Hugo Barra, photo from Huxiu
After three and a half years at Xiaomi, Hugo Barra, the global face of the star Chinese smartphone maker, announced his departure from the company and his return to Silicon Valley. He cited family and health concerns as his reasons for leaving the company. In a lengthy Facebook post, he indicated his resignation would come into effect right after Chinese New Year. Xiaomi’s founder and president Bin Lin replied to Barra's Facebook post expressing his gratitude for Barra’s commitment to Xiaomi while also announcing Xiaomi’s Senior Vice President Xiang Wang as Barra's successor.
Wang, who joined Xiaomi in 2015, is a long time tech veteran – prior to his time at Xiaomi, he served as the president of Qualcomm for the Greater China area and was employed by a number of prominent tech companies including Motorola and Alcatel-Lucent. How will this change of leadership impact Xiaomi’s globalization? And more importantly, will it reverse or reinforce Xiaomi’s disappointing performance in global competition witnessed over the past two years?
Xiaomi’s achievements in the global market
Bin LIN (left), and Hugo Barra (Right), photo from Hugo Barra's Facebook
Hugo Barra’s last public appearance on behalf of Xiaomi was four days before his official announcement. On January 19th, he attended Xiaomi’s product launch event for a new smartphone in India. After the event, he immediately headed to Hong Kong, absent from the party regularly held after this type of presser.
Barra's last appearance for Xiaomi being in India can be seen as a symbolic. During his three and a half years at Xiaomi, India was the place where he made the most remarkable achievements for the company. Lei Jun, CEO of Xiaomi, revealed at Xiaomi’s annual meeting that the company achieved an annual revenue of USD 1 billion in India in 2016.
This achievement was made partly due to the successful launch of Xiaomi's Redmi Note 3 smartphone in India in Q1 2016. According to research firm Strategic Analytics, Redmi Note 3 was among the top three most popular smartphone models shipped in the Indian market in Q3 2016. Xiaomi also announced that the model shipped over one million units in the first 18 days after its launch in the Indian market.
However, Xiaomi’s expansion to other markets during Barra's tenure at the company hasn’t always been as encouraging as its business in India. In May 2016, Xiaomi suspended its business in Brazil with no future product launch plans for the short term. The company's Brazilian team returned to China only a year after Xiaomi's entry into what was then an up-and-coming market in 2015.
Xiaomi isn’t the only smartphone provider who has hit a wall in Brazil though. Due to high tariffs and local protectionism in the country, foreign smartphone makers find it increasingly difficult to operate there. Xudong Chen, senior vice president at Lenovo, mentioned in an interview that, “The Brazilian market is similar to the Chinese market 20 years ago. If you’re not manufacturing locally, you’ll be levied a high tax.”
Apart from the high costs, Xiaomi also suffered from large fluctuations in Brazil’s local economy. Bin Lin said in an interview that the devaluation of the Brazil real in 2016 made it almost impossible for enterprises to make a profit. “The range of the devaluation is far more than what we can take. If we price a phone at 1000 BRL, the next day the same amount of money may only be worth half as much. It's almost impossible for us to run a business there.”
Apart from setbacks in emerging markets, Xiaomi has also had to endure the slow and uncertain process of entry into more developed markets like North America and Western Europe. Xiaomi was sued for patent rights violations by non-practicing entity BlueSpike in the US in 2013 and 2015. These cases cost Xiaomi millions of dollars in lawsuits according to public information. Considering this, it's no surprise that, so far, Xiaomi has only launched a set-top TV box in the US in cooperation with Google. There has been no trace of a launch of Xiaomi's core smartphone business in the market.
The company was also sued by Ericsson in India in 2014 for selling smartphones using Ericsson-patented technology without its permission. Because Qualcomm allows all its clients to use one another’s patents without authorization, Xiaomi is only allowed to sell smartphones equipped with Qualcomm chips in India, but still has to pay INR 100 (USD 1.5) to the court as a deposit on each smartphone it sells in the country. Xiaomi selling smartphones with chips installed from other suppliers is still prohibited in the Indian market.
Taking these harsh setbacks into consideration, it's reasonable to make gloomy predictions about Xiaomi's continuing global expansion. The company’s attitude toward its sales numbers has also fueled users’ doubts about its overall business – this year, it didn’t release its annual shipment numbers as it has in previous years, which is widely interpreted as a signal that Xiaomi lacks confidence in its performance in the coming year.
Competition from fellow Chinese rivals
Unlike many other Chinese companies that have been deterred by local competitors, during Xiaomi’s global expansion, the biggest threats the company has faced have typically come from its Chinese competition.
Because of fierce competition at home with a saturated Chinese smartphone market, almost all top Chinese smartphone providers are making aggressive inroads into overseas markets. India, now Xiaomi’s largest international market, seems to be the land of milk and honey for all these anxious Chinese manufacturers, and some of them have already become quite established in the market. For instance, Lenovo, thanks to the legacy of Motorola, has a market share in India second only to Samsung. Its market share in Q3 2016 in the country was greater even than local player Mircomax, according to IDC. Xiaomi, with a 250% growth YoY, is listed as the fourth-biggest player in the market.
