Xiaomi went public on July 9, immediately making it one of the most valuable electronics companies in the world, worth $54bn. It has accomplished this focusing almost entirely on the Chinese market, though its international focus is growing. In 2015, only 6.1% of its revenue was generated outside of mainland China, but this increased to 28% in 2017. Despite its repeated intentions to come to Western market, Xiaomi's international business is built primarily in India, and also in Southeast Asian markets.
Xiaomi will be dedicating 30% of the $5.4bn it raised in the IPO to international expansion, but Ovum suspects that much of this will be plowed straight into India, where Xiaomi is facing intense competition not just from Samsung, but also from Oppo and Vivo. A 4Q17 Ovum survey showed that Samsung was the smartphone brand used by 30% of respondents in India, followed by Xiaomi, used by 10%, Oppo, used by 3%, and Vivo, used by just 2%.
Oppo and Vivo are proving very willing to spend a lot of money on marketing to fuel their growth: Vivo spent over $700m sponsoring two major sporting events – the FIFA World Cup and the Indian Premier League. Ovum expects that Xiaomi will double down in India and invest heavily in marketing to maintain its advantage over them.
This will not leave much money for it to make a serious push into Western markets. Without serious investment to build its brand, Xiaomi will simply become part of the ongoing price race in Android, and struggle to build loyalty. Ovum does not believe that Xiaomi's strategy of limiting its profit margin on hardware in order to build market share for its services is a model that will work well outside of China, particularly in Western markets. Providers are well entrenched in areas into which Xiaomi would be looking to move, such as streaming or mobile payments.
Additionally, Xiaomi has no experience of working with operators, which would be a prerequisite in several Western markets. Breaking Western smartphone markets would be a long, arduous, and expensive slog for Xiaomi, which would be unusual for a company that has grown so rapidly.
Instead, Ovum sees more potential for Xiaomi to bring its wide array of lifestyle products to Western markets and become a leader in the smart home and consumer Internet of Things (IoT) spaces, which are only just beginning to enter the mainstream. Xiaomi's extremely competitive prices instantly make smart home devices a much more attractive investment. Ovum's 2017 Smart Living survey indicated that price was the second most common reason for not buying a home assistant or a smart security system, after a perceived lack of usefulness.
This would also mean that Xiaomi would be less reliant on operator support than if it pursued a smartphone-first push into Western markets. It could freely invest in its own retail spaces and use its smart home devices to build a brand, build loyalty, introduce some services, and then attack the smartphone market.
Figure 1. Smart home and smartphone unit sales in Western Europe, 2015-22
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