A nice little piece over at Fortune talking about how Xiaomi is trying to place itself as being in direct competition with
Here's that Fortune piece:
Lei showed slides of the iPhone 6’s camera at least three times in short succession. His message was clear: Xiaomi saw the iPhone 6, and believes they upped it.
Almost every headline coming from Xiaomi’s event carried the theme of Xiaomi vs. Apple. “China’s Xiaomi challenges iPhone 6 Plus with new flagship Mi Note,” said Reuters. “Xiaomi has stopped copying Apple, and now it’s firing back,” said Business Insider.
We can pretty much write the rest of that script, can't we? Plucky underdog fighting against the industry titan. Bringing great design at budget prices. Great consumer value....copywriters can churn this stuff out to whatever length you happen to want it.
Xiaomi’s overnight success has attracted critics, most notably Apple’s chief designer Jony Ive, who said its designs copy Apple’s; in India the company faced an injunction when Swedish telecom giant
Ericsson said it wasn’t paying royalties for key wireless technology used in its phones; and analysts question whether it can ever succeed outside China’s borders where IP laws are more strictly enforced.
Another part of that same script. We emerging country companies aren't going to be held back by the monopolies imposed by the already rich nations and so on. All the sort of stuff to encourage an alternative fan club to grow up around the company.
And there's no doubt that their phones are pretty good. Not exactly earth shaking to be sure, but a slick implementation of Android and they're certainly offering specs to beat the budgets they're selling to. But they're really still not in the same market as Apple and they're certainly not anywhere close when it comes to the business model.
Here's another such comparison with Apple:
Xiaomi: It's China's Apple, though you've probably never heard of it
One way of slicing and dicing business models is to look at volumes and margins. It's easy enough to be a low volume and high margin company. I've one of those myself. You become the expert in certain tiny sub-field and while there's not much business there that very fact will allow you to charge pretty decent margins. It might be that you're the expert in one of the rare earths, which is where my little business is, or you make the steel reactor vessels for nuclear power plants or something. You might be lucky to ship things more than a few times a year but the percentage made from each shipment is most gratifying.
It's also reasonably simple to be in a high volume low margin business. Think a supermarket here. Depends a bit upon the country but a margin of 2% on turnover isn't unlikely. But you're supplying some considerable fraction of the entire country's consumables so 2% works out just fine on that sort of volume.
There's also a low volume and low margin business which is where pretty much no one wants to be. But it might well be fair to say that the majority of all businesses in the world are in this position. There's an awful lot of people in the poorer countries who run an onion stall or the like to feed their families. And turnover's going to be no more than a few dollars a day and margins are going to be pretty slim too. It's still worth doing in a society where average earnings can be $1 a day but it's obviously not terribly rewarding.
And then there's a fourth and final quadrant of the business world. That's where you've got high volumes and high margins. This is as rare as rocking horse sh......no, this is a family magazine. It's near unprecedented that a company should be here for any considerable amount of time. Adam Smith pointed out why to us as well: capitalists are greedy. So, if they see someone making excess profits (excess being, really, in this fourth quadrant) then they'll set up in competition to get a little of them thar profits for themselves. That competition brings those profits down. We might think that Xiaomi is doing this to Apple: but it's not, not really.
For the thing that Apple is doing that just about no one else in hardware is managing is to be selling vast volumes at very high markups. On some products Apple's net margin is up at 30-35%. At Xiaomi, by contrast, we're seeing gross margins over hardware component cost of more like 20%. We get this from the breakdown shops. Meaning that Xiaomi is just about managing to cover its over head costs out of that gross margin, a margin that is already very much lower than Apple's net margin.
These are just different business universes. This isn't, by the way, to diss on Xiaomi. Decent products, definitely at the finer end of the Android market. Sure, there's that little contretemps in India over patents and so on which they're going to have to clear up before they expand too far internationally. But pile it high (however good the kit) and sell it cheap just isn't the same model as that that Apple has been following, a premium brand which people are willing to pay a decent premium for. As phones we might well compare them, as far as the economic structures of their respective businesses are concerned there really just is no comparison.
