible. There was a core team of 170
people with expertise in product development, supply chain, and design. But unlike Apple,
Xiaomi had its team work primarily with outside companies. Its strategy, as Lei said, was to
invest in a hundred start-ups for ecosystem products, and then grow into an “ecosystem
empire.”19 Xiaomi avoided taking full control, instead encouraged partners to act like risk-taking
entrepreneurs. The company got an exclusive deal to sell most of the start-ups’ products, and in
turn the start-ups, got access to Xiaomi’s supply chain, marketing, and even its industrial
engineers. Xiaomi’s ecosystem sales reached $750 million in 2015, although most of that flowed
to its start-ups through revenue-sharing agreements.20
Low Pricing Strategy

In the past, many Chinese handset players entered the market with low-priced phones. But low
prices often signaled low quality, which tended to give the Chinese product a bad name. 21
Xiaomi wanted to set the right tone by bringing high-end quality at affordable prices. This
“price revolution” made consumers realize that good user experiences did not necessarily come
with a hefty price tag (See Exhibit 6 for a comparison of smartphone vendors average selling
price).22 Based on this strategy, Xiaomi was not targeting premium customers. “Our brand is
middle-class, young and energetic,” Lei Jun said. “We’re doing what Uniqlo, Muji and Ikea
have been doing… Our ultimate goal is to make good but cheap things.”23
A key reason why Xiaomi could price the phone almost at a bill-of-material level was their
products’ average life cycle. According to Hugo Barra, “A product that stays on the shelf for 18-
24 months—which is most of our products—goes through three or four price cuts. The Mi2 and
Mi2s are essentially the same device, for example,” explained Barra. “The Mi2/Mi2s were on
19
C. Custer, “Lei Jun: Xiaomi will invest in 100 more startups,” April 17, 2015, https://www.techinasia.com/lei-
jun-xiaomi-invest-100-startups/ (October 10, 2016).
20
Ibid.
21
“Xiaomi Pricing Strategy: Reviled,” http://www.miuios.in/2015/02/xiaomi-pricing-strategy-explained.html
(October 10, 2016).
22
“Samsung and Xiaomi rise in popularity as Apple lags behind,” November 28, 2013,
http://www.scmp.com/business/companies/article/1367334/samsung-and-xiaomi-rise-popularity-apple-lags-behind
(October 10, 2016).
23
Li, loc. cit.
sale for 26 months. The Redmi 1 was first launched in September 2013, and we just announced
the Redmi 2 this month, that’s 16 months later.”24
These price cuts were possible because the hardware components’ cost dropped significantly
during the product life cycles as a result of rapid improvements in technology. The longer life
cycle for its devices gave Xiaomi leverage to secure better component deals with its suppliers.
“The reason we do these price cuts is because we’ve managed to negotiate component cost
decreases [with our suppliers] over time, which ends up leaving us with a bigger margin than
we’d like to have, so we do a price cut,” Barra added.25 This effect was further amplified by the
fact that Xiaomi kept a very narrow smartphone portfolio in comparison with mainstream
Android manufacturers.
Distribution Channels
CEO Lei Jun said that a big difference between Xiaomi and Apple products in China was the
company’s pricing strategy, while the difference between Xiaomi and its domestic competitors
was the distribution channel strategy. 26 Most mobile phones in China were sold through
distribution channels (e.g., on-site retail sales or channel intermediaries). However, in 2014,
Xiaomi sold 70 percent of its smartphones directly through its e-commerce site (Mi.com) or the
official online flagship store at Tmall.com, while the other 30 percent were sold by carriers like
China Mobile and China Unicom. The company did not incur any costs for staffing and
managing stores (including warehousing), and bypassed distributors and third-party retailers,
both of which sought profits of their own and inflated the price. 27 Consequently, Xiaomi was
able to price its smartphones low—at nearly half the price of its competitors’ phones.
Analysts estimated that during 2015, 40 percent of Xiaomi’s global total—about 28 million
smartphones—was sold offline.28 “Xiaomi certainly has to adjust its strategy. You can’t reach a
certain target audience, such as people in the countryside, solely via online channels,” said Jason
Low, an analyst with Canalys.29
Internal documents reviewed by analysts indicated that Xiaomi aimed to sell double the number
of handsets offline in China in 2016 than analysts estimated it sold offline globally in 2015,
signaling a shift away from an online-focused strategy that its competitors were now copying.30
In 2016, the company aimed to sell 58 million smartphones in China alone, via retailers like
Suning Commerce Group Co Ltd, GOME Electrical Appliances Holding Ltd., and Beijing
24
Jon Russell, “This is How Xiaomi Keeps the Cost of its Smartphones So Low,” January 19, 2015,
http://techcrunch.com/2015/01/19/xiaomi-secret-sauce/ (October 10, 2016).
25
Jon Russell, “This is How Xiaomi Keeps the Cost of its Smartphones So Low,” January 19, 2015,
http://techcrunch.com/2015/01/19/xiaomi-secret-sauce/ (October 10, 2016).
26
Roberto Baldwin, “Xiaomi’s Mi.com is coming to the United States – but not for phones,” February 12, 2015,
http://thenextweb.com/insider/2015/02/12/xiaomis-mi-com-coming-united-states-not-phones/ (October 10, 2016).
27
Chris P., “Hugo Barra explains why Xiaomi’s devices are all so cheap,” January 19, 2015,
http://www.phonearena.com/news/Hugo-Barra-explains-why-Xiaomis-devices-are-all-so-cheap_id64971
(October 10, 2016).
28
Reuters, “China’s Xiaomi to double offline smartphone sales this year: source,” January 21, 2016,
www.reuters.com/article/us-xiaomi-strategy-idUSKCN0UZ111 (October 10, 2016).
29
Ibid.
30
Ibid.
Digital Telecom Co Ltd. Partnering with retailers to stem the decline in online sales, however,
would add costs to the company whose profit margin was likely already very thin.31
Hunger Marketing and Social Media Promotion

