XiaomiThe “Apple of China” or something more?

Abhishek Sharma Devaansh Samant Shalin Doshi

Business ModelManufacturing

Online Retail Cut

Distribution

Services

Accessories

After Sales

Before Sales

LOW marginsLOW revenue

LOW costs

HIGH revenue

• Low hardware margins• No retailer cuts• Flash Sales leading to

low inventory costs• Low marketing costs• Longer production

periods – Moore’s 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

Cost Drivers Revenue Drivers

2REVENUE ANALYSIS

Business Model

SWOT ANALYSIS

• 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 expenditureSTRENGTHS

• 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

• 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

OPPORTUNITIES

WEAKNESSES

• Piracy• Cheap rip-offs of the Mi phone.

• Disruptive competitors• Price wars• Data privacy• IPR wars

• Lawsuits over IP theft.

THREATS

3

The Virtuous Cycle

Software

• Weekly development cycles

• Integration of services through apps (MiCloud)

Hardware

• High build quality

• Low margins

Strong Customer

• Crowdsourced development

• Active user forum

COMPARATIVE ADVANTAGE 4

ChinaMapping the Success Story

The Chinese Smartphone Market

SETTING THE STAGE

Booming Smartphone Market

Government subsidies enhanced smartphone

penetration

Sales volumes of smartphones in China – 2011 - 2016

6

Xiaomi and ChinaCapitalizing 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 7

Expansion and ChallengesLogisticsChange in operations process required as the company expands and incorporates new products in its range

Expanding to new segmentsCatering to business segment by launching a robust “black-box” like hardware & software package

Brand EquityElaborate marketing campaign to appeal to non tech-savvy consumers

Withdrawal of government subsidies is imminent in ChinaApple likely to be most heavily hit, as price-sensitive users shift to cheaper brands

Threat from disruptive competitorsVivo, another Chinese manufacturer, has beaten Apple’s market share in Q3 ‘14

PiracyCheap rip-offs defaming Xiaomi’s user experience

EXPA

NSI

ON

STR

ATE

GIE

SC

HA

LLEN

GES

8ESTABLISHING DOMINANCE

Emerging MarketsRepeating the Success Story

Smartphone Battleground

CALL FOR LOW-COST

Willingness to pay for smartphones in emerging marketsMarket Driven

Price Wars

Multitude of Low-Cost

Manufacturers

Intensely Competitive

Budget Smartphone

Market

Markets like India already have a wide variety of low-cost options

50% of the Indonesian market is for phones

costing less than $100 – a market even Xiaomi doesn’t cater to

10

ChallengesLow 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

StrategiesTraditional modes of advertisingFlagship stores to experience productAggressive PR and media campaigns (big-name brand ambassadors, event sponsorship – IPL, ISL, Shaastra etc)

Reorganization of distribution networkSet up inventories in the countries to ensure timely delivery of productsTie-ups with suppliers for production in the country itself

Make localized content available on MiStoreMake local languages, apps, themes available

Diversification of devicesForay into cheaper tablets, wearables, laptops etc.

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

Build on success of flash sales

12TAKING ON THE COMPETITION

USATurning to Premium Consumers

Snapshot of a Luxury Market

iDominate

Premium goods consumers

Quality Driven Market

North American markets are the only markets with an upward trend in average

smartphone price

14

ChallengesIP 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 1920’s. 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

16THE NEED FOR INNOVATION

Thank YouAbhishek Sharma – MM11B035

Devaansh Samant – EE11B110

Shalin Doshi – BT11B064

The Sicilian