{"id":28347,"date":"2018-11-12T14:50:07","date_gmt":"2018-11-12T19:50:07","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/xiaomi-fueled-by-open-innovation\/"},"modified":"2018-11-13T14:42:19","modified_gmt":"2018-11-13T19:42:19","slug":"xiaomi-fueled-by-open-innovation","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/xiaomi-fueled-by-open-innovation\/","title":{"rendered":"Xiaomi: Fueled by Open Innovation"},"content":{"rendered":"

Xiaomi has returned<\/strong><\/p>\n

Xiaomi, a Chinese smartphone maker, had returned its position to 5th largest share in the worldwide smartphone market in 2017. [1] Xiaomi struggled, in 2016, in both domestic and international market and Xiaomi’s smartphone sales dropped almost by 18% YoY [2]; Xiaomi officially refused to disclose their sales result for 2016. [3] Many were\u00a0surprised by this unprecedented rebound and called Xiaomi a “Chinese Phoenix”. [4]<\/p>\n

 <\/p>\n

Open Innovation at Xiaomi\u00a0<\/strong><\/p>\n

Since insertion in 2010, Xiaomi is well-known for two things; low price products with comparable quality and devoted customers “Mi Fans”. [5]\u00a0 Xiaomi developed Android-based user interface MIUI for the company’s smartphone products in 2010. Xiaomi set up an Internet forum to receive feedback from customers at the very beginning stage of development. Enthusiastic customers eagerly participated in the development phase by discovering and informing defects, bugs, and possible improvements for MIUI. Ever since Xiaomi has been releasing updated MIUI every Friday at 5 PM, harnessing customers’ ideas. This crowdsourcing of user interface development was crucial for Xiaomi’s success since the company had no brand or reputation. The key users not only helped developing but also had an important role in spreading Xiaomi’s vision and gathering more “Mi Fans”. As a result, in 2011, when Xiaomi first revealed its smartphone, MIUI user base was already 300,000. The active user of MIUI further expanded to 190 million\u00a0by 2016.\u00a0 [6] Experimental open innovation of Xiaomi has accomplished its goal to generate “loyalty\u00a0and brand-\u201cstickiness\u201d among customers”. [4]<\/p>\n

 <\/p>\n

Investing, Partnership,<\/strong> Ecosystem : Being Everywhere<\/strong><\/p>\n

Xiaomi raised a $1.1 billion funding in 2014 and used it to fuel the company’s growth. Xiaomi vigorously\u00a0invested in startups. Xiaomi made hundreds of partnership with startups and released all different kind of products under Xiaomi’s name including drones, air purifiers, power banks, scooters, electric fans, smartwatches, TVs and even electric rice cookers. Xiaomi didn’t have manufacturing facilities to produce those products.<\/p>\n


\n\"\"<\/a><\/p>\n

Products of Xiaomi’s Ecosystem [7]<\/p>\n

Xiaomi, in turn, outsourced manufacturing but involved in the design process of its entire product lineup. Through this process, Xiaomi could deliver various products with the incomparably low price. Many were skeptical about this rapid expansion to non-smartphone industries. Even some claimed unnecessary partnership would ruin Xiaomi’s future given its very narrow margin and blamed the partnership to be a cause of sales dip in 2016. Nonetheless, Xiaomi continued its strategy and made a huge presence at retail business as opposed to its online-only strategy in the past. Now Xiaomi asserts that the company is not a smartphone maker but internet platform provider. Establishing an ecosystem through partnership and outsourcing is one of the important aspects of Xiaomi’s open innovation. In addition, Xiaomi clearly has built its ecosystem based on its Chinese “Mi Fans”.\u00a0 A synergy between fan-based innovation and on\/offline ecosystem made Xiaomi’s valuation $54 billion at the point of IPO; the company’s goal was $100 billion. [8]<\/p>\n

 <\/p>\n

Sustainable Growth<\/strong><\/p>\n

Xiaomi’s open innovation of MIUI and expanding its product\u00a0lineup facilitated its rapid growth and turnover in 2017, as well. However, Xiaomi’s lack of originality and plagiarism of IP on hardware are always criticized. Besides, the low quality of the company’s products is always an issue even though some argue that the price matches the quality. To overcome these issues and grow further, Xiaomi should be cautious in selecting partners. Building an ecosystem with partnership could give Xiaomi benefit of cost-effectiveness, but open innovation or outsourcing always entail control problem. Once the company fails to control the quality of the partner’s products, customers\u2015even loyal customers\u2015 will turn their back.<\/p>\n

Xiaomi should protect and not infringe any intellectual property (IP) to create a global presence. The company is facing multiple lawsuits in not only domestic but also international courts including the U.S. [9][10] Furthermore, Xiaomi should consider the way to incentivize MIUI users who participate development of UX. Sustainable Open Innovation requires a company to compensate the person who brought new idea so that the company would establish a competitive advantage.<\/p>\n

 <\/p>\n

Future and more<\/strong><\/p>\n

Xiaomi’s stock price dropped sharply after IPO while the company aims to hit 100 million smartphone sales in 2018 and might become the world 4th largest smartphone maker. [11] There could be multiple reasons behind this drop; its razor-thin margin, the overall stagnation of the smartphone market, or even external pressure such as lawsuits and trade war. Nonetheless, Xiaomi will not stop its open innovation strategy. How long can open innovation be sustainable without making any\u00a0profit? Was open innovation critical to the success of Xiaomi? or was it just because of cheap products? Can this type of open innovation be applicable to different companies and industries?<\/p>\n