Xiaomi gave up traditional models of advertising and drove its marketing campaigns on a low
budget. In 2013, the company’s marketing expenses accounted for 3.2 percent of its revenue on
sales and marketing, compared to Samsung’s marketing expenses of about 7 percent.32
The company innovated in marketing in several aspects. For example, Xiaomi limited the
number of newly released products during the early stage of their life cycle, a strategy known as
“Hunger Marketing.” By doing this, the company faced less risk because it was managing a
smaller inventory. It also let Xiaomi keep costs down by gradually ramping up production as
component costs declined over time. Importantly, this tactic gave the market an impression that
everyone wanted Xiaomi’s products.
Xiaomi also saved costs by depending primarily on social media marketing and its fans’ word-
of-mouth.33 This cost-efficient marketing method worked well because the company interacted
with a large number of worldwide Mi fans by virtue of social networks. For example, Xiaomi
used Sina Weibo, a popular Twitter-like microblogging service, to attract new users, and used
own online community forum to turn frequently interactive users into loyal fans. For customer
service, Xiaomi used WeChat. Xiaomi’s Sina Weibo account already had 2 million followers,
and its WeChat public account had 2.56 million subscribers. Lei Jun himself had 8 million
followers on Sina Weibo.
Each day, Xiaomi’s 130 million customers used their phones 115 times for a total of 4.5 hours,
on average. By the end of Q1 2016, the number of registered Xiaomi fans on the company’s
official online community had already broken the 45 million mark, with more than 300,000 daily
active posts. Huawei cellphone, one of Xiaomi’s main domestic competitors, had more than 25
million fans on its official online community, and nearly 300,000 posts every day. In contrast,
Lenovo, another key smartphone player in China—and the world’s largest PC provider—had
only around 4 million fans on its online community, with about 1,000 daily posts.
The company also held offline activities to promote interaction. Since 2014, it celebrated “Mi-
fan Day” on April 6 each year, as an opportunity to host events, reward loyal consumers, and
announce new products. In addition, Xiaomi built many “Mi Homes” to provide customer
experience and service, rather than being primarily for retail sales. “It has three main purposes:
the first is to showcase all our new products, the second is our after-sales, one-stop shop, and the
third is that it’s a place for fans to mingle.” said Zhang Jianhui, a manager at Xiaomi.34
31
Ibid.
32
Prudence Ho; Lorraine Luk; Juro Osawa, “Xiaomi Makes a Profit on Its Cheap Smartphones; Chinese Tech
Firm’s Earnings Rose 84% Last Year,” The Wall Street Journal, November 5, 2014,
http://www.wsj.com/articles/smartphone-maker-xiaomis-2013-profit-nearly-doubled-1415195999
(October 10, 2016).
33
Michael Kan, “Why Are Xiaomi Phones So Cheap?” May 16, 2014,
http://www.cio.com/article/2376222/mobile/why-are-xiaomi-phones-so-cheap-.html (October 10, 2016).
34
Sophia Yan, “Xiaomi is way more than just a smartphone maker,” June 12, 2015,
http://money.cnn.com/2015/06/10/technology/xiaomi-store-hong-kong/ (October 10, 2016).
Xiaomi’s customers/fans became brand ambassadors who were actively engaging in product
designing and quality feedback. Every Friday, the company updated the Android operating
system features, and about one-third of these updates was suggested by users. “We have a very
tight and fast feedback loop,” Barra said, “On Friday we launch. Saturday and Sunday, people
test and give us feedback. Monday, Tuesday, and Wednesday, we code. On Thursday, we test.
On Friday, we release and start over.”35 The loyal base of “fans” were fanatical about improving
and customizing their user experience.36 With such continuous and fast improvement, Xiaomi
differed significantly from other inexpensive Android phone manufacturers with regards to user
interactions and stickiness.37
GETTING READY TO GO GLOBAL
Hugo Barra joined Xiaomi in October 2013, as the first major non-Chinese hire.38 As President
and cofounder Lin Bin said, Barra was the key person to plot the company’s overseas expansion
roadmap. Barra was a graduate of the Massachusetts Institute of Technology with bachelor and
master’s degrees in computer science, electrical engineering, and management science. For his
job in this Chinese company, Barra said, he had already enthusiastically tried to get the rest of
the world to know a lot more about the rising phone maker that had been called the “Apple of
China,” but that had hopes to be compared to Google or Amazon in the future. “I am really
looking forward to this new challenge, and particularly excited about the opportunity to continue
to help drive the Android ecosystem,” he added.39
Since the Chinese market for smartphones was gradually saturating, there was limited space for
Xiaomi to expand in mainland China. According to IDC, China, the world’s largest smartphone
market, was expected to grow just 1.2 percent year over year in 2015, a far cry from the 19.7
percent growth seen in 2014. 40 With China joining the ranks of more mature smartphone
markets and smartphone penetration increasing, the Chinese market was driven by smartphone
upgrades.41 This slowdown disproportionately affected Xiaomi, as many of its buyers were first-
time smartphone owners attracted to Xiaomi’s smartphones that offered high-end specifications
35
Jason Tanz, “Xiaomi’s Smart Strategy to Design Phones for Everyone,” April 21, 2015,
https://www.wired.com/2015/04/hugo-barra/ (Octorber 23, 2016)
36
John Shinal, “Xiaomi lands in the U.S. with a considerable splash,” February 17, 2015，
http://www.usatoday.com/story/tech/columnist/shinal/2015/02/13/xiaomi-smartphone-apple-hugo-barra/23359411/
(October 10, 2016).
37
David Wolf, “Is it Too Soon for Xiaomi to Go Global?” October 21, 2013,
http://siliconhutong.com/2013/10/21/is-it-too-soon-for-xiaomi-to-go-global/ (October 10, 2016).
38
Kara Swisher, “Exclusive: Hugo Barra Talks About His Future at Xiaomi and Why He Really Left Google,”
September 12, 2013, http://allthingsd.com/20130912/exclusive-hugo-barra-talks-about-his-future-at-xiaomi-and-
why-he-left-google/ (October 10, 2016).
39
Mat Smith, “Android VP Hugo Barra leaves Google, joins Chinese phone maker Xiaomi,” August 28, 2013,
http://www.engadget.com/2013/08/28/android-vp-hugo-barra-report-leaves-google-xiaomi/ (October 10, 2016).
40
IDC, “Worldwide Smartphone Growth Expected to Slow to 10.4% in 2015, Down From 27.5% Growth in 2014”,
August 25, 2015, http://www.idc.com/getdoc.jsp?containerId=prUS25860315 (October 10, 2016).
41
Sue Feng, “Nielsen: Chinese Smartphone Market Now Driven by Upgrading,” June 17, 2015,
http://www.nielsen.com/cn/en/press-room/2015/Nielsen-Chinese-Smartphone-Market-Now-Driven-by-Upgrading-
EN.html (October 10, 2016).
for a low price.42 “I’ve never seen such fierce competition and such impassioned desire to build
things fast,” wrote Barra. “There is a pervasive entrepreneurial spirit.”43
To sustain the rapid growth, Xiaomi’s strategy was to develop diversified new products and,
more importantly, to expand global markets. Xiaomi’s CEO Lei Jun revealed early in 2014 that
Xiaomi’s international plan listed ten countries: Malaysia, the Philippines, India, Indonesia,
Thailand and Vietnam in Asia; Russia and Turkey in Europe; as well as Brazil and Mexico in
Latin America.44
STRATEGIC CHALLENGES AND OPPORTUNITIES
Challenges
Intensive and Dynamic Market Competition

