Xiaomi fights to reinvent itself as a Chinese Apple

In February, Xiaomi founder and chief executive Lei Jun threw the gauntlet at Apple and Samsung, promising to make his company China’s top-selling premium brand within three years. “[It’s] a war of life and death,” Lei said in a post on Chinese social media site Weibo.

Xiaomi, the world’s second-largest smartphone vendor, is a master of reinvention, making everything from rice cookers to electric scooters. If all goes as planned, the company will deploy its electric vehicle in 2024, ahead of its great rival Apple.

But as Beijing’s tech crackdown takes hold, Lei faces the potential for greater regulation at a time when companies around the world are suffering from a global shortage of chips. As China scrambles to bring Big Tech to heel, shares of Hong Kong-listed Xiaomi have fallen more than 50% from a year ago to around HK$12 ($1.50). Its growth momentum also hinges on its ability to fend off domestic and international rivals, analysts said.

“Xiaomi is on three race tracks, smartphone, IoT and EV, all with challenges from existing big players,” said Ivan Lam, smartphone analyst at Counterpoint Research in Hong Kong. “But Xiaomi insists on having it all. It’s going to be very difficult.

According to current and former employees and industry analysts, Xiaomi’s biggest hurdle to achieving its goals of overtaking Apple and Samsung is convincing consumers of its high-end pedigree.

Xiaomi, launched in 2010, made a name for itself by building a loyal community of “mi fen”, Xiaomi fans who bought products for specs, such as more advanced processors, at a cheaper price. Although it ranks third in overall sales in China, it only holds 5% of the global high-end market, where phones cost more than $400.

“It will be difficult to defeat Samsung and Apple,” said a former executive. “It doesn’t play to Xiaomi’s strengths, it doesn’t have the brand power of Apple and Samsung, and they’re not good at selling to people who don’t care about specs.”

Business phones have evolved. Xiaomi’s 12-series phones, released in March and costing $749 for the most basic version, are designed to compete with Apple’s $799 iPhone 13.

As part of the launch, Xiaomi has pledged to open 20,000 more stores on top of the 10,000 they already have in China, and rebranded its 12 series so they are no longer known. by the “Mi” prefix which was the card call of their previous hardware.

But former company executives said the phones needed more than a name change. Xiaomi’s previous attempts to free itself from its budget image ended in disappointment.

“Very few” have been able to create Chinese “brand power,” the former executive said. “Brand equity is a mature industry in developed countries.”

To capture the high-end segment of the smartphone market, Xiaomi has pledged to invest Rmb 100 billion ($15.7 billion) in research and development over the next five years.

Another central pillar of the strategy is to replicate Xiaomi’s Indian playbook, where massive user adoption has allowed the company to deepen its internet services ecosystem, which accounts for a growing share of its revenue.

The internet services segment, which includes mobile gaming and video advertising, fintech and e-commerce, accounted for 8.6% of sales last year, largely fueled by growth in overseas markets.

“After becoming number one in India, the company felt it had a strong playbook that it could replicate in other countries,” another former senior executive said.

“It wasn’t very profit-driven, it was about getting as many users and then selling them as many internet services as possible.”

Xiaomi remains limited by not having an independent operating system. While the company has built its own Android-based system called MIUI, the company’s phones still rely on Google’s Android ecosystem outside of China.

“We use all sorts of ways to block traffic to Google and redirect it to us. But that’s not the ultimate solution. . . installing Google’s apps restricts traffic to our internal apps and affects our revenue” , said an employee.

But Lei has a window of opportunity to grow with its main competitor, Huawei, hit by heavy US sanctions. In China, Lei has also been protected by regulators who have downsized the country’s tech demigods, such as Alibaba’s Jack Ma.

“Xiaomi’s products face intense competition, and therefore their products do not generate monopolistic or oligopolistic profits,” explained Wong Kok Hoi, chief investment officer at APS Asset Management.

“It’s hard to build brand power for Chinese brands, very few have done it,” the former executive said. “[But Lei] is extremely charismatic, he has a firm belief in what he thinks is right. . . I wouldn’t be surprised if they managed to pull it off.

Lei’s battle has only just begun. When Xiaomi asked what they wanted in the new car, consumers had an overwhelming preference: affordability.


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