Xiaomi: The World Conquest
Just very recently Xiaomi made it to the headlines yet again. Recently on China’s Single Day, a celebration or a get together day for the single people, on the 11th of November, 2014 Alibaba made a ton of sales. A large part of the sales made by Alibaba though is contributed by the mobile phone department. The largest chunk from that side is Xiaomi. They sold 720,000 devices in 12 hours! That translates to about $163 million (RM545.4 million) of sales in just 12 hours. That is a number that most companies in the industry can only dream of.
This number will only add to Xiaomi’s year end profits, on top of what they have revealed for the past year. Due to their desire to get a bank loan of reportedly about $1 billion, presumingly for their overseas expansion plans they needed to open up their files for the public to see. In 2013 Xiaomi managed to gain $27 billion Chinese Yuan, double of what they earned in 2012. In the same year Xiaomi posted a net profit of 3.46 billion Yuen, 84% more than 2012’s 188 billion Yuen. There are yet to be an official profit and earnings report from Xiaomi for this year but reports suggest forecasts of 75% of growth in net profit. With the amount of expansion Xiaomi is involved in this year we will not be surprised, in fact we are expecting a higher profit increase.
But with prices so low that other manufacturers cannot even come close to matching, how does the revenue numbers actually turn into profit for this Chinese company is unique. Hugo Barra reveals that through exclusive e-commerce retail costs of sales are kept at the lowest as Xiaomi has no need to ship out their products to retailers all over China or the markets outside China for that matter. It is true though that plenty of manufacturers are moving towards e-commerce to keep costs at their lowest, of course plenty of them have not been able to shake of the retailers making it slightly more difficult to keep those costs down. Unlike the other manufacturers Xiaomi started exclusively by e-commerce and nothing else. It also helps to keep a rather consistent pricing for consumers. Barra also says that Xiaomi has a 24-months product life cycle; meaning products like the Xiaomi Mi4 will be available to the market for only about 2 years before a new product comes out to replace it. This keeps their products development costs low. Unlike companies like Samsung that comes up with new devices every month of so Xiaomi does not. Plus Xiaomi also keeps its product range excluding accessories limited which means production run can be gauged and stocks easily replenished by its manufacturers quicker. Production also plays a part in the profits that Xiaomi can make. With the offerings Xiaomi has, they need to profit through economies of scale; making devices in bulk. But of course they cannot do that with leftovers. The leftovers are costs to Xiaomi too. So their approach was different, they produce in batches and allow consumers to purchase these batches without having any leftovers in a few days or so. Smart stuff, this is how Hugo Barra makes profit out of the 60 million hand sets that Xiaomi has sold this year alone.
So we were mentioning about a loan that Xiaomi wanted to take, about $1 billion worth of loan. Aside from the loan they are looking to raise about $1.5 billion for their global expansion campaign. With that money raised, Xiaomi’s entire business is valued at about $40 billion in total. To put into perspective, Facebook is valued at about $50 billion. Even Lenovo and Sony combined is not worth as much as Xiaomi currently. We know that they are going to use these money for global expansion and though Xiaomi is not exactly poor at this point of time they do need plenty of money to expand globally and keep the momentum of growth steady. How they are going to do it or use the money is not yet clear. Hugo Barra, Xiaomi’s CEO, vice president and face did mention about expanding more in the Asia market before eventually making it into Brazil and Mexico. From the looks of it also they will be using the money to expand on their product offerings. Their main focus will remain in the smartphone market but they have already spent some money in getting into the smart home business and health products. With the kind of money they raise they could have intentions to do more than just expand their market reach.
So what is really next for this company that does not seem to stop growing at this point of time? At the time of this writing Xiaomi has the China market in grasp without a doubt. They are the strongest mobile devices brand in that country and they are gaining on the larger manufacturers like Apple and Samsung. This is all without tapping into the European and American markets yet. At this time they are looking at a larger market expansion with the hiring of Spotify’s Donovan Sung. Donovan Sung was responsible for Spotify’s rapid growth globally anyway. He is not directly active in the operations of the music streaming giant though, he is more responsible for the development of the product offering itself which would mean just one thing for Xiaomi; Donovan Sung will oversee the development of future Xiaomi products. On the plus side as well he is fluent in both English and Mandarin allowing less communication barrier between Hugo Barra and the rest of the Chinese board.
Before Barra makes any move on the Western market though he has his sights on India, the second most populated country after China. This will explain why Xiaomi just hired Jai Mani to be leading the Indian team. What is significant in India also is that the rapidly growing middle class. The middle class citizens are the market that Xiaomi is most probably after. With the same sort of pricing approach too the middle class would definitely be interested in Xiaomi’s product offering. That is not all though; India’s internet adoption is also at an increasing rate and Xiaomi definitely wants to become the first of companies in the region to take advantage of that. Flipkart will be Xiaomi’s current exclusive partner in India. With Flipkart proving as a force in India’s e-commerce platform this partnership is a very strategic one and they are in it for the long-run. But Barra wants more than that for India, reports suggests that he recently moved to India to personally oversee the development of Mi, Xiaomi’s international brand moniker in India. Apparently Barra wants to build a whole operation for Xiaomi in India starting with manufacturing. There are also some talks in the internals of the Chinese based company to move some software developments into India which allows developers of Xiaomi to develop software built specifically around and for the Indian market. The movement of the software developments would also mean that Barra would be bringing a whole new range of services from China to India. It does look like a bright future though with Xiaomi’s 100,000 devices per week strong start. With that success also Xiaomi plans to bring its awaited Mi4 into India, oh and a 49-inches 4K TV.
In the more local market, Malaysia Xiaomi has achieved unprecedented success with its overwhelming sales number and adoption. With low pricing and solid offering it is not much of a surprise for the success. To ensure an even stronger foothold though they needed to look into their post-sales services. They are doing exactly that. They are preparing to open their first ever exclusive service center in Malaysia, in the heart of the country, Kuala Lumpur. A Xiaomi only service center in Low Yat Plaza, considered the digital hub of Kuala Lumpur, called Mi Serv is seen to be ready for an opening very soon. As it is Xiaomi exclusive it will only serve customers with Xiaomi products such as the Mi3, Redmi Note and Redmi 1S. Mi Serv will not have a sales force ready at hand nor it will sell any of the devices but they will have other Mi products that are yet to be in the country. Currently they have six other service centers located in Petaling Jaya, Penang, Ipoh, Kota Bahru, Melaka, and Johor Bahru.