China remained the world’s largest smartphone market and many manufacturers still saw the
world’s second-largest economy as a big growth driver for their business. However, with the
market now maturing, conditions were likely to be tougher. “China’s smartphone growth is
slowing due to market saturation, inventory build, and economic headwinds. The golden era of
China smartphone growth is over,” Linda Sui, the director at Strategy Analytics, said early in
2016. 45 Xiaomi saw slow growth in 2015 for the first time in China’s smartphone market.
Xiaomi had said in March 2015 that it targeted sales of 100 million smartphones, but later
revised that number down to the 80 to 100 million range. At the end of 2015, they finally
realized a performance of 71 million devices sold, an annual increase of about 16 percent.46
Market competition was becoming fiercer partly because of rising Chinese competitors like
Huawei and other local rivals. Huawei’s two-pronged approach with a focus on both premium
and entry-level devices proved successful in China, as well as in many European markets. It
shipped 108 million smartphones in 2015, a 44 percent increase in sales from the previous year.47
As a result, Huawei overtook Xiaomi as China’s top handset maker in the third quarter of 2015,
42
Melanie Lee, “Why China’s Xiaomi Missed Its 2015 Sales Target,” January 15, 2016,
http://www.forbes.com/sites/melanieleest/2016/01/15/why-chinas-xiaomi-sold-a-disappointing-70-million-
smartphones-in-2015/#2715e4857a0b9cab29131fee (October 10, 2016).
43
Gary Sims, “Hugo Barra’s first week at Xiaomi was ‘intense’,” October 16, 2013,
http://www.androidauthority.com/barras-xiaomi-week-1-284126/ (October 10, 2016).
44
Josh Horwitz, “Xiaomi set to expand into 10 more countries this year, including India, Indonesia, and Brazil,”
April 23, 2014, https://www.techinasia.com/weeks-teasing-chinese-phonemaker-xiaomi-unveils-latest-mysterious-
device-mini-router (October 10, 2016).
45
Linda (Qian) Sui, “China Smartphone Shipments Hit a Record 438 Million Units in 2015,” January 28, 2016,
http://www.linkedin.com/pulse/china-smartphone-shipments-hit-record-438-million-units-sui (October 25, 2016).
46
Hope King, “China’s biggest startup is in a heap of trouble,” January 13, 2016,
http://money.cnn.com/2016/01/13/technology/xiaomi/index.html (October 10, 2016).
47
Huawei, “Huawei Ships 108 Million Smartphones in 2015, Contributing to Annual Revenue Exceeding $20
Billion USD,” January 14, 2016, http://consumer.huawei.com/en/press/news/hw-468148.htm (October 10, 2016).
according to Canalys,48 and became the world third-largest smartphone vendor by shipments in
that same quarter, according to IDC.49
Comparatively, Xiaomi possessed less financial and technological firepower than Huawei, which
launched rival high-end smartphones targeting web-savvy buyers. Huawei’s engineering
strength and brand image, built up over decades, made it difficult for Xiaomi to compete.
Additionally, Huawei was also beefing up its marketing overseas. While Huawei had been
successful ramping up its smartphone shipments in Western European markets and pushing
out premium-priced smartphones, Xiaomi relied on a limited selection of moderately priced
smartphones sold through flash sales and online channels, which often led to erratic pent-up
consumer demand.50
Besides Huawei, there were two key local rivals: OPPO and vivo. The two names were
unfamiliar to most Americans, but OPPO and vivo were the No. 4 and No. 5 phone sellers
worldwide behind Samsung, Apple, and Huawei by Q1 2016. That pushed Xiaomi down to
seventh place in global market share. It had been ranked third in 2014.
OPPO had been shipping smartphones since 2011. While its primary focus was China’s domestic
market, it had been shipping internationally since 2012. Landing first in Thailand, then
expanding throughout Southeast Asia and to other countries in Asia, the Middle East, and Africa,
OPPO focused on fostering channel partnerships, supplemented with large marketing budgets
and entertainment sponsorships to increase visibility. In 2015, almost 20 percent of OPPO sales
were outside of China. OPPO’s expansion in China itself had been via offline channels and a
strong push to lower-tier cities.51 In Q1 2016, OPPO’s 18.5 million shipments represented 153.2
percent year-over-year growth, the strongest among the top five smartphone makers
worldwide.52
vivo had also been selling smartphones since 2011, but unlike OPPO, had been more focused on
China’s domestic market. It first tested the global marketplace in Southeast Asia and India in
2014. In 2015, less than 10 percent of vivo sales were outside of China. It positioned itself as a
producer of relatively premium products in China. Like OPPO, vivo was a strong competitor in
China’s lower-tier markets, and it differentiated from others by focusing on music-centric
smartphones. With 14.3 million units shipped in Q1 2016, and 123.8 percent year-over-year
growth, vivo remained in tight competition with the other top 10 players.
48
Canalys, “Media alert: Huawei takes China’s smart phone throne as Xiaomi’s growth slows,” October 21, 2015,
http://www.canalys.com/newsroom/media-alert-huawei-takes-china%E2%80%99s-smart-phone-throne-
xiaomi%E2%80%99s-growth-slows (October 10, 2016).
49
IDC, “Smartphone Shipments Reach Second Highest Level for a Single Quarter as Worldwide Volumes Reach
355.2 Million in the Third Quarter,” http://www.idc.com/getdoc.jsp?containerId=prUS25988815
(October 10, 2016).
50
Melanie Lee, loc. cit.
51
In China, Tier 1 cities such as Shanghai and Shenzhen are the megalopolises of China—the largest and the
wealthiest. Tier 2 cities are their slightly smaller, slightly less well-off cousins, like Hangzhou and Wuhan. Nearly
all cities from the top two tiers are in China’s east or near coastal areas. Tier 3 and Tier 4 cities are smaller and less
affluent still, and are geographically dispersed. The fifth tier is everything else.
52
IDC, “Worldwide Smartphone Growth Goes Flat in the First Quarter as Chinese Vendors Churn the Top 5 Vendor
List,” http://www.idc.com/getdoc.jsp?containerId=prUS41216716 (October 10, 2016).
Xiaomi aspired to have a smart-home ecosystem—though Xiaomi would not have that field to
itself. After seizing the Chinese market-share lead from Xiaomi, Huawei was now advertising its
own smart-home suite, having partnered with Haier, the appliance maker that paid $5 billion for
GE’s appliance business in 2016, and others. A bet on that ecosystem build-out was a bet on
several transformative trends: the rise of China’s middle class; the incorporation of average
citizens into the Internet of things; and the capacity of consumer-focused Chinese companies to
make inroads in Europe and the United States. But as Xiaomi’s growth slowed, there was
increasing skepticism that a start-up without innovative technology of its own or much success
outside of smartphone sales could produce an ecosystem anywhere nearly as big as that of Apple
or Google.53
Technology Driven or Business Model Innovation Driven?
Xiaomi’s rapid growth in recent years reflected its unique business model, rather than its core
technology. The lack of its own high-end chip technology, however, proved to be an inevitable
disadvantage for Xiaomi. For example, Mi Note Pro, Xiaomi’ most expensive handset up to
January 2015, used a newer version of Qualcomm's top-of-the-line chip, Snapdragon 810 Soc.
Although it was claimed to possess a slight edge in performance over other phones with the same
Snapdragon chip, the problems of overheating dampened sales of Mi Note.54 Xiaomi could not
fall back on an in-house developed chip to get around the problem—unlike its rivals Huawei and
Samsung. However, Xiaomi was reportedly trying to develop its own in-house mobile chip.55 A
number of Android manufacturers had taken this route, notably Samsung, whose Exynos 7420
saved its flagship smartphones from the overheating issues plaguing the HTC One M9, which
ran on Qualcomm’s Snapdragon 810.
In 2014, the Xiaomi-owned Pine Cone Electronics Company had worked with Leadcore
Technology, a leading Chinese chipmaker based in Shanghai, to develop the LC1860 processor
running on Xiaomi’s low-end Redmi 2A in 2016. This proved a lucrative move, as that
smartphone model, priced at RMB 599 (around $96) became the bestselling device in Xiaomi’s
Redmi 2 line. The company was able to price the Redmi 2A so low because it did not have to
buy the Qualcomm or MediaTek chipsets that most Android smartphones were running.
Industrial insiders noted that a Qualcomm processor normally cost $8 apiece, but Xiaomi was
able to cut the cost of its Redmi 2A chips to $4 apiece.
Patent and Intellectual Property (IP) Rights
While Apple could potentially see some similarity of looks between Xiaomi’s and its own
smartphones (see Jon Ive’s comments below), the company had not launched a formal complaint
in China. For one thing, China was turning out to be an increasingly important market to support
Apple’s iPhone growth. Also, significant uncertainty surrounded the regulatory regime in China.
Patent expert Florian Mueller observed that, “Generally, Western companies that tried to enforce
53
Scott Cendrowski, “Can Xiaomi Live Up to Its $45 Billion Hype?” Fortune, July 1, 2016,
http://fortune.com/xiaomi-business-china/ (October 10, 2016).
54
Eva Dou, loc. cit.
55
Nicole Arce, “Xiaomi Reportedly Looking To Develop In-House ARM Chips To Take On US Market In 2016,”
August 8, 2015, http://www.techtimes.com/articles/74869/20150808/xiaomi-reportedly-looking-to-develop-in-
house-arm-chips-to-take-on-us-market-in-2016.htm (October 10, 2016).
patents against Chinese rivals often found that those rivals own some interesting patents of their
own.”56
On the other hand, Xiaomi’s thin patent portfolio was a hurdle as it sought to expand globally,
and turned out to be a big challenge the company faced in penetrating other Asian markets, such
as India, and Brazil. “Having a patent portfolio lets it defend itself against rivals who would
otherwise have sued,” noted Ben Wood, a consultant with CCS Insight. 57 For example, Swedish
telecom giant Ericsson accused Xiaomi of using Ericsson wireless tech without licensing it, after
Xiaomi began selling smartphones in India in 2014. After being forced to stop its sales
operations for several months, Xiaomi resumed sales in India by selling only smartphones
running on Qualcomm chips, which did not involve patent conflicts.58 A year later, in 2015, the
injunction remained, which meant Xiaomi couldn’t sell its popular models running chips made
by Taiwanese chip maker MediaTek Inc. 59 (See Exhibit 7 and Exhibit 8 for main patent
comparisons).
“At least some of the ecosystem companies have this problem” with IP, Xiaomi Vice President
Liu De admitted. One example was a Xiaomi start-up Yeelight—a 60-employee company that
sold a “smart” mood light generating 16 million colors with a 1700K – 6500K color temperature
range60, as well as a Bluetooth-enabled light bulb. If it wanted to reach consumers outside China,
Yeelight would have to rely on its rock-bottom prices. But even lightbulbs contained intellectual
property that needed to be licensed outside China. To sell in the United States or Europe,
Yeelight would have to license patents from other companies, which may boost its retail prices
by several percentage points. And since Xiaomi’s e-commerce site had little traction outside
China, Yeelight had to pair up with traditional retailers, raising its prices another 30 to 40 percent.
In 2016, few products in Xiaomi’s ecosystem made the leap abroad—and these were not high-
margin products. The bottom line: Unless Xiaomi’s rolled out innovative technology products of
its own they would lose a lot of price advantage outside China.
Xiaomi worked hard to make up for the patent deficiency. The company managed 2,045 patent
applications in 2014, and by the end of 2015, had made more than 6,000 total patent applications
(see Exhibit 9 for Xiaomi-filed patents). In 2015, Xiaomi added a further 1,409 patents to its
portfolio—1,363 filed by Xiaomi, while the remaining 46 patents were the result of patent
acquisition deals with seven different companies. Overseas applications, mostly in Europe, the
United States, Japan. and South Korea, accounted for more than 40 percent of the 2015 total,
according to Barra. 61 He also implied that figures represented “patents for invention.” 62
56
David Gilbert, “Why Apple Is Not Suing Xiaomi Yet,” August 20, 2014, http://www.ibtimes.co.uk/why-apple-
not-suing-xiaomi-yet-1461969 (October 10, 2016).
57
BBC News, “Xiaomi buys Microsoft smartphone patents,” June 1, 2016, http://www.bbc.com/news/technology-
36426135 (October 10, 2016).
58
Napier Lopez, “Xiaomi is resuming sales in India following a new court order in Ericsson dispute,” December 16,
2014, http://thenextweb.com/insider/2014/12/16/xaomi-resuming-sales-india-ericsson-dispute/ (October 10, 2016).
59
Dou, loc. cit.
60
Brad Moon, “Xiaomi Yeelight Bedside Lamp: Smart Lighting,” May 2, 2016,
http://www.forbes.com/sites/bradmoon/2016/05/02/xiaomi-yeelight-bedside-lamp-smart-
lighting/?utm_channel=Technology#35046369328f (October 24, 2016)
61
Jacob Schindler, “Xiaomi reveals latest patent numbers as it steps up Microsoft ties,” November 30, 2015,
http://www.iam-media.com/blog/detail.aspx?g=d3560843-63ef-499c-9da7-881a5b821902 (October 10, 2016).
62
Ibid.
Moreover, Xiaomi expanded its partnership with Microsoft in June 2016, partly by purchasing
around 1,500 smartphone patents, which might also help the company expand its smartphone
business to the United States. President Lin Bin expected that pace to continue, commenting that
passing the 10,000 mark for the total portfolio at the end of 2016 would be “no problem.”63
Brand Image
In 2013, Lei Jun told the New York Times, “We’re not just some cheap Chinese company making
a cheap phone.”64 But many consumers still saw Xiaomi that way, because of its low pricing
strategy and copycat products, as well as its stumbles in making trustworthy products.
Xiaomi’s average smartphone price fell to $122 in the third quarter in 2015 from $160 a year
earlier, although the average price of a smartphone in China rose from $202 to $240. Huawei’s
average price rose from $201 to $209 according to IDC.65 Meanwhile, Xiaomi’s best-selling
model in 2015 was its cheapest, the $76 Redmi 2A, IDC analyst James Yan said.66
Many people complained that Xiaomi phones were merely cheap iPhone copies. Jony Ive,
Apple’s design director, speaking publicly about Xiaomi and other companies that made
products look similar to Apple gadgets, called them outright “theft.” 67 Hugo Barra defended
Xiaomi against copycat claims, but conceded that the new Mi 4 was “inspired” by Apple’s
talented designers.68 He explained a key cultural difference in China, compared with how the
markets worked in the West. In China, for instance, most companies tended to treat this as the
compliment—a sign that the product was good enough to be copied.
Xiaomi also had some quality problems that threatened the company’s brand image. The
Shanghai Municipal Bureau of Quality and Technical Supervision criticized the first Mi air
purifier for quality problems in 2016. Xiaomi said the purifier had “passed all standards required
by regulators in Beijing.”69 And there were some customer complaints about Xiaomi’s $620 4K
TVs.
Even Xiaomi’s flagship phones seemed to have some quality issues. Though Xiaomi relied on a
web of suppliers, including iPhone-maker Foxconn, its products had not proven as reliable as
those of more mature competitors. Some Mi phone users complained about cracked screens and
static from earphone slots. A new Xiaomi model, the Mi 5, had buyers reporting that the new
handsets often reached a scorching 120˚F.70
63
Ibid.
64
65
Eva Dou, loc. cit.
66
Eva Dou, loc. cit.
67
Steve Kovach, “Jony Ive: ‘I See it as Theft’ When Competitors Copy Apple Designs,” October 10, 2014,
http://www.businessinsider.sg/jony-ive-calls-design-copies-theft-2014-10/#.VIB_8zGUf3c (October 10, 2016).
68
Aloysius Low, “Xiaomi’s global VP Hugo Barra says designing around current products is ‘stupid,” July 23, 2014,
http://www.cnet.com/news/xiaomis-global-vp-hugo-barra-says-designing-around-current-products-is-stupid/
(October 10, 2016).
69
Scott Cendrowski, loc. cit.
70
Xiaomi responded by saying these were “isolated cases.” But the phones’ perceived unreliability
did have an impact. Duncan Clark, an Internet consultant, surveyed phone owners in China,
finding that only 37 percent of Xiaomi owners said they would buy another Xiaomi phone, while
74 percent of Apple users said they would get another iPhone. “Xiaomi isn’t sticky,” Clark
noted. “It’s not what an ecosystem should be.”71
Operating System
Barra said, “MIUI is by users, for users.” 72 Since MIUI was the basis of customizing and
improving user experience,73 adapting it for international tastes was a critical challenge facing
the company in its efforts to grow in countries outside Greater China. As Google’s former VP for
Android, Barra would be focusing on addressing different software design needs in different
countries.74 In particular, to launch Xiaomi’s highly customizable MIUI in English for overseas
markets, Barra regarded it as “actually a big challenge.”75 The company needed not only to
change a lot of things to accommodate English characters, but also to file hundreds of bugs and
test locally for the software.
Sales Channel
China was a retail-dominated mobile device market. Any mobile phone manufacturer could
choose whether or not to get a space in retail store and sell phones to the public. Xiaomi had
decided to use online selling on the purpose of lowering sales channel costs and its product
prices. This approach proved to be greatly successful in the domestic market.
Nevertheless, in some countries, like India, where the sale channels were strictly controlled, it
was almost impossible to save the channel costs. Markets like the United States were mobile
carrier-dominated. This meant that Xiaomi had to first win over one or more of the mobile
network carriers, who would then sell its devices both through their network directly and through
authorized retailers.76 Worse still, Xiaomi would face pressure from first movers when it tried to
distribute products through carriers. Lenovo, for instance, acquired Motorola primarily to take
advantage of its connections with international carriers. And Huawei had already established
broad relationships with many global operators. In light of all these, Xiaomi’s powerful social
media presence and user interaction in the Chinese market appeared to be largely insufficient to
support its global strategic efforts and prospects.
71
72
John Shinal, loc. cit.
73
John Shinal, loc. cit.
74
Kaylene Hong, “Can China’s coolest phone maker take Xiaomi-mania international? We ask VP Hugo Barra,”
February 19, 2014, http://thenextweb.com/asia/2014/02/19/can-chinas-coolest-phone-maker-take-xiaomi-mania-
international-we-ask-vp-hugo-barra/ (October 25, 2016).
75
Ibid.
76
David Wolf, “Is it Too Soon for Xiaomi to Go Global?” October 21, 2013,
http://siliconhutong.com/2013/10/21/is-it-too-soon-for-xiaomi-to-go-global/ (October 10, 2016).
Human Resources
When talking about Xiaomi’s after sales experience standards abroad, Barra said, “the most
important thing a brand can do coming to a new market is to make sure that the experience is as
fantastic all along, including in the worst case scenario that you have a problem… obviously all
this needs a local team.”77
The optimization and/or customization of products and services called for a high level of human
resources investment in host countries. In China’s market, Xiaomi was proud of its large user
community and the iterative optimization of its products through interactions with users. To
replicate this success in overseas markets, Xiaomi needed to understand and meet the needs of
local customers. However, this was hard to realize without the support of local talents. Xiaomi
was looking to ramp up its research and development center in Bangalore as quickly as it could
find the right people. “Whatever goal we set for our R&D load here in India, it will be limited by
our ability to hire extremely talented engineers,” Barra said. “The competition in Bangalore is
very, very strong.”78
Institutional Differences
Companies often encountered regulatory, normative, and cognitive conflicts when going global.
In July 2014, when it entered into the Indonesia and Brazil markets, Xiaomi was forced to delay
launch of its Mi3 smartphone and waited for government agencies to certify its products. In an
interview, Barra said the delays were due to a “long and painful device-certification process.”79
The process in Brazil could be even longer, since it required that products be assembled locally.
This was a setback for Xiaomi, which had coveted Brazil as a big growth opportunity.80
Cultural differences also arose over sensitivity to privacy issues. In 2014, Xiaomi entered the
Indian market and sold phones via Flipkart.com, the biggest local online retailer. However, in
October that year, the Indian Air Force issued a “spying” alert against Xiaomi smartphones—
claiming that the handset tracked users’ location and sent the information to servers based in
Beijing.81 Xiaomi countered that transmitting data back to Beijing helped provide better service
with big data. It also took immediate action to move Indian users’ data from its Beijing data
center to data centers of Amazon Web Services. In addition, Xiaomi planned to set up a data
center in India to store local user data. This move, it hoped, would allay Indian authorities’
concerns over privacy issues.
77
Bobby Situkangpoles, “Hugo Barra explains Xiaomi’s overseas expansion”, June 14, 2014,
http://www.androidauthority.com/xiaomi-overseas-expansion-hugo-barra-391598/ (October 25, 2016).
78
Harichandan Arakali, “Xiaomi Says U.S. Not A Near-Term Priority As It Seeks To Grow In India With 4G
Handset”, November 25, 2014, http://www.ibtimes.com/xiaomi-says-us-not-near-term-priority-it-seeks-grow-india-
4g-handset-1729157 (October 25, 2016).
79
Ken Wieland, “Xiaomi expansion plans hit buffers in Indonesia and Brazil,” July 21, 2014,
http://www.mobileworldlive.com/xiaomi-expansion-plans-hit-buffers-indonesia-brazil-report (October 10, 2016).
80
Ibid.
81
Debashis Sarkar, “Advisory 4 months old, no ban on Xiaomi or other Chinese phones: IAF,” October 30, 2014,
http://indianexpress.com/article/technology/technology-others/iaf-issued-advisory-4-months-back-says-no-ban-on-
xiaomi-or-other-phones/#sthash.RjduIwgi.dpuf .
Opportunities
Fashionable Product and Mode

