Chinese smartphone maker undercuts western companies

Chinese smartphone maker undercuts western companies

Business news |
By eeNews Europe


The Chinese company holds the fifth-largest share of China’s smartphone market in terms of units sold, it overtook Apple in 2013 with 18.7 million smartphones sold (more than double the number of units shipped the previous year). Cranking up its supply chain, Xiaomi’s reported goal is to sell 40 million smartphones in 2014.

By outsourcing the manufacturing of its smartphones and maintaining a very low profit margin on its hardware, the company is able to offer very competitively priced products while making the most of its revenues from its online digital content including apps, games, wallpapers and themes, and ebooks.

Xiaomi’s smartphone portfolio is limited, but aims to cater for different income levels. It offers outstanding specifications at each price point. The Mi3 is comparable to the best smartphones available on the market (such as Apple’s iPhone 5S and Samsung’s Galaxy S4), but at half or less than half the price. As a result, the devices have proved popular in the manufacturer’s domestic market. Xiaomi’s entry-level model, the Hongmi, attracted 7.45 million pre-order reservations and its first batch of 100 000 sold out in 86 seconds.

Xiaomi started out as a software and services company, but entered the mobile device and consumer electronics market using the same strategy as Amazon in the tablet market and video games console manufacturers: that of providing extremely inexpensive hardware – almost at cost – and making money on software and services.

The manufacturer generates more than CNY30 million (USD4.95 million) per month in revenue from its software services. Its customised UI, MIUI, has more than 30 million users worldwide at present. It is preloaded on Xiaomi smartphones, and is also available to download for other Android phones.

A primary focus for Xiaomi, and one of its core strengths, is the development of close ties with consumers through user interaction and feedback. Xiaomi operates many user forums (in as many as 21 countries), which it monitors closely for feedback from consumers – even allowing them to vote on any disagreements between the users regarding, for example, specific functions of the phones or the UI, such as shortcut buttons. It then incorporates users’ suggestions into its weekly software updates, which it distributes ‘over the air’ or through the PC every Friday.

Xiaomi initially sold its smartphones only in China, but expanded into Hong Kong and Taiwan in April 2013, launching the phones at prices equivalent to those in China. In January 2014, it reached an agreement with PCCW in Hong Kong to sell a subsidised version of its Hongmi model on contract through the operator. In Taiwan, it started selling its Mi2S smartphone through the third-largest operator, Far EasTone, also through a subsidy model.

There are already signs that these expansions have met with some success: in Hong Kong it took less than 1 minute to sell the first batch of 10 000 Hongmi phones (priced at HKD1047, or USD135), while in Taiwan (where it was priced at TWD3999, or USD132) it took just under 10 minutes. There were also some complaints in these countries from consumers who did not manage to get the handset, which generated more publicity and, as a result, increased demand.

In August 2013, Xiaomi hired Google’s Head of Product Development (Android), Hugo Barra, to lead its worldwide expansion plans. The company has yet to reveal the complete roadmap for its overseas expansion plans, but it has announced its next market: Singapore. Xiaomi has not announced an official launch date for this market, but it is expected to be in the first half of 2014.


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