When Lei Jun told the World Internet Conference in China last year that his tech startup Xiaomi will be the world leader in smartphones in the next five or 10 years, an Apple executive prophetically replied, "It is easy to say, but more difficult to do." Xiaomi's prodigious success has revolutionized the market for "made in China" goods, much due to the founder's appeal to patriotism. Lei, 46, originally wanted to name his company "Red Star", but this was already registered. So he settled for Xiaomi, the Chinese for "millet", inspired by Mao Zedong's phrase during China's Civil War of 1945-1949: "We want to conquer the world by using millet and rifles." He often quotes Mao at product release meetings and the company recently made headlines by setting up a Communist Party branch.
FUN OF TECHNOLOGY
In 2010, when it was founded, the Chinese market was dominated by foreign brands. Newspapers splashed photos of people queuing for Apple's iPhone 4 and few would consider buying handset from a domestic start-up. But by the end of 2014, Xiaomi's market value stood at 45 billion U.S. dollars, about 180 times its worth of 2010. It has grown far ahead of domestic rivals Huawei and Lenovo, topping the Chinese market, and is now the world's third largest smartphone manufacturer after Apple and Samsung. Lei's smiling face has graced the pages of the Wall Street Journal, Time, and Forbes. Xiaomi battled for market share by being controversially cheap. Supporters claim its smartphone has the same or better functions than the foreign brands, but for less than 2,000 yuan, and its "high-quality, low-price" reputation has become a role model for other Chinese firms.
Its slogan is "May more people enjoy the fun of technology." Lei gambled on the popularity of mobile Internet - and won. In 2012, the number of Chinese online on mobile phones for the first time outnumbered those online on their desktops. By June this year, 668 million Chinese were online, almost half of the country's population, and mobile phone web users numbered 594 million. Before unveiling its first handset, Xiaomi developed an Android-based mobile operating system and WeChat-like text and voice messaging service, both with millions of users.
The company built its reputation through online selling and social media marketing. When the first Xiaomi smartphone was released in August 2011, more than 300,000 handsets sold online within five minutes. On April 18 this year, a record 2.12 million smartphones sold online within 12 hours. The success was repeated in foreign markets such as Brazil and Southeast Asia. In July 2014, Xiaomi entered India, selling more than 800,000 handsets, and quickly grabbing 1.5 percent of the market. Business insiders say Xiaomi's popularity comes from experience of developing countries, where large populations with huge middle and low-end markets are consistent with Xiaomi's strength.
PATENTS BARRIER
However, taking a Chinese start-up abroad successfully requires patents - and Xiaomi's lack of intellectual property has proved its Achilles' heel. Doubts first arose last year with the launch of its air purifier, which was criticized as remarkably similar to that of Japanese brand Balmuda in appearance, internal structure, and even in its marketing. In December, Sweden's Ericsson won a court order banning the import and sale of Xiaomi smartphones in India after claiming they infringing patent rights. Xiaomi paid a substantial sum in compensation, which reinforced public doubts over domestic brands. Hugo Barra, vice president of Xiaomi in charge of India, told media that it has applied for 2,600 patents around the world to build a portfolio of patents to defend itself. Lei described India as Xiaomi's "coming of age", saying that Xiaomi would invest more in research and development and have more patents than any other company in the world in the next decade. In May, Xiaomi launched its online store in the United States and Europe, only selling earphones, power banks and fitness wristbands - no smartphones. Some media pointed out Xiaomi was trying to avoid patent disputes.
According to China's Ministry of Industry and Information Technology (MIIT), almost all Chinese smartphone manufactures have been blocked in the global market, especially in North America and Europe. Lacking core patents is the main barrier. Xiaomi has been dubbed China's Apple, and Lei has acknowledged learning from Steve Jobs in explaining the similarities with the iPhone. But critics argue that Apple has more than double the patents claimed by Xiaomi. "Lei's salute to Jobs is just trickery to disguise copying Apple's designs," says a blogger who posted an article titled "Xiaomi Discredits the Reputation of 'Made-in-China'."
MARTKET SATURATION
Domestic smartphone makers have made China the world's largest and most competitive market. Yu Xiaohui, head of the China Academy of Telecommunication Research, revealed that Chinese manufactures accounted for six of world's top 10 vendors based on market share. At home, the number of Chinese smartphone manufactures exceeds 200, and they have 80 percent of the market. However, the first quarter of this year saw a fall in smartphone sales in China, with shipments down 4.3 percent to 98.8 million according to IT consultancy IDC. "China's smartphone market is saturated," says Yu Li, vice director of marketing of China Academy of Telecommunication Research. "The time of explosive growth has passed, and higher-level competition is approaching." Lei Jun revealed on his microblog that Xiaomi had sold 34.7 million units from January to June, down from the second half of last year, and a poor start to meeting its goal of selling 100 million handsets this year. But he remains optimistic: "Even if growth slows, smartphone makers can still get opportunities by keeping prices competitive." But affordability is not a panacea. "As smartphone users demand ever more in quality," says Yang Ye, director of China's Telecommunication Development Industry Alliance, "domestic companies have to market by acquiring patents and developing high-end handsets, and give up replicating Xiaomi in the low-end markets."
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