Xiaomi’s Way of Doing Business

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Prudence Ho, Lorraine Luk and Juro Osawa, 小米公司依靠低价品牌创造巨额利润. 华尔街日报, Nov 6, 2014
cn.wsj.com/gb/20141106/tec074524.asp?source=whatnews

, which is translated from

Prudence Ho, Lorraine Luk and Juro Osawa, For Xiaomi, Tidy Profit on Cheap Phones. Wall Street Journal, Nov 6, 2014.
online.wsj.com/articles/smartphone-maker-xiaomis-2013-profit-nearly-doubled-1415195999

Quote:

(a) "Now a confidential document viewed by The Wall Street Journal shows that Xiaomi’s net profit nearly doubled last year, making it a lucrative business in an industry where most players selling cheap handsets struggle to break even.

Xiaomi "presented the document to banks in its recent pitch to raise $1 billion in loans for overseas expansion or acquisition.

"A table in the document showed that Xiaomi’s net profit last year rose 84% to 3.46 billion yuan ($566 million) from 1.88 billion yuan in 2012. Its revenue more than doubled to 27 billion yuan. Another table included a forecast of a 75% net profit increase this year.

(b) "Xiaomi’s profit flies in the face of many analysts’ belief that the Chinese company’s rock-bottom pricing for its phones to increase market share has come at the expense of profit.

"Its cheapest phone, the Redmi 1S, starts at 699 yuan ($114), and its latest flagship model, the Mi4, starts at 1,999 yuan ($327).

"A possible explanation for Xiaomi’s ability to squeeze out so much profit while selling affordable phones is its inexpensive but efficient marketing tactics.

"While established competitors spend heavily on TV commercials and other traditional forms of advertising, Xiaomi’s marketing has centered on social media and Internet forums where many users post comments, complaints and requests.

(c) "According to the document, Xiaomi spent 876 million yuan, or 3.2% of its revenue, on sales and marketing expenses last year. Its spending in 2012 was 416 million yuan, or 3.9% of its revenue.

"After seeing the success of Xiaomi’s marketing strategy, many other Chinese handset makers have started focusing more on online marketing, using social media as a way to engage with consumers.

"The document also provided some details on how Xiaomi earns its revenue. Even though the company sells smartphone applications, other software and services , 94% of its revenue came from handset sales last year, according to the document.

(d) "Despite its growth, Xiaomi will likely face many hurdles in its international expansion. In mature markets such as the U.S., where it is critical for smartphone makers to secure access to intellectual property to defend themselves from patent lawsuits, Xiaomi will likely have difficulties expanding unless it finds ways to boost its patent portfolio, analysts say.