The MIUI operating system had a large number of users and fans. In January 2016, Xiaomi
announced there were 170 million active MIUI users globally, and the operating system had been
translated into more than 30 languages. 82 Since Barra joined Xiaomi, he had served as the
spokesman of its Android-based MIUI and product line, which brought some global prestige
advantages to MIUI. This was not only because Barra’s expertise and connections as Google’s
VP of Android product management, but also because Android had quickly become the largest
market share leader in the global smartphone market. IDC forecasted Android could maintain its
81 percent market share in 2015 until 2019.83 Lei Jun believed that the crowdsourcing mode of
the Android system development, which helped to generate word-of-mouth marketing and to
create loyal customers in the Chinese market, would continue to be an effective approach
worldwide.84
Barra held that Xiaomi’s innovative mode of operating could disrupt the traditional ways that
smartphones were sold across the world. At the 2014 Stanford SPRIE China 2.0 Forum in
Beijing, he said the company planned to adopt the same business model to target foreign markets.
Barra noted that the ten countries on Xiaomi’s international list were all heavily populated and
rapidly developing economies, where potential customers would be extremely price sensitive. “It
was where the equation of quality and affordability work, because in those markets you can
replicate what the company has done in China.”85 He also noted that in order to understand a
new market, Xiaomi would have to start small. For instance, the company planned to start with
selling 3,000 to 6,000 units early in 2014 in Singapore. For larger markets like India and
Indonesia, those starting numbers would be adjusted upwards, but would nevertheless remain
relatively small. Finally, Barra strongly believed that Xiaomi’s user-centric philosophy, which
had given it a cult-like following in China, could help the company scale up successfully
elsewhere: “We won’t scale globally without change,” he granted, “but I believe the one thing
that will stay and that I will insist on was the focus on users.”86
Market Potential in Emerging Economies

