Neel Arora, Raymond Chen, Bernard Lee, Liam Leonard, Prashant Nagaraddi, Bradley Shaw, Jonathan Tan, Christopher Tang, and Zhuo Zhao
You probably never heard of a startup company in China called Xiaomi (小米: a small grain of rice) that was founded in 2010. Also, if we tell you that this is a privately owned mobile internet company that designs, develops, and sells smartphones, apps (online games), and consumer electronics (smart TV, set-top box, Wi-Fi box, etc.), you would definitely think this startup must be a Shanzhai company with shady operations including IP infringements. In some cases, you are absolutely right, but you are wrong in this case.
Founded in 2010 by seven partners (including current CEO Mr. Lei Jun) with investment from Temasek Holdings (an investment company owned by the Singapore government), Chinese venture capital funds IDG Capital, Qualcomm, etc., Xiaomi leveraged Andriod’s open platform to develop its own user friendly interface MIUI in 2010. By using this interface, Xiaomi designed the hardware and various apps in-house for its smartphone powered by Qualcomm chip. However, it outsourced the manufacturing operations of the phone to Foxconn. By focusing on the notion of DFM (design for manufacturing) internally, Xiaomi focused on producing its originally designed smartphone that is of high quality and low cost.
To capture the middle market, Xiaomi’s phone is priced between Apple/Samsung and Lenovo/K-Touch (major Chinese cellphone manufacturers). Specifically, Xiaomi offers phones in two tiers: Xiaomi Phone (high-end) and Hongmi Phone (low-end) to capture different markets. To reduce promotional costs, Xiaomi promotes its phones via social network such as QQ, WeChat, etc. To promote sales, Xiaomi produced a limited edition of each new version of the phone so that they can use scarcity to stimulate excitement, while at the same time, it can reduce the need for markdown sales of leftover inventories. While most phones were sold online, Xiaomi has opened its first service store in Bejing in 2013, to handle warranty repair and limited order fulfillment, to sell peripherals, and to showcase other Xiaomi products. With the right product at the right price, Xiaomi has created loyal customers and has become the fifth most popular brand of smartphone in China.
To lure customers to purchase its phone, Xiaomi is selling its phone slightly above cost. However, once these customers fall in love with its MIUI interfaces, Xiaomi can generate profitable growth via its apps, online games, home electronics, etc. In addition, it has set up an online store that sells various products on its phone. While e-commerce is growing rapidly in China, Xiaomi is focusing on m-commerce. At the same time, it is expanding its operations in Hong Kong, Taiwan, and Singapore.
Source: Wall Street Journal, January 2014.
By 2013, Xiaomi’s revenue reached US$347 million with a remarkable valuation of US$10 billion. On top of that, Xiaomi recruited Hugo Barra (VP of Google) in 2013 to head its Global division. In 2014, Wall Street Journal reported that, besides Dropbox, Xiaomi is the only other startup in the world that is valued at US$10 billion (see figure above).
Who said a small grain of rice cannot become the Green Giant?