The Rise And Global Expansion Of Xiaomi

Xiaomi means “small rice” in Mandarin, but the smartphone manufacturer has proven itself to be anything but small. Since starting its Mi Talk chat application in 2010 and releasing its flagship smartphone line Mi1 in 2011, Xiaomi has rapidly become a viable competitor to the likes of Apple and Samsung within a few short years.

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With a debt-financing round of $1.1 billion from Morgan Stanley, Bank of China, and others in July 2017, the company is reportedly preparing for a $100 billion IPO in 2018.

That’s quite a lot of rice, so let’s take time to figure out just how Xiaomi got here.

Xiaomi’s Rise

As we have previously reported, startups in China raise significantly more in their early stages than their U.S. counterparts on average. Xiaomi was not an exception to this phenomenon.

According to Crunchbase, Xiaomi’s first known funding round in 2010, a Series A led by Shanghai-based venture firm Morningside Group, brought in a total of $41 million. Its Series B round topped that number in December 2011, bringing in a known total of $90 million by Beijing-based Shunwei Capital. In 2013, it raised a $216 million Series C led by Morningside Group.

These massive funding rounds drove massive growth. The company managed to increase its total sales volume from 7.19 million units in 2012 to 18.7 million in 2013—a 160 percent increase in one year. In 2014 it more than tripled its sales volume, shipping 61.12 million units in and overtaking Samsung that year as the top smartphone company in China.

In December of 2014, the company announced a funding round of $1.1 billion. Russia-based venture firm DST and Singapore-based GIC both participated in the round, which brought Xiaomi’s valuation up from $10 billion to a whopping $45 billion, giving the company a lot to live up to.

However, this growth wasn’t just attributable to the masses amounts of money the company was able to raise. Xiaomi also refined what it meant to distribute smartphones to customers in a cost-efficient manner.

Xiaomi’s Rapid Growth Strategies

Xiaomi met early success by developing budget-friendly devices that offer specs that compete with smartphone giants like Apple and Samsung. Founder Lei Jun, who previously created, which was sold to Amazon in 2004, set out to make a product that would boast Chinese prices without the reputation of poor quality.

The company met this goal by selling its high-quality devices at production cost. In 2010, Xiaomi developed its first phone, the Mi1, with a customized operating system built on top of Android’s software. The phone offered all of the necessary qualities of a Samsung smartphone for under $300. According to the Wall Street Journal, Xiaomi’s very first shipment of 100,000 Mi1s in 2011 sold out in less than three hours. The company came out with its even more budget-friendly RedMi in 2013, allowing consumers to buy smartphones for under $180 .

Selling phones at a low cost allowed Xiaomi to tap into China’s lower end growth market, or those consumers in lower tier cities who couldn’t afford the cost of a $700 iPhone or $500 Samsung.

How did the company grow off of sales of a smartphone sold nearly at production cost? Here are three main ways it went about distributing and building loyalty around its smartphones.

  • Ditching brick and mortar. Xiaomi, unlike many smartphone manufacturers, has relied primarily on online sales to push its product. As a result, the company bypassed the cost of building and maintaining venues. In 2012, 72% of all units were sold through online suppliers.
  • Flash sales to stoke demand. The company released its smartphones in flash sale shipments of 200,000 or more, further ramping up the hype surrounding release while keeping overstock at a minimum. With phones that stayed on the shelves for longer than average, the company cut long-term deals and forged partnerships with suppliers.
  • Building customer loyalty. The company built a fan base through online channels like Weibo (China’s Twitter). Coupled with its strategy to release phones in small batches, Xiaomi relied on these vocal fans to review the new devices and MIUI (Xiaomi’s customized Android OS). The company also drove interest by having engineers dedicated to monitoring and interacting with their consumers.

These methods didn’t just accelerate success in China. It also proved to be an adaptable template for deploying smartphones in emerging markets.

Xiaomi Finds A Home In India

With so much success in China, in 2014 Xiaomi began to look outward from the Mainland, Hong Kong, and Taiwan, to other growth markets like Singapore, Russia, India and others where the company could replicate its success. In fact, in mid-2013, the company hired Hugo Barra away from Google and Android to work on international expansion. The company officially entered India in 2014, signing a deal with Indian e-commerce supplier, Flipkart.

It launched the Mi3 in India in July 2014, using similar pre-registration and flash sales to hype up its new product. The first round of handsets sold out seconds.

In April 2015, Xiaomi raised an unknown amount from leading Indian investor, Ratan Tata, who had shown interest in technology startups launching in the region. Later that year the company announced that it would begin manufacturing phones in India, once again sticking to the methods for success that worked well for the company in its first years in China.

Hugo Barra handed off the baton to Xiaomi India managing director Manu Kumar Jain in 2017 who has since led the company to further success by adapting to local conditions, releasing handsets tailored toward its Indian users. The company sustained growth by adapting through localization, brick and mortar expansion, and e-commerce deals.

Xiaomi reportedly became the third largest smartphone brand in India in Q3 2016. According to Forbes, the company hit $1 billion in revenue that year, just three years after its launch in the country.

According to Canalys, India overtook the US in Q3 2017 to become the second largest smartphone market, growing 23% from Q2 2017 with just over 40 million units shipped.

Xiaomi led in India in terms of smartphone shipments in Q4 2017, with 8.2 million total units shipped, beating out Samsung for the top spot in the second largest smartphone market in India with 27% of the market share, according to Canalys.

Slowing Growth At Home Prompts A New Look

Though Xiaomi produced impressively rapid growth in its first couple of years and expanded into  India successfully, growth in the Mainland proved to be unsustainable. In 2015, with an original sales goal of 100 million units, which was then lowered to 80 million, the CEO announced that it had sold over 70 million units at the year’s end—hardly at pace with its 226 percent sales growth from 2013 to 2014.

According to Forbes, more measured growth may have been a result of the slowed growth rate of China’s smartphone market in 2015. However, rising competition from players like Huawei, which boasted of its 44 percent growth year over year and surpassed the 100 million unit sales mark in 2015, has put more pressure on the growing company. this pressure has put Xiaomi at the bottom of the pack in a crowded, competitive Chinese smartphone market. The company, in terms of shipments, now sits behind Huawei, Oppo, Vivo, and Apple.

However, a slow down isn’t exactly a sign of doom for Xiaomi. In fact, the company has found much more to sell under the aegis of providing quality products at production prices. In the next part of our series on Xiaomi, we’ll explore the strategic shifts the company has made to hold its valuation, and just how well those strategies have worked in bringing its growth rates back in line.

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