As a result of continuous technological upgrading, there were still large growth opportunities
with 4G in the China market. Demand in China for 4G-equipped smartphones had been
“generally sluggish, hampered by delays in launches of 4G processors and a limited number of
price-friendly 4G handset models in the market,” DigiTimes reported.87 Large-scale investments
82
Phil Nickinson, “Xiaomi says it has 100 million active MIUI users,” February 12, 2015,
http://www.androidcentral.com/xiaomi-says-it-has-100-million-active-miui-users (October 10, 2016).
83
IDC, “Worldwide Smartphone Growth Expected to Slow to 10.4% in 2015, Down From 27.5% Growth in 2014,”
84
Michael Kan, “Can China’s Xiaomi make it globally? Xiaomi has hired a former Google executive to lead its
global expansion,” August 30, 2013, http://www.pcmag.com/article2/0,2817,2462165,00.asp (October 10, 2016).
85
Kara Swisher, loc. cit.
86
Kaylene Hong, loc. cit.
87
Michael Kan, “Can China’s Xiaomi make it globally? Xiaomi has hired a former Google executive to lead its
global expansion,” August 30, 2013, http://www.pcmag.com/article2/0,2817,2462165,00.asp (October 10, 2016).
in 4G networks by Chinese mobile operators were expected to bring more advanced digital
platform to millions of Chinese citizens and to trigger a new era of growth.88
“China clearly remains a very important market. However, the focus will be more on exports
than consumption as domestic growth slows significantly,” said Ryan Reith, IDC program
director.89 Smartphones already accounted for about two-thirds of mobile connections in China
at the end of 2015.90 The next half-billion new smartphone customers would increasingly come
mainly from emerging markets in Asia/Pacific outside of China, like the Middle East and Africa,
Central and Eastern Europe, and Latin America, which all together accounted for four-fifths of
the global market in 2013 (see Exhibit 10 for estimated smartphone growth).91 India captured a
lot of attention that China previously received and it became the market with the most potential
upside. The Indian handset market was still dominated by feature phones,92 with a 71 percent
volume share. But as Jane Hsu, director of Mozilla Corporation, pointed out, “These consumers
want to use a smartphone, but the price remains a barrier.”93
These emerging markets were rapidly building infrastructures of communication technology

