December 12, 2014 by ...
Xiaomi is reeling. The Indian High Court has told them to shove their pirating kit up their ‘Beijing’. The Chinese firm is unwelcome until they settle up with Ericsson on an unpaid debt. Not surprisingly Xiaomi allegedly ‘borrowed’ eight Ericsson ideas without paying for them. The Court called shenanigans and have cut off the cash cow that is India. Xiaomi cannot sell nor export phones to Modi’ville till the problem is settled.
All of this is not directly related to the topic at hand, unless you the reader, needed some long-winded backstory. Tangentially, however, what happened in India seems to be a sign of things to come for Xiaomi; they are in deep Dookie for ignoring the law.
Protectionism and IP theft
Xiaomi is if nothing else, consistent. They ‘creep’ on Apple designs, after all, the Chinese illegal ‘legal system’ allows this. This lack of punishment is a double-edge sword, however. Xiaomi, like so many other Chinese companies, has found it easier to pilfer than to produce. Instead of creating their own kit, they merely mimic the best designs or make atrocious looking bloatgear.
Being cognizant of this design shortcoming, Xiaomi merely Xeroxes what it wants and then peddles it on the cheap. This strategy was great as long Xiaomi had Beijing backing them. Winning a lawsuit against a local favorite in the middle kingdom is not only difficult, but dangerous for a firm as well. Most companies realize that discretion is the better part of valor and chalk up such losses as a cost of doing business in China.
Xiaomi needs to change
Xiaomi would like to move overseas, however, which means that they have to clean up their act. In common parlance that means ‘partnering with someone that you need something from.’
The way this works in China is that a local enterprise shores up contacts or guanxi with local officials. They then offer a local party member some cash and or a stake in the firm. The Chinese company then targets a (usually) foreign firm which has something that they need. Officials put pressure on the ‘outsider’ to partner up or suffer the consequences.
Oftentimes the outcome is the same. The internationals are held hostage and either their client lists or IP is taken and used against them. Contrary to what you may think, this is not atypical in China. In fact, it has been shown that over 25% of all companies doing business here are hacked by local firms. In addition, aircraft companies are twice as likely to suffer from economic espionage from their Chinese partner than companies which stay home.
The modus operandi of such firms is to partner, pilfer and then prohibit the foreigner from competing again in China. This could well be what Xiaomi had intended to do with Balmuda, the company who Xiaomi apparently ‘patterned’ their air purifier design after.
Xiaomi to Balmuda ‘Partner or else…’
The word is that Xiaomi approached Balmuda, a Japanese firm, to co-produce air filters. The choice was a wise one as Balmuda had all that Xiaomi lacked. Attention to detail and sleek design separated them from the pack made a $600 price cheap in comparison to the rest.
This pic from their website shows off their purifier panache but cred as well. They won something called the Reddot Design award, making them prime partner material.
Because they had great looks and tech, they nicely told Xiaomi to pound sand. A meddling company with little-to-no innovation was not on their bucket list of partners. Balmuda bowed and told Xiaomi as much and continued to sell their wares.
Xiaomi’s business model being what it is, they did not allow Balmuda’s dismissive behavior dissuade them but ‘partner they would’. As you can see, they apparently decided to partner away Balmuda’s look and feel. (Pic from here)
Xiaomi was pissed
Xiaomi was incensed by the allegations of design theft and struck back with a multi-photo screed meant to disprove Balmuda’s allegations. In a ‘Hugo Barra’ moment they posted the following on their BBS.
(Xiaomi tries to ‘selfie’ its way out of IP theft)
‘No IP theft here, just move along folks.’
‘These two do not look alike, ours is much uglier.’
‘And look at this. These two parts are not even close. The colors are very different!’
‘As far the the little pointing finger goes, that is universal. Of course we did not copy it.’
‘Now look closely. The ugly one is ours and the pretty one is not. Sure they have similar height and dimensions, but so do I and Steve Jobs. It does not mean I copied him, however.’
‘Not even close. Once again the colors are different, even Chen Guangchen could see that.’
‘Once again the differences are obvious. We cut corners whenever possible. The Balmuda grill is sturdy while ours will blow off with a stiff breeze. The gall of Balmuda to call us copy-cats.’
Of course not everyone from China agreed. This was especially evident on the Xiaomi BBS. This site is dedicated to ‘Mi-fans’ or what is typified as rabid Xiaomi buddies. The comments below range from, ‘No they do not look alike,’ to ‘Well… they are kinda similar, but what is the harm anyway?’
More pics from the Xiaomi site
The funny ting is that Xiaomi fans usually do not take criticism well. This is especially true when comign from places like the USA and Japan. The fact that they did not feign outrage at Balmuda’s claims speaks volumes.
And the outcome is…
It looks like Xiaomi’s wanton ways are catching up to them. India has banned them from advertising and selling until they settle up. Balmuda has taken aim and pulled the trigger with a warning of their own. In both cases pirating a patented idea is their demise. Xiaomi will have a hard time wiggling away from a lawsuit as Balmuda is protected both in China and abroad.
Xiaomi’s India problem can disappear with a cash settlement and promise to obey the law. The same is not true with their pirated purifier. Somehow I cannot imagine the Japanese firm letting them off with a smack on the hands.
The truth is that the steamrolling national hero that is Xiaomi must now change. Backed by loose laws and favoritism they clawed their way to the top. Such a thing is easy when you are just a bottom feeder, but much more difficult at the top. Prior to their climb, companies like Ericcson, Apple and Balmuda saw little to gain in suing them. All of this has changed with Xiaomi’s growth.
The other day Xiaomi said they wanted to be number one in the cell phone world and it could just happen. Before that occurs they must put on their ‘big boy’ pants and start acting like a corporate adult. It’s cute when a toddler takes a bite of your hamburger, but upsetting when a 20 year old does the same.
Xiaomi’s business model does not engender creativity thus far. All of that could change, and from the looks of it it had better. Absent business model redesign, Xiaomi may be stuck as a China-only gig.