SMARTPHONES: Xiaomi Expands in India, Wows North Korea

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Bottom line: Xiaomi’s progress in India shows its global expansion is moving ahead despite a recent setback in Brazil, but it will need to replicate that success in other markets to revive its sputtering fortunes.

Xiaomi wristband wins North Korean fans

Former smartphone sensation Xiaomi is in a couple of headlines as the week winds down, both showing how the company is looking to foreign markets to offset its sputtering business in China. The bigger of the items shows how quickly Xiaomi is advancing in India, where it has consolidated its position as the third largest brand just 2 years after entering the market. The second item is a bit quirkier, saying that Xiaomi’s wearable fitness band has become a hot-seller in North Korea, a market that isn’t exactly known for its consumer culture.

These two upbeat items come against a far more somber backdrop for Xiaomi, a former superstar once likened to China’s homegrown equivalent of Apple (Nasdaq: AAPL). Xiaomi’s sales in its home China market have been sliding for the last year, and earlier this year it reportedly aborted its recent move into Brazil, another BRICS market. More broadly, the company has also suffered from a growing reputation as maker of cheap, mediocre products, a far cry from the more cutting-edge image it previously enjoyed.

India has been one of the few bright spots for Xiaomi these days, though even there the company suffered a setback shortly after entering the market due to a patent dispute. Since then, however, the company has been quietly building up its presence in a market that’s still relatively small but has huge growth potential. It demonstrated its commitment to India by setting up a local manufacturing base there last year in partnership with contract manufacturer Foxconn (HKEx: 2038).

That work is apparently starting to bear fruit, and the latest statistics show that Xiaomi is now a solid third in the local smartphone market with 8.1 percent share. (Chinese article) That’s behind only market leader Samsung (Seoul: 005930), at 28.5 percent, and local heavyweight Micromax, which has 11.9 percent.

Xiaomi’s local manufacturing has been an important factor behind its success, earning it strong support from the Indian government and helping to control costs. Following its launch of local production last year, the latest reports say it is planning to roughly double its capacity to more than 2 million units per quarter. That would imply that Xiaomi believes it can sell as many as 8 million phones in India per year, a relatively ambitious number.

Pyongyang Trendsetter

Next there’s the quirkier headline about Xiaomi in North Korea, one of the world’s most closed countries where many people live in poverty and can hardly afford expensive consumer electronics. A report on Xiaomi’s move into the country doesn’t contain any figures, but simply says the company’s wearable fitness bands sold out at a recent international trade exhibition in the North Korean capital of Pyongyang. (English article)

The wrist bands sell for a relatively affordable equivalent of $35, though such a sum is probably an extravagance in North Korea. What’s more, the report on the sell-out comes from China’s official Xinhua news agency, which is known less for objective reporting and more as a propaganda mouthpiece to promote government programs and Chinese companies.

A Reuters report on the matter points out the reporter observed several people on the streets of Pyongyang wearing the wristbands, indicating that Xiaomi has perhaps officially entered the market. Xiaomi had no comment on the news, perhaps because North Korea isn’t exactly a major market for the company. What’s more, its presence in the authoritarian state would probably detract from the cool and trendy image that was an important element of Xiaomi’s early success.

A far more important global move for Xiaomi could come in the next year, following reports last month that the company was preparing to enter the tough US market. (previous post) Such a move would be fraught with risk due to potential for patent infringement lawsuits and also very tough competition. But such a move is really  necessary if Xiaomi every hopes to regain its footing and position itself as a truly global brand.

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