similar to China a few years earlier, thereby accelerating the trend of transforming toward
smartphones. In terms of Internet users, the Philippines led with 24.9 million and followed by
Indonesia with 22.2 million people. In terms of Internet penetration, Singapore was ahead of the
other countries listed, with a 70 percent penetration (see Exhibit 11 for Southeast Asia Internet
usage).
XIAMOI’S GLOBALIZATION OPTIONS IN 2016 AND BEYOND
In 2014, Xiaomi had a target list for countries for international expansion: Malaysia, the
Philippines, India, Indonesia, Thailand, Vietnam, Russia, Turkey, Brazil, and Mexico (see
Exhibit 12 for Xiaomi’s internationalization progress). Gordon Chang from Forbes called
Xiaomi’s international plan the ‘business equivalent of Chairman Mao’s ‘capture-the-cities-by-
controlling-the-countryside’ strategy that proved so successful in the Chinese civil war in the
1940s.”94
88
GSMA, “Smartphones to Account for Two-Thirds of Chinese Mobile Market by Year End,” July 13, 2015,
http://www.gsma.com/newsroom/press-release/smartphones-account-for-two-thirds-of-chinese-mobile-market-by-
year-end-gsma-intelligence-study/ (October 10, 2016).
89
IDC, “Worldwide Smartphone Growth Expected to Slow to 10.4% in 2015, Down From 27.5% Growth in 2014,”
90
GSMA, loc. cit.
91
IDC, “Smartphone Prices Race to the Bottom as Emerging Markets Outside of China Come into the Spotlight for
Future Growth”, February 24, 2014, http://cdn.idc.asia/files/3dc7578e-d2f2-45b1-bad4-463919ad912d.docx
(October 25, 2016).
92
A feature phone is a class of mobile phone; the term is typically used as a retronym to describe low-end mobile
phones which are limited in capabilities in contrast to a modern smartphone, such as the iPhone.
93
Sounak Mitra, “Samsung’s challenges grow in India,” October 6, 2014, http://www.business-
standard.com/article/companies/samsung-s-challenges-grow-in-india-114100600991_1.html (October 10, 2016).
94
Prasid Banerjee, “Xiaomi: How its strategy of high-end phones at low prices is loved,” July 9, 2014,
http://www.digit.in/mobile-phones/xiaomi-changing-markets-by-selling-high-end-phone-at-low-prices-
23220.html#sthash.sxJWs502.dpuf (October 10, 2016).
Singapore
Xiaomi entered the Singapore market in February 2014. Barra shed some light on why
Singapore was key to its global expansion plans.
“We are trying to build a pretty high-touch end-to-end relationship with people.
From the moment they come to the website to buy a product, to experience our
customer support and hopefully not—but if they have problems, to experience our
repair—and that requires a lot of work, a lot of infrastructure, partnerships and so
on. It’s so much easier to do that here. Plus, the cost of failure is low because it’s
a small market.”95
Barra and Lin Bin both spoke about how Singapore was a “good first challenge” for Xiaomi to
figure out logistics and its after-sales services set-up. Xiaomi’s international headquarters,
located in Singapore, would coordinate all activities in the region, including product launches.
The three largest carriers in Singapore—SingTel, StarHub, and M1—had reached agreements
with Xiaomi to sell its smartphones under contract. However, Lin Bin said it did not matter how
many phones would be sold in Singapore. Xiaomi planned to start with a small-scale effort,
shape customers’ attitudes toward its products, and then continuously optimize.
In terms of products, Barra stressed that this was Xiaomi’s first time adapting its highly
customized MIUI for English-speaking audiences and building up the brand in a foreign
country.96 Xiaomi saw these efforts as a springboard to move into other, more complex markets
later.
India
India was a primary focus for many of the biggest names in mobile. By 2017, India was poised
to potentially pass the United States to become the world’s second largest smartphone market.97
In an interview in September 2015, Lei Jun said he wanted Xiaomi to become one of the top
three, or even the Number 1, smartphone brand in India in three years.98
Upon entering into the market, Xiaomi exclusively collaborated with Flipkart, India’s largest e-
business, to release Mi3 smartphones in July 2014. Within six months, Xiaomi had sold about 1
million smartphones. In late April 2015, the company accepted a strategic investment from top
businessman Ratan Tata, and unveiled its first device designed for the local market—the Mi 4i.
For the Indian market, Xiaomi initially sold phones assembled in China, but after a year, in
August 2015, it agreed to partner with Foxconn, the manufacturing company best known for
producing the iPhone and iPad, to assemble devices in India. The first India-made phone was the
Redmi 2 Prime, an updated version of Xiaomi’s budget smartphone line, and also its biggest
95
Kaylene Hong, loc. cit.
96
Ibid.
97
Chris O'Brien, “Google, Apple, Xiaomi and Foxconn rush in as India becomes world’s hottest smartphone market,”
August 10, 2015, http://venturebeat.com/2015/08/10/google-apple-xiaomi-and-foxconn-rush-in-as-india-becomes-
worlds-hottest-smartphone-market/ (October 10, 2016).
98
Gong Jie, “Xiaomi will be the biggest cell phone supplier in India within 2 years,” November 20, 2014,
http://www.china.org.cn/business/2014-11/20/content_34103889_3.htm (October 10, 2016).
seller. Xiaomi sold 3 million smartphones in India from July 2014 through August 2015. The
average quarter-over-quarter growth was 45 percent.99
In addition, Lei Jun said Xiaomi intended to set up a R&D center in India, as it sought to build
localized services for its overseas markets.100 Also, it planned to open 100 experience stores in
India to help domestic consumers “experience” the company’s devices.101
Brazil
Xiaomi’s expansion to Brazil took place at the time that China’s smartphone market started to
contract for the first time. Brazil’s smartphone market was about half the size of India’s, but it
was the fourth-fastest growing market in the world. It was Xiaomi’s first smartphone market
outside of Asia and Hugo Barra’s home country.
Barra agreed that Brazil was a challenging and very competitive market, and one where Samsung
controlled half of all smartphone shipments. But Xiaomi’s big selling point was expected to be
its lower price. At $160 the Redmi 2 was half the price of comparable phones by the company’s
local competitors in Brazil.102 “Brazil is going through an economic slowdown which has people
making more careful purchasing decisions and I think that certainly favors our approach, in that
our philosophy is amazingly higher products for lower prices,” said Barra.103
Xiaomi only sold unlocked phones, so it expected to benefit from the fact that most people in
Brazil used pre-paid, no-contract phones. Since only a reported 15 percent of local consumers
bought phones online, the company would have to experiment with different methods for selling
the Redmi 2 through offline stores or by using other payment forms. It added new online sales
channels in the country, including the Pontofrio.com, Extra.com.br and CasasBahia.com.br
websites, operated by Cnova.104 Barra said the company might also try advertising through the
ubiquitous LCD screens scattered across the country rather than just through social media.
Xiaomi hoped to benefit from bundling data plans into its phones through partnerships with local
carriers. Barra had known Carlos Slim’s America Movil, Latin America’s biggest mobile
operator, for years thanks to the relationship-building he did during his time with Google’s
Android team. “We know the carriers here and talk to them all the time, and will consider
working with them as we have in other markets,” Barra said.105
99
Dou, loc. cit.
100
Anil Gupta and Haiyan Wang, “Why Xiaomi Can’t Succeed Without India,” June 29, 2015,
https://hbr.org/2015/06/why-xiaomi-cant-succeed-without-india (October 10, 2016).
101
Reuters, “China’s Xiaomi to set up 100 'experience' stores in India in 2015,” March 12, 2015,
http://www.reuters.com/article/2015/03/12/xiaomi-india-idUSL4N0WE34T20150312 (October 10, 2016).
102
Parmy Olson, “Xiaomi Targets Brazil with a $160 Smartphone,” Forbes, July 1, 2015,
http://www.forbes.com/sites/parmyolson/2015/07/01/xiaomi-brazil-launch-redmi/ (October 10, 2016).
103
Ibid.
104
“Xiaomi adds new online sales channels in Brazil,” January 14, 2016,
http://www.telecompaper.com/news/xiaomi-adds-new-online-sales-channels-in-brazil--1122880 (October 10, 2016).
105
Parmy Olson, “Xiaomi Just Made A Huge Splash In Brazil. Now To Reshape The Market,”
Forbes, July 6, 2015, http://www.forbes.com/sites/parmyolson/2015/07/06/xiaomi-brazil-hugo-barra/#3aa54f7a3c41
(October 10, 2016).
The phones were manufactured locally in Brazil in partnership with Foxconn International
Holdings—this was a strategic decision based on the country’s high import taxes.
The United States