Though Xiaomi is growing at a rapid pace and has fostered a local fan base in India as it did when it first took off in China, other ambitious Chinese smartphone makers haven’t left much room for its growth, especially with their advantage in offline sales channels. At the same time, a handful of top Chinese smartphone makers, including leading players Huawei, vivo, and Gioneer, have built or are building factories in India as part of their “Glocalization” plans.
These efforts do make a difference in the market. An interesting personal example comes from a China Tech Insights team member who took a flight from San Franscisco o Beijing recently. On the flight, an Indian businessman introduced the specs of his Gionee phone with excitement without even knowing that Gionee is a Chinese brand.
In other emerging markets, especially Southeast Asia and Africa, Chinese smartphone makers are pitching fierce battles for market share. For Xiaomi, globalization may seem like an extension of its painful domestic competition woes only in a more complex international environment.
New possibilities for Xiaomi in 2017
What does this significant change in its leadership mean for Xiaomi's attempts to revive its growth in 2017? The background and performance of Xiang Wang may give us some hints.
Xiang WANG (Left), LEI Jun (Middle), and Bin LIN (Right), photo from MIUI
Wang isn’t new to either Xiaomi or the telecommunications market in China. Before he joined Xiaomi in 2015, he had worked at Qualcomm China for 13 years and was involved in Qualcomm’s early investment in Xiaomi in 2011. In his earlier post at Xiaomi, he was in charge of the company's strategic partnerships, including those with overseas parties.
After his transition into that role at Xiaomi, he became actively engaged in helping Xiaomi gain global alliances, especially for copyright and patents. In June 2016, Wang led Xiaomi’s collaboration with Microsoft for a patent exchange and pre-installment of Microsoft Office on its devices. Most recently, he settled Xiaomi’s contract with IP solutions provider Via Licensing in order to gain usage of Via’s Advanced Audio Coding (AAC) patents, which will help pave the way for Xiaomi’s adventure in American and European markets.
According to Xiaomi, in 2016, the company filed over 2,000 patent applications, and obtained licences for some essential patents from holders including Intel and Casio on top of the ones mentioned above. “We’re trying to build a competent copyright team and now we have close to a hundred people,” Wang said in an interview with Chinese portal news site Sina in June.
While globalization is becoming increasingly crucial to Chinese smartphone makers, it’s only one of Xiaomi’s five core strategies in 2017, as addressed by Xiaomi’s founder and CEO Lei Jun. The other four include Hyper Tech (dubbed “Black Technology”), New Retail, Artificial Intelligence and Fintech (dubbed “Internet Finance”).
LEI Jun discusses the five core strategies for Xiaomi in 2017 at its annual meeting, photo from MIUI.
The official announcement of these five core strategies during Xiaomi’s internal annual meeting can be deemed as a move to reinforce moves made by Xiaomi in the past year. In 2016, the industry saw Xiaomi make efforts to revamp its previous image as an “internet” smartphone brand -- meaning its strong focus on online distribution channels, low prices, and, unfortunately for Xiaomi, low quality products.
One significant move is that Xiaomi has begun to beef up its offline sales as an answer to the challenges of its domestic competitors -- especially the dominant leaders of offline sales in China, vivo and OPPO. In 2017, Lei announced a plan for Xiaomi to set up over 200 experiential stores in China, and a total of 1,000 in the next three years, which is a new experiment that will see Xiaomi attempt to exert its influence beyond the web.
Another prominent move in 2016 was that Lei took over the management responsibility of the Research and Development (R&D) and Supply Chain team of Xiaomi’s smartphone line. The previous leader, Guangping Zhou, a long time telecommunications veteran who worked at Motorola for 15 years prior to his co-founding of Xiaomi, was appointed to be Xiaomi’s Chief Scientist, in charge of cutting-edge smartphone technology development for the company. A new model launched last year, Mi MIX, as the first attempt to enhance Xiaomi’s reputation after this change, received acknowledgement for its design and technology, but has still been criticized for its low production capacity. Overall feedback of this effort, however, seems to be positive. This year, it’s reported that, apart from Mi 6, Xiaomi has had another four new models verified by the China Quality Certification Center, which will be worth paying attention to in the upcoming months.
As for the last two sectors -- Artificial Intelligence and Fintech -- Xiaomi’s establishment of its Innovation Lab and its acquisition of a number of official licences of financial businesses has shown the company’s active preparation for the realization of its vision.
Though Xiaomi’s glamour as one of the fastest growing companies in the world faded in 2016, it seems that this once glorious startup has been making constructive attempts to bail itself out of its current predicament and seek new points of growth. Thus, the transition from Hugo Barra to Xiang Wang is unlikely to be an end but is rather a new start of a more aggressive global expansion under Lei’s new strategic plan. These strategies seem to be pretty rational considering a saturated Chinese smartphone market, but challenges still remain. After all, this is a competition of Xiaomi against its equally ambitious and even more experienced Chinese rivals in a complex global war. And Xiaomi isn’t the only cautious player at the table -- whether Xiaomi can ensure the delivery of these strategies with high efficiency will be at the core of its survival and key to the continuity of its growth this year.