What makes Xiaomi take the second spot in the world?

Jul 20, 2021 Corporate


Why did only Xiaomi catch the chance brought by the epidemic?

In the past year, the biggest variables in the global mobile phone market were Huawei and Xiaomi.

On July 15, Chinese giant Xiaomi took 17% of worldwide smartphone shipments for the second quarter of 2021, behind Samsung's 19%, becoming the world's second biggest smartphone vendor, according to market research firm Canalys. Compared with the same period in 2020, Xiaomi's shipments jumped more than 80%. Meanwhile, Huawei fell out of the top 5 due to difficulties in supplying high-end chips.

In fact, the growth was already in place. Since the outbreak of the epidemic in early 2020, the overseas market has been the engine of Xiaomi's growth. Of 83% of the surge in shipments, 70% of it came from overseas. In particular, the Latin American, African, and Western European markets contributed 300%, 150% and 50% of the growth rate respectively.

Xiaomi's rapid growth overseas cannot be separated from the impact of Huawei's sanctions. In addition, the epidemic has reshaped people's lifestyles and forms of consumption in some countries, creating an immediate need for smartphones. However, why did Xiaomi seize the same opportunity? And not other mobile brands?

The rapid growth of Xiaomi overseas is inseparable from the impact of Huawei's sanctions. In addition , the epidemic has reshaped people's lifestyles and consumption patterns in some countries, creating a rigid demand for smartphones. However, why did Xiaomi seize the same opportunity? Instead of other mobile phone brands?


Why it is Xiaomi?

Since August 17, 2020, Huawei has been completely restricted by the U.S. government, and since then there has been no way to use Google's Android system and no high-end chips available, making shipments difficult and sales plummeting. Companis like Samsung, Apple, Xiaomi, Vivo and OPPO have more or less taken over Huawei's share.

"It is one-sided to say that Huawei's departure led to Xiaomi's growth," Nicole, vice president of Global Mobility at Canalys, told Geek Park (ID: geekpark), "Operators that used to cooperate with Huawei do not just choose Xiaomi. The relationship between Samsung, Apple and other brands and local operators has always been very stable. For any channel, eggs will not be put in the same basket."

The global growth in demand for smartphones starts with the earlier outbreak of the epidemic.

First, the epidemic popularized the use of low-cost smartphones in emerging markets on the Internet. In this regard, Chinese consumers' perceptions are not as profound as those abroad. Although the outbreak in China was contained early on, overseas, most regions are still in the "shadow" of the pandemic. For example, in Indonesia, the world's fourth most populous country, a highly contagious mutant strain of the pandemic is still rampant, with more than 50,000 people diagnosed for four days in a row as of July 17.

Particularly in the education sector, Nicole observed, "Many children in Indonesia are taking classes online with large-screen smartphones because computers are too expensive for them, and the computers need to be connected to WiFi, and the locals do not have the conditions to install WiFi in their homes." Some children will take their phones to attend classes at Muslim temples, where WiFi is free for students.

Similar to Indonesia, there are emerging Internet markets with underdeveloped economies such as Latin America and Africa. The demand for using mobile phones for class and office due to the epidemic has contributed a large part of the sales of low-priced mobile phones.

Second, the epidemic has caused some consumers to face "consumption degradation". Even in a market that is in the "consumption upgrade" stage, the people still need low-cost, cost-effective mobile phones. In Brazil, installment shopping accounts for about 80% of the total transaction volume. The epidemic abroad has not been effectively controlled for a long time. "The epidemic has hit everyone's income, and those who had jobs have become jobless, and those who could afford to spend more than $200 have to choose less than $200. The epidemic has changed their consumption habits. For example, India, which was supposed to be in a period of consumer upgrading, is also facing downgrading.

In this regard, Apple has always firmly focused on the high-end market, and its products do not match the demand that emphasizes cost-effectiveness. "The epidemic has not changed the main consumers of high-end devices to a great extent. White-collar workers should still go to work and their income will not decrease." This is also one of the reasons why Apple was overtaken this time.

