Business Valuation Of Emerging Supply Chain
China’s three-year-old technology company Xiaomi has recently announced the sale of its flagship Mi-3 smartphone will be on the Chinese top messaging app Wechat.
This is another in a series of tactics deployed by Xiaomi to get to the heart of consumers and spur their demand.
Already with 7.2 million handsets sold last year in China, Hong Kong and Taiwan, and a revenue of $US2.1 billion, Xiaomi continues to pursue its drip-feed supply strategy.
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It will be selling 150,000 units of the flagship Mi-3 smartphone on WeChat on November 28th and customers can reserve their spots in advance.
Xiaomi has been famous for its lightning fast sold-out rates through its solely online distribution channel.
In November, two records were made during China’s Single’s Day flash sale:
Xiaomi sold over 200,000 smartphones in just 3 minutes, making it the first company on Alibaba’s Tmall to break the $16.4 million benchmark.
A similar picture is expected with the upcoming sale on WeChat, with potentially added credibility to both partners since WeChat is seeking to be a payment platform as well.
Being compared to Apple with both positive and negative connotations, Xiaomi seems to be faring better than the global giant.
Although the two companies have manufacturer Foxconn in their supply chain and are praised for innovation,
Xiaomi’s considerably lower price range has earned it a 5% Chinese market share, surpassing Apple’s 4.8% in the second quarter of 2013.
Xiaomi’s latest funding round put it at $US10 billion in value, more than what Microsoft just paid for Nokia’s handset division.
Xiaomi, already profitable since September this year, is one of the 15 most heavily venture-backed mobile start-ups ever.
Some analysts have gone as far as saying Xiaomi was able to do in a month what Apple did in a year, pointing to Apple’s 2012 sale of 125 million smartphones globally.
Xiaomi’s achievements so far have been attributed to a number of factors: the right partnerships (e.g. with China Mobile, the country’s state-owned telecom giant;
with Google for running its Android operating system; with Foxconn for assembling its phones containing components from Qualcomm and Sharp).
The key differentiator, however, is Xiaomi’s acute attention to innovation and customer service.
While Apple takes a top-down approach to innovation, Xiaomi thrives on idea crowdsourcing, leveraging user feedback to develop and release a new version of its Android-based software every week.
Xiaomi’s founder Lei Jun said: “We’re trying to create greater products while selling a product that is close to the manufacturing price”.
“Preferring to be compared to Amazon, Xiaomi follows the business model of selling low-margin devices and making profits from customers as they use them,
just as Amazon sells Kindle and e-books. In that case, Xiaomi probably wants to grow into a super networked business like Amazon too, with innovation,
efficiency and outsourcing optimization already achieved at admirable levels” – said Vivek Sood, author of “Move Beyond the Traditional Supply Chains:
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With its high price-performance ratio smartphone line, Xiaomi is also tapping into other technology products, such as smart TV (MiBox, MiTV) and a newly announced wireless router.
Originally operating without brick-and-mortar retailers as middlemen, Xiaomi recently announced the upcoming launch of 18 stores,
albeit they are only for selling accompanying accessories and services.
As Apple ventures into the growing Chinese market, Xiaomi is looking outwards.
In August, Hugo Barra, a Google executive, was hired to develop new products for international markets.
No detailed plans have been released yet, but analysts point to some criteria that Xiaomi would consider in a prospective international market:
high activity levels on social media and a robust e-commerce infrastructure
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“It’s still early to tell if Xiaomi will create a disruptive force like Apple did when it first introduced the iPhone. But if the Chinese firm knows how to balance the current needs for profits and future needs for products, how to match its product maturity with supply chain maturity, it can be a game-changer”, said Vivek Sood, CEO of Global Supply Chain Group.
