Xiaomi: Reinventing the Smartphone Business Model in China

Xiaomi: Reinventing the Smartphone Business Model in China
Case Code: BSTR461
Case Length: 20 Pages
Period: 2011 - 2013
Pub Date: 2014
Teaching Note: Not Available		 Price: Rs.500
Organization: Xiaomi Inc.
Industry: Smartphones
Countries: Global
Themes: Innovation,Globalization
Xiaomi: Reinventing the Smartphone Business Model in China
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

The case discusses Beijing-based Chinese electronics company, Xiaomi Inc. (Xiaomi), and its unconventional business model. Founded in April 2010 by Lei Jun (Jun), a serial entrepreneur and investor, in association with his friend Bin Lin (Lin), a former Google and Microsoft executive, Xiaomi was known to produce cheap smartphones with a nice build quality.

Xiaomi followed a unique business model where it sold its smartphones at cheap prices and later took advantage of the revenue streams generated by selling its software such as apps, cloud computing, and games. The company sold its smartphones at US$ 200 or US$ 300 whereas smartphones developed by Samsung Electronics Ltd. (Samsung) and Apple cost at least US$ 600. The company sold its smartphones online in flash sales with razor thin margins. Since there were no retailers and distribution channels involved, it could afford to price its high-tech smartphones lower.

The company followed an Internet-first strategy – in addition to selling its smartphones online, it communicated with its customers through social media channels. The company reportedly spent no money on traditional advertising. It was reported that Xiaomi developed smartphones in limited numbers. As soon as the product went online for sale, it was sold out within minutes. Some industry watchers termed Xiaomi as the 'Apple of China' since it elicited the same kind of crazy following that Apple did in the West. The company also fostered an open, honest, and transparent relationship with its customers. Xiaomi's customers, known as Mi Fans, were regularly informed about the suppliers the company worked with, how it built its products, and what it was developing. The Mi Fans were hugely appreciative of this and eagerly awaited the next product launch from Xiaomi.

Xiaomi's instant success in China encouraged Jun and Lin to expand the operations to other countries. Thus, in a bid to fuel its international expansion, Xiaomi brought in Hugo Barra (Barra), former Google executive. By June 2014, Xiaomi had forayed into Singapore, Taiwan, Malaysia, and Indonesia. It planned to enter other emerging markets such as India and Brazil. Going forward, by 2015, the company had ambitious plans to enter the North American smartphone market, which was hugely dominated by Samsung and Apple.

Issues

The case is structured to achieve the following teaching objectives:

  • Evaluate Xiaomi's unconventional and innovative online business model
  • Understand the need to reinvent the business model of a company amidst rising competition and changes in the business environment
  • Understand the reasons for Xiaomi's success in China
  • Identify the challenges faced by Xiaomi and explore strategies that the company might adopt to overcome these challenges
  • Examine whether Xiaomi can increase its dominance in the Chinese smartphone market and become a leading player in the Chinese smartphone market
  • Examine the strategies Xiaomi should adopt to enter and make a mark in the emerging markets it plans to enter
  • Examine the challenges Xiaomi could face in gaining a presence in the intensely competitive US smartphone market

Contents

Keywords

Xiaomi, Innovation, Smartphone, Online business model, Direct marketing, Social media, e-commerce, Flash sales, Word-of-mouth, Localization, Brand awareness, MIUI OS

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