And the low-end and mid-priced products are precisely where Xiaomi's strengths lie. According to data, in the second quarter of 2019, Xiaomi sold 4.3 million units in Europe, with a market share of 9.6%, ranking fourth; after the outbreak began, in the second quarter of 2020, Xiaomi’s sales in Europe reached 7.1 million units, with a market share of 17. %, ranking third with a year-on-year increase of 65%; by the first quarter of 2021, Xiaomi’s market share in Europe was 22.7%, ranking second, and in the second quarter of 2021, it increased by 50% year-on-year.

Among them, the main force of Xiaomi is the lower-priced Redmi mobile phone, which accounts for about 70% of Xiaomi's overall shipments. Compared with Samsung and Apple, the average selling price of Xiaomi mobile phones is about 40% and 75% cheaper, respectively.

Third, although the epidemic has further released the demand for low- and medium-priced mobile phones in Europe, America, Africa, Southeast Asia and other regions, whether mobile phone manufacturers can meet this huge demand is the key. Obviously, this part of the market is mainly captured by Xiaomi, not Vivo, OPPO, Samsung, etc. To be able to win this battle requires a layout at least one year in advance.

The Internet process overseas is different from China. In Latin America, dominated by Brazil, Mexico, and Colombia, the scale of e-commerce accounts for only 4.4% of total retail sales, while China is currently close to 30%. The express delivery that locals can accept is within 20-40 days, which is unacceptable in China.

Many markets have relied heavily on offline channels in the past. However, the epidemic has caused many offline stores to close for a long time, and people have to start buying mobile phones online. Mobile phone manufacturers and stores must transform online sales, which gives Xiaomi an opportunity.

"Xiaomi's business model has great advantages under the epidemic. Its organizational structure is lean, and the response is quick." Nicole said that when the epidemic first began, she had communicated with Xiaomi's senior executive Zhou Shouzi. The other party promised that they would assist offline retailers to switch online, and the conversion was completed in only six weeks.

In fact, Xiaomi has been laying out online retail overseas for a long time. From entering the Indian market in 2014 to opening up the European market in 2017, Xiaomi has made a lot of efforts in online e-commerce, operators and other channels. In contrast, OPPO did not set up its Western European headquarters until early 2020. "The online channel is not built in a week or two, it may take a quarter or two. The sales result is a later performance, the preparation is a year ahead," Nicole said. 

Therefore, when the epidemic comes, Xiaomi's faster transformation efficiency and the layout that it started earlier will be able to precede its opponents and take over the low-end consumer demand.


The harder challenge is coming

Like domestically, Xiaomi also plays the role of a "destroyer" in overseas markets.

"The mobile phone market has two parts, one is stock, and the other is incremental. In some mature stock markets, such as Europe and the United States, the development trajectory of mature markets is similar. Come in in a style, there will be opportunities."

The "cost-effectiveness" and the use of online channels are Xiaomi's important "destructive" methods.

However, although the shipment volume has been promoted to the second place, it cannot be said that Xiaomi's strength and status have reached the second place. According to statistics from Counterpoint Research, in 2018, Apple obtained 73% of the global mobile phone market's profits, and Samsung received 13% of the profits. The two companies shared nearly 90% of the global mobile phone market's profits.

"The epidemic has had little impact on mid- to high-end demand, and this portion of demand for the mid- to high-end vacated by Huawei has been largely taken up by Samsung and Apple," Nicole judged.

There is no way for Chinese manufacturers to shake the position of Samsung and Apple in the high-end market. Xiaomi will set a price of 3,000 yuan or 300 euros or more of high-end mobile phones in 2020, and global sales will be close to 10 million units. But looking at the iPhone, in the fourth quarter of 2020, 18 million units were sold in China alone. The gap is huge.

Xiaomi launched its first mobile phone in 2011. In 2020, Xiaomi launched its high-end flagship mobile phones Mi 10 and Mi 11, and only then began to make an impact on the high-end, increasing investment in key technologies such as chips, influence, and fast charging. In contrast, Samsung Electronics was founded in 1969, Apple was founded in 1976, and Huawei was founded in 1987. That means Xiaomi still has a long way to go if it wants to catch up with technology accumulation.

Lei Jun also admitted, "We are still very young, the accumulation is far from enough, we must remain calm.