Business Models Evolution in the Wireless Industry: A Case Study of Xiaomi in China

by Min Zhang

Xiaomi Corporation is a very successful company in the wireless telecommunications industry in China. They have been able to adopt a “fan-centric” business model that includes extensive input from their customer base on handset design, user interface design, and features for other products/services offered by the company. The “Innovation Ecosystem” they created has allowed a recent surge in sales and popularity that provides a model for other wireless telecommunications companies ranging from network service providers to application developers to follow.

Any discussion of the competition in the wireless handset market usually focuses on Samsung and Apple and their latest incarnations of their dominant products: the Galaxy and the iPhone. Within the last few years a Chinese handset provider, Xiaomi, has come upon the scene in Asia with a unique business model that has shown tremendous success and potential for others to follow. Xiaomi commenced business in the mobile handset market in China in 2010. Its direct-to-consumer distribution network through Internet marketing and sales allowed it to bypass some of the initial supply chain problems experienced by other vendors who entered the market via retail outlets to deliver their products and services to the consumer.

From the onset, Xiaomi and its innovative founder, Lei Jun, used social media to interact directly with potential and existing customers in order to define and later refine its products and services. This work focuses on Xiaomi as a case study example of a company that has adapted to the challenges of the high competition in the wireless telecom industry by evolving its business model and building an “innovation ecosystem” that has enabled the company to retain and further engage its customers around its brand products, even beyond the original wireless handsets offering. Today, Xiaomi counts several business lines and an interconnected network of partners that position the company to remain a valiant competitor of giants such as Samsung and Apple.

In looking at the creation of an innovation ecosystem for Xiaomi, we chose to focus on its unique fan-centric approach and its reliance on social media for carrying out the tactical operations of this strategic approach. Our case study seeks to highlight the successes and failures of Xiaomi during the last several years since its inception, which led to a business evolution towards an ecosystem model. The company has surpassed recent expectations after seeing some of its initial market share slip away. A massive entry into the handset market in China was followed by a pullback in sales that can be traced to supply chain problems that are common among entrepreneurial companies that must deal with a huge initial growth spurt. The evolution of Xiaomi’s business is analyzed through the review of secondary data such as journal articles (in China and internationally published), technology magazines, consulting reports, as well as financial videos and news. These sources are used to draw a preliminary picture of Xiaomi’s changing direction.

Xiaomi’s story of fast growth in the smartphone industry has been unparalleled. The company’s ability to adapt and steer its business model around the ups and downs of an industry that is currently fiercely

competing at cost of production, makes it the object of further study. While other companies, such as Apple, have chosen to focus on selected product lines, Xiaomi’s model has expanded into diverse products from online to offline businesses, retail and e-commerce platforms, high-tech and lifestyle gadgets that integrate IoT features and seamlessly interconnect devices.

There is much to learn from this evolution and, more importantly, there is an opportunity to understand the latest transition to “sharing the wealth” by co-investing in a large network of companies along a vertical and horizontal value chains that, to date, has helped Xiaomi in launching many other gazelles in the market. Huami, the company focused on wearable technology described in this case, is the first one of Xiaomi’s ecological chain enterprises to be listed in the New York Stock Exchange (NYSEX).

China may be at an interesting transition whereby the power of its large-scale market could enable the country to produce unicorns faster than other economies. China’s large players’ approach to the upward and downward value and innovation chain may actually push this country to become an incredible enabler of the collective raise of its supply chain/eco-chain companies and, ultimately, allow for a faster reduction of the poverty gap by distributing opportunities across a larger number of stakeholders.

 

Min ZhangMin Zhang, visiting research scholar, academic year 2018-2019.. Min is an Associate Professor from ChangChun University of Science and Technology, China. and researched at the IICM under Prof. Katia Passerini, CPS, St. John’s University. Her research is supported by China Scholarship Council.

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