Xiaomi, the Most Valuable Private Company – With Little Chance of Success in the West

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November 13, 2014 by ...

Successful companies have several things in common. The are characterized by things such as an ardent customer base, killer value proposition, compelling message, exceeding customer demands and trust.

Xiaomi value proposition
In China, Xiaomi has most of those things in spades. Their value proposition is a great buy for the money in a phone which caters to the masses. Due to heavy borrowing from Apple, Xiaomi offers ‘face’ to its consumers who by all outward appearances own a genuine Iphone. In Confucian countries such as China, this is huge.

In sum, it is a great total package of quality, aesthetics, ‘face’ and availability.

Xiaomi’s message
The message also resonates with a Chinese crowd. Strong nationalist overtones permeate Xiaomi’s DNA. Even it’s name is rooted in pro-China rhetoric. Everything from its PLA soldier look-alike mascot to military-themed routers leave no question about Xiaomi’s world view.

Based on the fact that over three-quarters of its client base are men, one can appreciate the brilliance of this move. These men, most of whom are from the one-child policy generation, have a track record of extreme patriotism if not nationalism.

Beyond this, Xiaomi gives the Chinese a hometown favorite, something they can all appreciate. Although Alibaba made it big in the US stock market, its customers are mostly Chinese. Xiaomi hopes to change all that.

Exceeding customer expectations and trust
Xiaomi falls in the last two areas- exceeding customer expectations in trust. My research shows that the opposite is true. In fact, many Chinese buy a Xiaomi believing that it will fail within the first 12 to 18 months. They harbor no illusions about its build quality.

Worse yet, according to the Chinese government, Xiaomi has more customer complaints than any other cell phone company. As if this were not bad enough, Xiaomi has been hounded about covertly snatching customer data and sending it to Beijing.

When taken together, this shows why a paltry 20 some percent of Xiaomi owners actually like the brand. Compared this to seventy percent who claim to like Samsung and Apple, and Xiaomi’s problems become more grave. The Chinese students are merely pragmatic and see it as a stepping stone to something better.

Implications for Xiaomi as a global player

Value proposition
Great for developing countries but dead in the water for advanced. In large countries such as India, Brasil and others, Xiaomi offers consumers much of the same benefits as it does the Chinese. A well priced option to a higher quality phone. The fact that it looks so much like the Iphone does not hurt either.

Its biggest stumbling blocks in advanced economies are IP theft and call to buy. Regarding the former, Xiaomi may have serious problems. The Mi 4 is practically an Iphone clone and may either have to pay heavy fines or its sale can be blocked. The same is the case for most if not all of its products.

If this is the case, Xiaomi will have to start spending money on research and development, something they are unaccustomed to doing, at least in design. They will have to reinvent their product lines. Another Chinese company, BYD had to this with its EV line and the result was a resounding flop. The facts show that Xiaomi is not an innovative company, at least in terms of design.

Why buy a knockoff?
Xiaomi’s biggest challenge is what gave it fame. In countries where buying the real deal is cost prohibitve, a clone makes sense. In places such as the US, it does not. For example, I have an old Iphone and the Xiaomi Redmi 1S. The latter looks good, but its just plain vanilla. It really cannot being to compare with my Apple. In fact, the only advantage it even has over my four year old Nokia N-71 is the screen size and internet acess. But as far as smart phones go, the Redmi is bland. Soon I will move up to the Mi3 or 4, but suspect it will be more of the same.

Xiaomi locks users into China-centric bundles that are not relevant to western consumers. The choice between taking an HTC, Nokia or Apple for $100 versus any Xiaomi for free is a non-sequitor. It is not a compelling buy in the US handset market.

‘Pro-China’ does not sell in the west- Xiaomi’s message falls flat
All of the positives of Xiaomi’s message in China are a detriment in the west. A bunny sporting the symbol of communism on its hat is not a ‘call to buy’ for few people outside of China. Xiaomi is aware of this and has stripped this from the Xiaomi mascot in places like Taiwan.

Mascot for the Taiwanese market, sans red star of communism

20141113-012942-5382298.jpg

Mascot for the rest of the world

20141113-012942-5382034.jpg

The pro-China feel is Xiaomi still permeates its presence, howver. For example, Xiaomi fanboys ‘Mi fans’ litter the net with posts verging on the absurd. Such a political message is not what one wishes to hear about a mere cell phone.

Questionable quality and security concerns will derail Xiaomi’s success
Xiaomi caters to the one-child generation which is fickle and does not mind pitching a unit after a year. Although we may do the same, most of us in the west expect our gear to last longer than a football season. My last two Nokia’s were with me a total of 8 plus years and the both still work. My two year old Iphone has had no problems. The first Xiaomi I bought literally petered out before a calendar year had elapsed.

Security is another big issue. Xiaomi just started selling overseas and is a security nightmare. A handful of countries are considering taking legal action against Xiaomi and or blocking its use. It has had almost no international exposure. Based on its history, can you imagine what hackers will find when they can play with it?

Hell, Xiaomi even hacked Whatsapp for heavens sakes. Based on its track record, Xiaomi better change its tack or it will be destroyed in the press.

What it all means
Xiaomi is a media darling due to many factors. Its business model is the perfect blueprint for creating a successful Chinese company. It has more depth and breadth than all the major Chinese players, and it meets China’s needs. Even Alibaba cannot compare to the package deal that Xiaomi brings to the table.

These things are not scalable, however. As shown, the Xiaomi way sheds light into the psyche of Chinese consumers, who are fundamentally different than their western counterparts. The things that many value about Xiaomi are not transferable. If Xiaomi’s goal is to be a master of developing countries, then it has a chance. At least as it can undercut the prices of more Apple clones. Its chances of moving up the value chain, however, seem very very slim.

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One thought on “Xiaomi, the Most Valuable Private Company – With Little Chance of Success in the West

  1. Mark Meeker says:

    Chinese do not feel shame about IP theft. They say it is better to copy and be rich then to steal and be poor. It is in their DNA.

    Like

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