Xiaomi’s Growth Strategy in West – Baby Steps..

Xiaomi’s Growth Strategy Outside China – Will US help Xiaomi propel ahead? 

  • Xiaomi became the third largest smartphone brand in Q3 2014 though slipped to fifth largest in Q4 2014 as the brand’s growth peaked in its domestic market as close rivals such as Lenovo (with Motorola acquisition) & Huawei surpassed xiaomi in smartphone race banking on significant growth outside China.
  • As a result, to keep on the momentum going, Xiaomi is trying hard to expand in bigger and high potential markets such as India, Indonesia, Brazil and others but as it may have realized after Ericsson patent suit in India that the days of easy growth are over.
  • In light of this, Xiaomi yesterday held a press conference in US causing a huge media frenzy on whether the world’s fastest growing brand has changed its mind and will launch its popular Mi phones in the country
  • However, Xiaomi just decided to launch its “mi.com” ecommerce portal through which it plans to initially sell products other than phones for the US consumers atleast in near- to mid-term.
  • This move while might have disappointed a few consumers and curbed the initial expectations in the media, but, we believe it was another masterstroke to keep running the hype and stimulating latent demand for its phones in the western markets
  • US is a very tough market and is dominated by handful of brands, Apple+Samsung combined account to two in three phones sold in the market. The rest of the market is filled by just next seven brands.
  • So ideally there is not much room for more than 10 brands at a time as 90% of these shipments are controlled by operators (e.g. AT&T, Verizon, etc) and to get your products into the operator shelves is one of the biggest challenge
  • Secondly, to get into carrier shelves is a long process filled with stringent vendor (supplier) selection, screening, tons of (expensive) certifications and much more
  • Thirdly, to become the third largest brand unanimously across all the major four carriers is another tough nut to crack in order to generate enough scale to be profitable. Brands such as Apple, Samsung, LG, Motorola, Kyocera & Nokia took atleast 4-5 years average to win shelf space across all carriers
  • Furthermore, once a vendor has gone through all this and have established itself, the next it sees is being hit by patent or IP suits which challenges its cost-structure and especially difficult for low-cost players such as Xiaomi
  • So in summary, its a challenge for Xiaomi to mark an entry with phones in US any time soon and bank on “growth” from this market – it could be a time, energy and profit drag. The same reason why only handful of brands survive in operator driven Japanese and Korean markets, The barriers to entry are too high.

The premise of launching mi.com ahead of the phones launch speaks volumes for Xiaomi’s US strategy in terms of first getting the US’s media attention, start laying foundation for Xiaomi brand, products and other offerings before it launches a smartphone.

How Xiaomi Should Plan its expansion?

We believe while this is a great strategy, Xiaomi should actually look to start disrupting the market in categories other than phones to start with. For example:

  1. Xiaomi should launch its 4K Android Smart Mi TV which it sells at a price of an iPhone ($649) will truly disrupt the market and should create huge brand buzz for Xiaomi brand
  2. Xiaomi should launch its attractively priced smart home automation offerings such as Mi Home smartbox, smart remote, webcam, smartplugs, etc aptly suited for advanced US consumers
  3. Xiaomi Mi band should also help Xiaomi to get its app on most of the Us consumers buying its highly affordable fitness band
  4. Along side all this Xiaomi can launch its accessories such as Power banks, headphones, toys, etc and these should not be the main focus items

We believe if Xiaomi prioritize its launches starting with lifestyle products should help the vendor build a solid foundation, position, buzz and thus brand leverage to have dialogues with US operators to launch its phones atleast by Christmas this year