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Xiaomi: China’s Threat to Apple and Samsung<\/strong><\/p>\n Founded in April 2010 as a lean startup to sell smartphones at cheap prices over the internet, Xiaomi has been seizing share in China at an aggressive clip. According to the research firm IDC in summer 2014, Xiaomi overtook Samsung (by volume) and became the largest smartphone vendor in China and is now the third largest smartphone maker in the world followed by Lenovo and LG. It also has emerged as one of the most valuable private companies in the world with a market capitalization of $45 billion. How did Xiaomi manage to climb the ladder of success in just 4 years? I think the reasons crucial to Xiaomi\u2019s amazing success are its unconventional and innovative online business model and wickedly smart, just-in-time approach towards supply chain management, creating a highly effective alignment between the operating and business model of the company.<\/p>\n <\/p>\n Innovative Business Model: It\u2019s Not About the Phone<\/strong><\/p>\n Xiaomi is the Chinese word for “millet”, the logo \u201cMI\u201d stands for ‘Mobile Internet’ and also ‘Mission Impossible’, explained by its CEO Lei Jun.\u00a0 Xiaomi employs a unique business model that differentiates itself in every phase of customer journey. Xiaomi does not have a single factory or physical store, a radical departure from the traditional inventory management utilized by other major manufacturers in the smartphone space. Also, unlike a traditional company that relies on brand and product marketing to build awareness, Xiaomi uses the power of crowd sourcing and online communities to create awareness of its products and at the same time ensuring that the products built are what customers really want. As explained by Hugo Barra, Xiaomi\u2019s global vice president, “We are an internet and a software company much more than \u2026 a hardware company.”<\/p>\n Xiaomi powers their phones through a customized android operating system called MIUI. Unlike other companies Xiaomi lets users help make decisions on\u00a0the customization and additional features that will go into the next MIUI release. To sell high-quality smartphones at such low price, Xiaomi keeps each model\u00a0on the market up to 18 months. It makes money by charging for services and accessories that accompany the phones. The effective business model ensures reduction of costs in logistics, advertising, storage, delivery and managing surplus materials. At the same time, it delivers high quality products to its buyers and win over a legion of loyal fans to test new features and drum up enthusiasm for the company.<\/p>\n <\/p>\n Operating Model<\/strong><\/p>\n Many still wonder how Xiaomi manages to selling high-end phones at rock-bottom prices, which it claims to be just above cost. What Xiaomi has done, is as follows:<\/p>\n Xiaomi has drastically cut down on the traditional costs associated with inventory, marketing and distributing, by relying purely on the internet sales. Since Xiaomi\u2019s price would typically be 20%-30% of the price of a Samsung or Apple phone with similar specifications, this competitive price creates a huge demand in the market. At the same time, Xiaomi puts only limited quantity of phones for sale. In a sense, all new models are sold in limited volumes as \u201cbatch sales\u201d, which strongly drives consumer fervor and inculcates built-up demand. Thanks to competitive pricing, limited quantities and online buzz, Xiaomi was able to sell out\u00a0its new models within a few hours (or even minutes).<\/p>\n Xiaomi\u2019s highly effective alignment between its operating and business models contributed to its meteoric rise. By leveraging social marketing, online communities and E-commerce to the maximum, Xiaomi is able to create a huge customer\u00a0base in China.<\/p>\n <\/p>\n Challenges <\/strong><\/p>\n Can Xiaomi sustain its comparative advantage while competitions increase?<\/em><\/strong><\/p>\n Without a doubt, Xiaomi has a very unusual and interesting business model that many start to emulate. China\u2019s largest, deepest-pocketed gadget companies\u2014Lenovo, Huawei Technologies and ZTE Corp \u2014 have started to copy Xiaomi\u2019s model. It\u2019s hard to say if Xiaomi can stay at the top when China\u2019s market are flooded with high-end, low-cost devices from local competitors. In addition, Xiaomi does not yet have much of a patent portfolio, leaving it vulnerable to lawsuits from competitors.<\/p>\n <\/p>\n Sources\uff1a<\/p>\n http:\/\/techcrunch.com\/2014\/10\/29\/xiaomi-now-the-worlds-third-biggest-smartphone-maker-says-idc\/<\/a><\/p>\n http:\/\/www.strategos.com\/business-model-innovation\/<\/a><\/p>\n https:\/\/www.tradegecko.com\/blog\/heres-the-secret-behind-xiaomis-disruptive-success<\/a><\/p>\n http:\/\/www.bloomberg.com\/bw\/articles\/2014-06-04\/chinas-xiaomi-the-worlds-fastest-growing-phone-maker<\/a><\/p>\n http:\/\/www.wsj.com\/articles\/rivals-try-to-reinvent-xiaomi-business-model-1441658086<\/a><\/p>\n![\"\"](\"http:\/\/insights-on-business.com\/electronics\/wp-content\/uploads\/sites\/7\/2014\/12\/xiaomi-business-model.png\")
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