Brief History of Xiaomi

In his book on the Chinese mobile phone manufacturer, Xiaomi, Jayadevan PK describes Clayton Christiensen’s “Greek tragedy of outsourcing”. Outsourcing starts off for the obvious reason – it’s cheaper to get certain work elsewhere. Which in turn adds to the company’s profit. Progressively, the agencies and companies to which outsourcing happens move up the value chain. They learn about the technology, manufacturing and other aspects of the product. In China’s case, as the importance of China as hub grew, the government actively pushed for technology and knowledge transfer to happen. Most Western companies had no choice – if they disagreed, they might be kicked out while their competitor who agreed, would continue to get products made for cheaper. At some point, the entity to which outsourcing is being done has learnt enough to make its own products. Sure, those products are not great to begin with. But sooner or later, they become good enough. They are much cheaper. And so they begin to gain a market share and eat into the company they used to work for…

 

In the case of smartphones, this transition to local players was accelerated by other factors. First, when Apple launched the iPhone, it started off the decline of Motorola and Nokia. Suddenly, China felt a shortage of feature phones. Local phone makers began to fill up the vacuum. They fulfilled a need, they were cheaper, and they met local needs, from language to regional preferences.

 

And then Google launched Android. For free (practically). Around the same time, MediaTek launched phone chipsets at very low prices. The integrated chip had support for Bluetooth, touchscreen, and camera. Overnight, it became possible for Chinese companies to start making smartphones. The timing was perfect:

“The mid-noughties (2005-09) saw China move from being chiefly a producer to both producer and consumer.”

A huge market. A market that cared a lot about the price being affordable. The stars had aligned perfectly for Chinese phone manufacturers. And they understood the quirks of Chinese customers best. Like:

“They want to have 50 different things that they’re never going to use.”

 

In 2011, two of the top 10 smartphone sellers in China were Chinese brands. By 2014, that number rose to 8 of 10. Today, all the top 10 are Chinese brands. And it doesn’t end there:

“Globally, Chinese brands today represent six of the top ten selling smartphones.”


Xiaomi, says Jayadevan, was in the right place at the right time. And obviously made a lot of good moves.

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