Xiaomi Case Study

Xiaomi
The Apple of China or something

more?
Abhishek Sharma
Devaansh Samant
Shalin Doshi
Business Model
Manufacturing
Online Retail Cut
LOW margins
LOW revenue
Before Sales
After Sales
LOW costs
Distribution
Services
HIGH revenue
Accessories
Cost Drivers
Low hardware margins

No retailer cuts
Flash Sales leading to
low inventory costs
Low marketing costs
Longer production
periods Moores Law
driving costs down
Xiaomi users spend ~2

times the time an
Android/iOS user spends
on their respective play
stores higher paid
service consumption
Revenue Drivers
REVENUE ANALYSIS
Business Model
Service based revenue system
Strong customer ties
Crowdsourced development
Brand loyalty
Eliminating intermediary costs
Direct distribution system
Agile Supply Chain
Zero inventory costs
Ability to react to trends in consumer demands
Minimal marketing expenditure
Absence of brick and mortar stores

Alienation of non-internet using consumers
Weak after-sales presence
Un-scalable logistics system
Poor delivery times
No patentable technology
Intellectual Property Rights issues
Cultural dependence
MIUI is heavily specific to Chinese demands
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
Price sensitive emerging markets in developing countries

Culturally similar markets
South East Asian countries with significant Chinese
population
Diverse platforms part of the Xiaomi ecosystem
Seamless integration of the services and devices
MiTVs + Mi phones + MiCloud etc
Working towards high quality perception
Untargeted yet attainable premium segment
Piracy
Cheap rip-offs of the Mi phone.
Disruptive competitors
Price wars
Data privacy
IPR wars
Lawsuits over IP theft.
SWOT ANALYSIS
The Virtuous Cycle

Software
Weekly development cycles
Integration of services
through apps (MiCloud)
Strong Customer
Hardware
Crowdsourced development
Active user forum
High build quality

Low margins
COMPARATIVE ADVANTAGE
China
Mapping the Success Story
The Chinese Smartphone Market
Booming Smartphone Market

Government subsidies
enhanced smartphone
penetration
Sales volumes of smartphones in China 2011 - 2016
SETTING THE STAGE
Xiaomi and China

Capitalizing on nationalist sentiment
Strategic partnerships - China Mobile

Tailor-made for the Chinese user
Low upfront payment in a price sensitive country
Open honest relationships with users
Marketed for the youth, the right target audience

Strong leadership by Lei Jobs Jun
THE CHINESE STORY
Expansion and Challenges

EXPANSION STRATEGIES
Logistics
Change in operations process required as the company expands and incorporates new products in its range
Expanding to new segments

Catering to business segment by launching a robust black-box like hardware & software package
Brand Equity
Elaborate marketing campaign to appeal to non tech-savvy consumers
Withdrawal of government subsidies is imminent in China

CHALLENGES
Apple likely to be most heavily hit, as price-sensitive users shift to cheaper brands
Threat from disruptive competitors

Vivo, another Chinese manufacturer, has beaten Apples market share in Q3 14
Piracy
Cheap rip-offs defaming Xiaomis user experience
ESTABLISHING DOMINANCE
Emerging Markets
Repeating the Success Story
Smartphone Battleground
Markets like India already have a
wide variety of low-cost options
Willingness to pay for smartphones in emerging markets

Market Driven
Price Wars
Intensely
Competitive
Budget
Smartphone
Market
50% of the Indonesian market is for phones

costing less than $100 a market even Xiaomi
doesnt cater to
Multitude of
Low-Cost
Manufacturers
CALL FOR LOW-COST
10
Challenges
Low internet connectivity and e-commerce penetration
Higher trust for retail store products; lesser use of e-payment systems
Saturated low-cost phone segment
Absence of inventories causing problems in meeting demand and delays in transportation

Lack of localized content and low customizability
Quality control and after-sales services difficult in e-tail

Security sanctions owing to data centres being located in China
THE DEVELOPING WORLD
11
Strategies
Traditional modes of advertising
Flagship stores to experience product
Aggressive PR and media campaigns (big-name brand ambassadors, event sponsorship IPL, ISL, Shaastra etc)
Reorganization of distribution network

Set up inventories in the countries to ensure timely delivery of products
Tie-ups with suppliers for production in the country itself
Make localized content available on MiStore

Make local languages, apps, themes available
Diversification of devices
Foray into cheaper tablets, wearables, laptops etc.
Tie-ups with carriers to gain easy access into the market

Build on success of flash sales
TAKING ON THE COMPETITION
12
USA
Turning to Premium Consumers
Snapshot of a Luxury Market

Premium goods consumers
Quality Driven Market
North American markets are

the only markets with an
upward trend in average
smartphone price
iDominate
14
Challenges
IP lawsuits due to lack of patents
Poor perception of Chinese products

Low brand equity - Heavy dependence on localized Mi Fans
Price-insensitive users
Restriction on use of servers in China due to data security concerns.
Un-scalable logistics system incurring high shipping costs and import duties
Limited capability of MIUI OS applications to cater to the non-Chinese consumer
TACKLING THE EAGLE
15
A Note on Innovation
Many of the companies that were once great are

now gone or on their way out largely because they
stopped innovating. In fact, according to Forbes, the
average lifespan of a successful S&P 500 Company
was 67 years in the 1920s. Today it is 15 years. More
companies need to innovate to improve these
declining numbers.
Companies can choose to compete on the technology front. Xiaomi chose to compete on the business front
They revolutionized the smartphone market by avoiding the competitive hardware market
and generating revenue through services
To avoid meeting the same fate as their competitors, they must keep innovating
THE NEED FOR INNOVATION
16
Thank You
Abhishek Sharma MM11B035
Devaansh Samant EE11B110
Shalin Doshi BT11B064
The Sicilian

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Xiaomi

The Apple of China or something

Low hardware margins

Xiaomi users spend ~2

Absence of brick and mortar stores

Price sensitive emerging markets in developing countries

The Virtuous Cycle

High build quality

The Chinese Smartphone Market

Booming Smartphone Market

Sales volumes of smartphones in China 2011 - 2016

SETTING THE STAGE

Xiaomi and China

Strategic partnerships - China Mobile

Marketed for the youth, the right target audience

Expansion and Challenges

Expanding to new segments

Withdrawal of government subsidies is imminent in China

Threat from disruptive competitors

Willingness to pay for smartphones in emerging markets

50% of the Indonesian market is for phones

CALL FOR LOW-COST

Absence of inventories causing problems in meeting demand and delays in transportation

Quality control and after-sales services difficult in e-tail

THE DEVELOPING WORLD

Reorganization of distribution network

Make localized content available on MiStore

Tie-ups with carriers to gain easy access into the market

TAKING ON THE COMPETITION

Snapshot of a Luxury Market

Quality Driven Market

North American markets are

Poor perception of Chinese products

Many of the companies that were once great are

THE NEED FOR INNOVATION

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