Although the United States was not on the initial list of ten target countries, Xiaomi entered the
U.S. market in May 2015, by selling accessories online (Mi.com), but not its signature Mi mobile
devices.106 Specifically, the online shop sold Mi Power Bank, Mi Band, and Mi Headphones to
buyers in the United States, the United Kingdom, France, and Germany. 107 The company
launched very limited quantities and all sold out rapidly. According to Barra, the reason Xiaomi
didn’t try to sell its smartphones was partly because of the U.S. carrier-sales and phone subsidy
structure, which eliminated Xiaomi’s cost advantage. Moreover, Lin Bin and Barra were
concerned about the time and efforts needed to tailor the MIUI systems and to obtain
certification, among other hurdles.108
Products sold in the United States were shipped directly from warehouses in China, which meant
U.S. buyers had to pay import duties. Small, cheap purchases, such as the Mi Power Banks and
Mi Band might just slip under the £15 VAT-free limit for imports from outside of the European
Union, depending on the retail price and shipping costs.109 The Xiaomi website would display
the costs at checkout and handle the payment of taxes and duties.
CONCLUSION
In 2015, Xiaomi’s sales rose just 3 percent to $12.5 billion. A year earlier, Lei Jun had boldly
predicted that figure would be $16 billion. Also, the company’s smartphone sales reached only
71 million units in a declining market, missing the low end of its expected sales of 80 to 100
million units.110 Its revenue from apps and games missed its $1 billion sales target for 2015,
hitting $560 million that year, according to one current investor.111 In the first quarter of 2016,
Xiaomi shipped 10.9 million phones, a 26 percent year-over-year decline. Global phone sales
during that period were down 0.5 percent.
Thanks to inroads in India and Brazil, the company derived about 9 percent of its revenue
outside China, slightly higher than the 7 percent in 2014, and a rare accomplishment for a
Chinese company. 112 Xiaomi’s global expansion continued with launches in South Africa,
Nigeria, and Kenya in November 2015, working with Mobile in Africa Group (MIA) as a
distribution partner. The entry into the United Arab Emirates (UAE) began in January 2016, and
Saudi Arabia followed in February. Dubai-based Task FZCO and local carrier Etisalat, with
106
John Shinal, “Xiaomi lands in the U.S. with a considerable splash,” February 17, 2015，
http://www.usatoday.com/story/tech/columnist/shinal/2015/02/13/xiaomi-smartphone-apple-hugo-barra/23359411/
(October 10, 2016).
107
Stephen Hall, “Xiaomi’s Mi Store ‘beta’ to open in US, UK, France and Germany on May 19th,” May 15, 2015,
http://9to5google.com/2015/05/15/xiaomi-mi-store-open-united-states/ (October 10, 2016).
108
Reuters, “China’s Xiaomi to start small in US, with earphones and bands,” February 12, 2015,
http://www.cnbc.com/id/102422973 (October 10, 2016).
109
Rob Triggs, “Xiaomi launching its US and European accessory stores,” May 19, 2015,
http://www.androidauthority.com/xiaomi-uk-accessory-store-beta-608550/ (October 10, 2016).
110
Eva Dou, loc. cit.
111
Cendrowski, loc. cit.
112
Eva Dou, loc. cit.
operations in 15 countries, had partnered to bring the Chinese smartphone brand to the UAE
market.113 In the future, Xiaomi’ expected its patent deal with Microsoft to help its phones crack
more foreign markets.114
Lei Jun, Lin Bin, and Hugo Barra knew that Xiaomi’s internationalization was going to be a
protracted war. It involved organizational, industrial, and institutional factors that crossed
multiple levels and interacted in a complex way. The three Xiaomi executives were thinking
hard about the best ways for the company to pursue its global corporate strategy successfully.
While Xiaomi no longer claimed the most-valuable-start-up crown, its $45 billion valuation
remained a powerful symbol of its aspirations. It was a rising power in a nation eager to prove
that its consumer-oriented companies could compete globally. “Xiaomi’s mission is to change
the world’s view of Chinese products,” Lei said.115
113
George, “Xiaomi expands to UAE, Saudi Arabia to follow,” January 14, 2016,
http://www.gsmarena.com/xiaomi_expands_to_uae_saudi_arabia_to_follow-news-16066.php (October 10, 2016).
114
Cendrowski, loc. cit.
115
Exhibit 1
Worldwide Smartphone Sales to End Users by Vendor in 2015 (Thousands of units)

Company 2015 Units 2015 Market 2014 Units 2014 Market
share (%) share (%)
Samsung 320,219.7 22.5 307,596.9 24.7
Apple 225,850.6 15.9 191,425.8 15.4
Huawei 104,094.7 7.3 68,080.7 5.5
Lenovo* 72,748.2 5.1 81,415.8 6.5
Xiaomi 65,618.6 4.6 56,529.3 4.5
Others 635,368.5 44.6 539,691.3 43.4
Total 1,423,900.3 100.0 1,244,739.8 100.0
* The figures for Lenovo include sales of mobile phones by both Lenovo and Motorola.
Source: Forbes, February 21, 2016, http://www.forbes.com/sites/chuckjones/2016/02/21/apples-iphone-market-
share-vs-profits/#1a030a7246f8.
Exhibit 2
Source: IDC press release, February 14, 2016, https://www.idc.com/getdoc.jsp?containerId=prAP41028416
Exhibit 3
Xiaomi Annual Sales Volume and Revenue (2011-2015)
Year Sales Volume Revenue Valuation
(RMB) (RMB) (Dollar)
8/2011 300 thousand 550 million RMB 1 billion
2012 7.19 million 12.6 billion RMB 4 billion
($5.14 billion)
($12 billion)
2015 71 million $12.5 billion n.a.
Source: Public data collected by authors.
Exhibit 4
Xiaomi’s Primary Products and Launch Time
Products Launch time
Mobile phones Mi 1(Aug 2011); Mi 1Youth (May 2012); Mi 1S

