Xiaomi: The Rise of an Indigenous Chinese Tech Industry

Memo #257

By Grégoire Legault – gregoire.legault [at] alumni.ubc.ca

Xiaomi (小米), a Chinese consumer electronics manufacturer, represents the dawn of a new era in China: the shift from low-tech to high-tech industry. What’s more, Xiaomi’s business model heralds the emergence of Chinese tech firms not just as producers, but as competitive innovators that are poised to explode out of China.

Dubbed by some the “Apple of the East,” Xiaomi has a completely different business model from the American giant, and one that has allowed it, in the brief period since its foundation in 2010, to gain an impressive share of its home market. With reasonably priced phones equipped with quad-core processors starting at about 800 yuan (US$131), and high-end devices selling for 2000 yuan (US$329), Xiaomi managed to sell 7.19 million cellphones in 2012, representing about 5 percent of the total market share of cellphone sales in China. Its valuation places Xiaomi’s worth at above US$10 billion, already double Blackberry’s and half that of Sony.

Apart from its aggressive pricing, Xiaomi’s success can also be attributed to the fact it listens closely to suggestions made by its customers and quickly adapts these to the assembly line. Instead of adopting Apple’s top-down approach, Xiaomi is in effect developing its products through crowdsourcing. The company’s marketing tactic also differs significantly from that of its rivals: Xiaomi products are sold exclusively online. This approach has several advantages: it allows sales promotion through social media at almost no cost, allows for maximum product customization by its consumers, avoids stockpiles of unsold devices, and finally, saves costs by eliminating the need for physical retail space.

Xiaomi has already started selling its phones in Hong Kong and Taiwan and will most likely expand to other BRIC (Brazil, Russia, Indian, China) countries and to Southeast Asia (Malaysia and Singapore) in the near future. Xiaomi’s innovative approach to both manufacturing and marketing shows that the Chinese tech industry, like Chinese society, is proving to be incredibly versatile and dynamic. Ultimately, the key takeaway may not be whether Xiaomi fails or prevails, but the fact that China is poised to become the cradle of more Xiaomi-like companies.

About the Author:

Grégoire Legault is a Master in Asia Pacific Policy Studies candidate at the University of British Columbia and a Research Assistant in the Centre for Chinese Research. He recently completed an internship in public diplomacy at the Canadian embassy in Beijing. You can follow him on Twitter, connect with him on Linkedin or visit his photo blog.

Official website of Xiaomi (www.xiaomi.com).

Links:

• Xiaomi’s Official Website (in Chinese)

• “How the iPhone is losing China to Xiaomi, and why tomorrow’s new phone won’t help,” TechinAsia, September 2013

• “How Xiaomi’s Hip, Inexpensive Smart Phones Conquered China,” The Atlantic, October 2013

• “In China, an Empire Built by Aping Apple,” New York Times, June 2013

• “How China’s Xiaomi Does In A Week What Apple Does In A Year: Update Devices,” Forbes Magazine, October 2013

Related Memos:

• See our other memos on China.