BEIJING — In 2013, the Chinese smartphone company Xiaomi hired Hugo Barra, a Brazilian-born, M.I.T.-trained former senior executive of Google.
Mr. Barra’s appointment as vice president for international operations was considered a coup for the fast-growing company, which was founded in 2010. As the favorite of young Chinese buyers proud to acquire a home-designed product, Xiaomi rocketed to the No. 1 position in the domestic market in 2014 and was the world’s third-largest phone maker.
Xiaomi’s market position looked a little less rosy in the third quarter of this year. The research firm Canalys said the company had lost its top spot in China to Huawei, another Chinese company.
The company has expanded its product line, developing home products like an air purifier, a webcam and blood pressure monitor. Last month, Xiaomi showcased a range of new products at a Beijing event, including the Redmi Note 3 smartphone, the Mi Pad 2, and the Mi Air Purifier 2. The event was packed with the company’s fans, all eager to listen to the sales pitch of Xiaomi’s founder, Lei Jun, who spoke from a stage much in the style of Steve Jobs and Timothy Cook of Apple.
Mr. Barra, along with other senior executives, were also in attendance. After the event, he talked about the company’s international strategy, and answered questions about the demands of the China market:
You are in charge of Xiaomi’s sales outside China. How are sales for smartphones doing in India, and in Brazil? Who is the competition in those two markets? What country is your next overseas target?
India has been a terrific journey for Xiaomi and one that I’ve had the opportunity to be part of and help drive from the very beginning. In fact, I’ve spent at least 50 percent of my own time over the last 18 months on that market alone, and it’s been a worthwhile investment. From a standing start in July 2014, we sold three million devices in about one year, and in Q3 we sold more than one million devices, the first time we’ve done that in one single quarter in India — in 2015 so far, we’ve averaged 45 percent growth quarter over quarter. We have also been investing significantly in India: We launched our own e-commerce website in Q2, and in Q3 we started our local manufacturing operation and opened a large office in Bangalore.
Indonesia and Brazil are the other two large markets we’ve been investing in. We’ve launched our own e-commerce operation in both markets and are quickly growing our teams, plus we also set up our own manufacturing line in Brazil. The social media response and market reactions we’ve received in both markets are well above our expectations.
We are currently focused on the preparations to enter a few new markets, such as Africa, and hope to have some announcements soon.
Xiaomi is evaluating the market in Africa. What kinds of African countries offer the most promising markets? Cellphones made such a dramatic change for people in Africa who had never had a landline and barely knew what a phone was. A cellphone meant farmers could more easily market their produce, that women could do microfinance more easily. What are the latest trends in smartphone use in Africa that change lives in a fundamental way? How will Xiaomi capitalize on those trends?
Landline voice infrastructure in Africa never reached most residential areas due to economic reasons, so people had enormous difficulties in communicating with each other, often having to send messengers or travel. The revolution that cellphones have brought about in Africa, therefore, is primarily centered around communications, allowing people to make calls and exchange messages in real time. The two biggest innovations that drove this revolution in Africa were, one, the prepaid model in the 1990s and, two, smartphones becoming popular over the last couple of years.
Africa is only starting to make the switch to smartphones. Of current sales, about 60 percent are smartphones in South Africa, about 50 percent in Kenya and about 25 percent in Nigeria. Only a fraction of the installed cellphone base is made up by smartphones and most people are yet to switch.
In terms of Internet services in recent years, communications, social media, information and entertainment — the usual suspects: WhatsApp, Facebook, Twitter, Google, YouTube — gained huge popularity and became dominant, leading to great improvement in the overall quality of life of the African population. Aside from these services, there are no apps that fundamentally change people’s lives in a large scale quite yet, such as on-demand transportation, O2O [online-to-offline] services, etc., because these services require integration with infrastructure that isn’t yet well developed in Africa.
Currently, the African smartphone market has two extremes: one, luxurious brands playing at the high end with prices inaccessible by 95 percent of the population, and, two, ultralow-quality products at the bottom end which are, for all practical purposes, essentially just feature phones with a touch screen, and little to no after-sales support. The African market is also notable for not having proper consumer protection regulation in place in most countries, which makes it possible for vendors to easily take advantage of consumers.
The opportunity for Xiaomi in Africa is enormous, i.e. to offer high-quality smartphones with fast processors, large displays and long battery life, with the goal of driving up adoption of mobile Internet services, at affordable prices and reliable after-sales service and support.
Will Xiaomi extend what you call the ecosystem — the production of Xiaomi products as varied as the Mi Band and the Xiaomi air purifier — outside China?
We are already selling some of our ecosystem products outside of China. The Mi Band and our range of Power Banks, for example, are available in almost all our global markets. It takes time to introduce more of them to other markets since these products have to be localized, thoroughly tested and certified in each market, but we are actively working on a few international ecosystem projects with our ecosystem partners.
Why do you think overseas companies like Uber and Airbnb are doing well in China?
They’ve done what they’re best at — finding and hiring great talent and focusing a large share of their energy and resources towards markets with tremendous potential. I believe both Uber and Airbnb look at China with the same level of priority as the U.S. market these days, and I believe that is exactly the way to go about it.
People in China use smartphones in different ways and more intensely than in the U.S. With the popularity of WeChat and mobile payments, people in China seem to be using smartphones more creatively than in the U.S. Does that make China the leader in future smartphone innovations? Should U.S. companies pay closer attention to how Chinese are using their phones to gauge future usage patterns in the U.S.?
The mobile Internet has been evolving at a faster pace in China compared to any other market, as a result of fast consumer adoption of smartphones, extremely heavy competition among the leading Chinese Internet players as well as start-ups, in addition to vast capital availability and extremely active social media platforms that fuel consumer adoption.
China’s Internet companies have boundless ambitions in acquiring users on their platforms through many different types of innovative services — they also prioritize acquisition over monetization. Competition is intense amongst the large Internet players and start-ups alike. This environment is conducive to fast-paced innovation and continuous reinvention of business models, increasingly providing a glimpse of how smartphones could be used by consumers in the U.S. and the entire world in the future.
In fact, some of China’s Internet companies, including Xiaomi, Alibaba and Cheetah Mobile, have started their international forays with very encouraging results so far. Other Chinese players are likely to follow and enter markets such as U.S. and India, which will intensify competition in the tech industry. U.S. Internet companies will learn and become more nimble in the process, which benefits consumers at the end of the day.
Virtual reality is considered a potential next big innovation. Some phone companies are making special V.R. headsets. How does Xiaomi see V.R.?
We are excited about the potential of V.R. technology, which we believe is still in its early stages of development, and we’re watching this space closely.
Xiaomi has done so well being price-competitive, and Xiaomi prides itself on that. Is Xiaomi tempted to do a special, limited, top-of-the-line luxury smartphone where price is not a consideration for the consumer?
Since the release of its first smartphone in 2011, Xiaomi has always been focused on releasing devices with top-end specifications and the highest quality components in the industry. For example, Mi Note Pro is Xiaomi’s latest flagship device and not only was one of the very first smartphones to ship with the fastest Qualcomm processor in existence — the Snapdragon 810 — but also pioneered a curved 3-D glass-back design that makes it one of the most premium products in the market, along with hi-fi audio subsystem, a dual-charging circuit and several other features not yet found in most of today’s devices, even at the highest end of the market. The main difference compared to other manufacturers is that in Xiaomi’s philosophy, top quality does not have to translate into high prices.