Mi series (Aug 2012); Mi 1S Youth (Oct 2012); Mi 2 (Aug
2012); Mi 2S/ 2A (Apr 2013); Mi 3 (Sep 2013);
Mi 4 (July 2014); Mi 4i (Apr 2014); Mi 4C (Sep
2015)
Redmi series Redmi (July 2013); Redmi 1S (Feb 2014); Redmi
Note (Mar 2014); Redmi 2 (Jan 2015); Redmi 2A
(Mar 2015); Redmi 3 Note (Nov 2015)
Mi Note, Mi Note Pro Jan 2015
Mi pad May 2014
MIUI (operating system) Aug 2010
MiWiFi (network router) Apr 23, 2014
Mi TV (Smart TV line) Mi TV (Sep 2013); Mi TV 2 (May 2014); Mi TV
3 (Oct 2015)
MiBox (set-top box) Mi Box (Mar 2013); Mi Box 2 (Sep 2013)
MiCloud (cloud storage service) 2012
MiTalk (messaging service) Dec 10, 2012
Mi Power Bank (external Dec 10, 2013
battery)
Mi Band (fitness monitor & July 22, 2014
sleep tracker)
Smart Home Products
Blood pressure monitor Sep 2014
Air purifier Dec 9, 2014
Yi Smart Webcan June 2015
Yi Action Camera Mar 2015
Mi Smart Scale Mar 2015
Mi Water Purifier July 2015
Smart Home Kit June 2015
NineBot Mini (self-balancing Oct 2015
Scooter)
Source: Data collected by authors.
Exhibit 5
Primary Components of Xiaomi’s Ecosystem
Source: Authors’ own elaboration.
Exhibit 6
Top Five Smartphone Vendors, Average Selling Price (ASPs in USD)
and Year-Over-Year Growth
ASPs (2015) ASPs (2014) Year-Over-Year

Growth
Xiaomi $141 $152 -7.6%
Huawei $213 $176 20.9%
Apple $718 $621 15.7%
OPPO $231 $242 -4.7%
vivo $208 $229 -9.1%
Source: IDC press release, February 14 2016, https://www.idc.com/getdoc.jsp?containerId=prAP41028416
Exhibit 7
Smartphone Brand Patent Comparison
* Because of the large amount of data, not all applications could be examined individually. Expect a small margin of
error, particularly in the larger figures.
* Utility models not included.
Source: Drew by authors based on Paul Bischoff, Tech in Asia, https://www.techinasia.com/xiaomis-patent-
portfolio-stacks-competitors-charts/, March 5, 2015.
Exhibit 8
Chinese Smartphone Maker Patent Comparison 2
* Apple changed its name from Apple Computer Inc. to Apple Inc. in 2007. This data is from patents filed under
Apple Inc only. This is preferred when comparing smartphone companies, as the iPhone was launched in 2007.
* Because of the large amount of data, not all patents could be examined individually. Expect a small margin of
error, especially in the larger figures.
* Utility models not included.
Source: Drew by authors based on Paul Bischoff, Tech in Asia, https://www.techinasia.com/xiaomis-patent-
portfolio-stacks-competitors-charts/, March 5, 2015.
Exhibit 9
Xiaomi’s Filed Patents (2011 – 2015)
7000
6000
6000
5000
4000
3000
2045
2000
1000 698
257
35
0
2011 2012 2013 2014 2015
* Numbers in 2015 are estimated.

Source: Adapted from GreyB Services, http://www.greyb.com/patent-portfolio-analysis-of-xiaomi-global-
expansion-plan/.
Exhibit 10
Estimated Number of Added Smartphone Subscriptions between 2013 and 2019
2500
2077
2000
1500
million
986
1000
500 393
150 110
0
Asia-Pacific Central Europe Latin America Western Europe North America
/Middle-East
/Africa
Source: http://www.statista.com/chart/2326/smartphone-subscriber-growth/.
Exhibit 11
Internet Penetration in South East Asia Ranked by GDP (PPP) Per Capita
Country Population GDP Internet Internet Facebook
(PPP) Per Users Penetrati Penetration
Capita on (%) (%)
Singapore 5,183,700 $59,936 3,598,074 70 70.78
Brunei 401,890 $49,517 197,514 50 73.36
Malaysia 28,318,000 $15,578 15,635,925 55.3 72.58
Thailand 64,964,000 $9,693 14,063,287 21.2 78.27
Indonesia 240,271,522 $4,668 22,110,119 9.1 143.53
Philippines 93,983,000 $4,111 24,975,044 25 92.91
Source: http://www.mvfglobal.com/south-east-asia.
Exhibit 12
Xiaomi Expansion beyond Mainland China
Date Country Sale Channels Products Notes

4/2013 Taiwan and Carrier: China Redmi 2, Mi 4i,
Hong Kong Telecom, FET Pad, Router, Band
Telecom;
E-commerce
site : mi.com
2/2014 Singapore Carriers : Redmi, Mi 4, Pad, Delivery from Shenzhen
SingTel, Band, Power Bank, through UPS
StarHub, M1 accessories
E-commerce
site : mi.com
7/2014 India E-commerce Redmi, Redmi R&D department in
site : Flipkart Note 2 Prime, Mi Bangalore;
(largest in 4, Pad, Band, local manufacturing since
domestic), Power Bank, Redmi Note 2
mi.com accessories
8/2014 Indonesia E-commerce Mi 4i, Redmi 2,
site : Lazada, Pad, Band, Power
mi.com Bank, accessories
5/2014 Malaysia E-commerce Mi 4i, Mi 4, Redmi
site : mi.com 2, Pad, Band,
Power Bank,
accessories
5/2015 U.S., U.K., E-commerce Mi Band, Power, Delivery from China
France and site : mi.com Headphone
Germany
6/2015 Brazil E-commerce Redmi 2 Local manufacturing with
(Mi.com and Foxconn
other sites),
carriers
11/2015 South Distribution Redmi 2, Mi 4i
Africa, partner: Mobile smartphone
Nigeria, in Africa Group
Kenya
2016 UAE Dubai-based Redmi 2 Pro,
Saudi Task FZCO, Redmi Note 2, Mi
Arabia local carrier 4i
Etisalat
Source: Data collected by authors.

Xiaomi&#39;s Globalization Strategy and Challenges

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CASE: SM262

XIAOMI’S GLOBALIZATION STRATEGY AND CHALLENGES

invested in 56 start-ups to construct its business ecosystem.13

An Internet Company and its Ecosystem

Low Pricing Strategy

Hunger Marketing and Social Media Promotion

GETTING READY TO GO GLOBAL

STRATEGIC CHALLENGES AND OPPORTUNITIES

Intensive and Dynamic Market Competition

Technology Driven or Business Model Innovation Driven?

Patent and Intellectual Property (IP) Rights

Fashionable Product and Mode

Market Potential in Emerging Economies

These emerging markets were rapidly building infrastructures of communication technology

XIAMOI’S GLOBALIZATION OPTIONS IN 2016 AND BEYOND

The United States

Worldwide Smartphone Sales to End Users by Vendor in 2015 (Thousands of units)

Source: IDC press release, February 14, 2016, https://www.idc.com/getdoc.jsp?containerId=prAP41028416

Products Launch time

Mobile phones Mi 1(Aug 2011); Mi 1Youth (May 2012); Mi 1S

Source: Authors’ own elaboration.

ASPs (2015) ASPs (2014) Year-Over-Year

* Numbers in 2015 are estimated.

Date Country Sale Channels Products Notes

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Xiaomi's Globalization Strategy and Challenges

Xiaomi's Globalization Strategy and Challenges