 <\/p>\n

\"\"<\/a><\/p>\n

Xiaomi’s stock price since IPO (at October 12) [8]<\/p>\n

 <\/p>\n

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(Word count: 769)<\/p>\n

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[1] Faulkner, C. (2018).\u00a0Xiaomi grew more in 2017 than Apple, Samsung and Huawei combined<\/i>. [online] TechRadar. Available at: https:\/\/www.techradar.com\/news\/xiaomi-grew-more-in-2017-than-apple-samsung-and-huawei-combined<\/a>.<\/p>\n

[2] Russell, J. (2017).\u00a0Oppo topped China\u2019s smartphone market in 2016, as Apple recorded first annual decline<\/i>. [online] TechCrunch. Available at: https:\/\/techcrunch.com\/2017\/02\/05\/oppo-topped-chinas-smartphone-market-in-2016\/<\/a>.<\/p>\n

[3]\u00a0Russell, J. (2017).\u00a0Xiaomi stops disclosing annual sales figures as CEO admits the company grew too fast<\/i>. [online] TechCrunch. Available at: https:\/\/techcrunch.com\/2017\/01\/11\/xiaomi-2016-to-2017\/<\/a>.<\/p>\n

[4]\u00a0Kline, D. (2017).\u00a0Behind the Fall and Rise of China’s Xiaomi<\/i>. [online] WIRED. Available at: https:\/\/www.wired.com\/story\/behind-the-fall-and-rise-of-china-xiaomi\/<\/a>.<\/p>\n

[5]\u00a0DONG, J. and ZHANG, Y. (2016).\u00a0When Customers Become Fans<\/i>. [online] MIT Sloan Management Review. Available at: https:\/\/sloanreview.mit.edu\/article\/when-customers-become-fans\/<\/a>.<\/p>\n

[6]\u00a0Bhushan, K. (2018).\u00a0Xiaomi\u2019s MIUI custom ROM now has over 190 million monthly active users<\/i>. [online] hindustantimes. Available at: https:\/\/www.hindustantimes.com\/tech\/xiaomi-s-miui-custom-rom-now-has-over-190-million-monthly-active-users\/story-kMZBkmBhyq1OFf3aAvnH9K.html<\/a>.<\/p>\n

[7] The company’s official website. Available at:\u00a0https:\/\/www.mi.com\/us\/<\/a>.<\/p>\n

[8]\u00a0BORAK, M. (2018).\u00a0Xiaomi shares slide more than 40% since its peak<\/i>. [online] TechNode. Available at: https:\/\/technode.com\/2018\/10\/12\/xiaomi-shares-40\/<\/a>.<\/p>\n

[9]\u00a0Jiang, S. (2018).\u00a0Xiaomi sued for alleged patent infringement ahead of blockbuster IPO<\/i>. [online] REUTERS. Available at: https:\/\/www.reuters.com\/article\/us-xiaomi-coolpad-lawsuit\/xiaomi-sued-for-alleged-patent-infringement-ahead-of-blockbuster-ipo-idUSKBN1IC11L<\/a>.<\/p>\n

[10]\u00a0SOO, Z. (2015).\u00a0China\u2019s Xiaomi slapped with patent-infringement suit by Blue Spike in US over upcoming Mi 5, Mi 5 Plus smartphones<\/i>. [online] South China Morning Post. Available at: https:\/\/www.scmp.com\/tech\/enterprises\/article\/1889024\/chinas-xiaomi-slapped-patent-infringement-suit-blue-spike-us-over<\/a>.<\/p>\n

[11]\u00a0Russell, J. (2018).\u00a0Xiaomi looks set to smash its 100M sales target for 2018<\/i>. [online] TechCrunch. Available at: https:\/\/techcrunch.com\/2018\/10\/25\/xiaomi-100-million-sales\/<\/a>.<\/p>\n

[12]\u00a0Yang, Y. (2018).\u00a0Xiaomi\u2019s billionaire founder reveals his formula for success<\/i>. [online] South China Morning Post. Available at: https:\/\/www.scmp.com\/tech\/article\/2140644\/xiaomi-ceos-rather-counter-intuitive-success-formula-dont-be<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cWe must curb the tendency for greed and win absolute trust from consumers. So we\u2019re now deliberating, I think we may write this into the company charter, that we will not, in perpetuity, exceed a certain number of percentage points in profit on our hardware. Our target is just this one or two percentage points. We want all consumers who buy our products not to hesitate.\u201d Lei Jun, CEO and Founder, Xiaomi [12]<\/p>\n","protected":false},"author":11328,"featured_media":28348,"comment_status":"open","ping_status":"closed","template":"","categories":[4239],"class_list":["post-28347","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-open-innovation","hck-taxonomy-organization-xiaomi","hck-taxonomy-industry-technology","hck-taxonomy-country-china"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2018\/","yoast_head":"\nXiaomi: Fueled by Open Innovation - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/xiaomi-fueled-by-open-innovation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Xiaomi: Fueled by Open Innovation - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"\u201cWe must curb the tendency for greed and win absolute trust from consumers. 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