Founded in 2010, Chinese smartphone manufacturer Xiaomi’s meteoric rise has been unprecedented in the smartphone industry. Xiaomi has evolved from just another Chinese company manufacturing budget friendly smartphones to one of the most valuable startups in the world. However, a most curious facet of Xiaomi’s story so far is their conspicuous absence from western markets, most notably the United States and the United Kingdom. Why has Xiaomi shunned the lucrative western markets so far? And can we expect them to enter these markets anytime soon?
Despite witnessing and unprecedented growth and skyrocketing sales in China, India and many far-east countries, Xiaomi is yet to be known by smartphone users in the western world. This leads to some food for thought, Why has Xiaomi shunned the lucrative western markets so far? And can we expect them to enter these markets anytime soon?
Let’s dig deep into it!
Xiaomi: The Story So Far
In its short existence, Xiaomi has seen more than its share of ups and downs. Initial periods were characterised by aggressive growth culminating in Xiaomi becoming the 3rd largest smartphone manufacturer in the world in 2014. Growth was primarily driven by sales in China, where Xiaomi displaced Samsung as the largest smartphone vendor. However, Xiaomi has since run into a few hiccups. Reports of stagnating sales abound and Xiaomi dropped out of the top 5 global smartphone manufacturer list by Q1 2016. They also made the decision to stop releasing official sales figures after failing to meet sales targets in 2015.
In such circumstances, expanding to new, and potentially lucrative markets might seem like the obvious solution. The situation, however, is not quite as straightforward as it seems.
Xiaomi Avoiding US And UK Markets For Now
- Xiaomi’s Profit Model – Xiaomi has built its fame by providing high-end spec smartphones at relatively lower prices. The company has built their business around the mid-range and budget smartphone segment. This means that Xiaomi has typically operated on razor-thin profit margins. Such a business model is more suited to mass markets like China and India where the potential user-base is higher. On the other hand, markets such as the US and UK are typically dominated by the premium smartphone segment. Apple dominates both markets with a 43.9% subscriber share in the US and 46% share in the UK. This, combined with the relatively smaller potential user-base means that Xiaomi’s current business strategy would likely be ineffective.
- Lower Growth Potential – The smartphone market in the US and UK are saturated. Smartphone penetration reached 81% in the US as of 2016. The UK has similarly high levels of smartphone penetration at 76.6% in 2016. This means that the margins for acquiring newer smartphone users are very thin indeed. Xiaomi would have to compete with established titans like Apple and Samsung to capture existing smartphone users.
- Focus On China – After conquering the Chinese market initially, Xiaomi has since been forced to relinquish the throne. Recent sales in China have been disappointing, with Xiaomi falling to fifth in terms of smartphone shipments, with 41.5 million shipments in 2016. Xiaomi is surely looking to regain the numero uno position in their home country before expanding to the US and UK markets.
- Focus On India – Just like China, Xiaomi have recently turned their focus on India in a big way. Xiaomi is in a strong position in India, where they have a 16% market share and the preferred smartphone brand for the Indian users’ next purchase. Estimates predict India’s smartphone penetration to increase from 29.8% in 2016 to 39% in 2019. This affords a tremendous opportunity for growth. The budget heavy nature of the Indian smartphone market also suits Xiaomi’s business model perfectly. In fact, Xiaomi expects growth in India to drive their overall revenue to $14.5 billion in 2017.
- Xiaomi Are Being Cautious – It is highly likely that Xiaomi has taken note of fellow Chinese smartphone company LeEco’s misfortunes. It would seem that Xiaomi is taking LeEco’s plight as a warning and are being cautious about making any big risk moves. Xiaomi also doesn’t want to be stretched too thin and risk facing supply constraints yet again.
- Patent Issues – During their relatively short tenure, Xiaomi have often been accused of copycat tactics and patent infringement. Xiaomi has avoided any legal action by giants such as Apple and Samsung so far by sticking to Eastern markets. However, moving to the US and UK markets could cause friction with established players who may sue Xiaomi.
But, the Question Looms Large:
Will Xiaomi Ever Enter The US And UK Markets?
Back in August 2016, the former Vice President of Xiaomi, Hugo Barra, announced plans for the company to enter the US market in the near future. However, current VP Wang Xiang claims that there are no plans to expand to the US or European markets anytime soon. Xiang also emphasised the company’s current focus on mass markets. Nevertheless, it does seem likely that Xiaomi will enter the playing field in the US and UK at some point. Xiang says this will happen once the company is fully prepared to do so and has set up a robust distribution and after-sales network.
Meanwhile, this delay on Xiaomi’s part may cause them to lose the market to their rivals. Local rivals, Oneplus and Honor, have been making significant inroads into the US and European markets in recent times.
- Xiaomi has been struggling with meeting sales targets and stagnating growth, especially in China. This has likely put a full stop on further expansion plans for the time being.
- On the other hand, things look very optimistic for Xiaomi in India. They enjoy a sizable market share in the Indian market and growth estimates for the future are positive.
- The growth potential for Xiaomi in the US and UK markets is slim due to market saturation and tough competition. Xiaomi may find it difficult to crack these markets.
- It looks like Xiaomi is not going to expand to the US or UK in the near future as they focus on mass markets more conducive to their business strategy. Xiaomi may well have to change up their strategy for elite markets like the US or UK.