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Understanding Xiaomi’s Global Strategy – with Donovan Sung, Xiaomi Global’s Head of Product and Marketing

· The Boss Interview,Xiaomi,Lei Jun,Hardware,Cross Border

We recently visited the Xiaomi office to chat with Donovan Sung, Director of Product Management and Marketing at Xiaomi Global. Over the past few years, Donovan has led not only product development, but also helped build the global team at Xiaomi responsible for launching in dozens of new markets around the world and turning Xiaomi into a truly global brand. We discuss Xiaomi’s global product and business strategy, how this varies by market (e.g. China vs. developing markets vs. developed markets), key channels and partners, and how Xiaomi has been able to achieve incredible international success in such a short period of time.

Edited by Glen Meyerowitz, Jules Qiu, Shaolong Lin, Juzhi Zheng, Echo Zhang

Link to SoundCloud (here), also available via Apple Podcasts, Google Play, etc.

[Editor's note: this interview has been edited and condensed for clarity. The opinions expressed in this article are Donovan’s own and do not reflect the views of Xiaomi]

***

The Transition to China

The Harbinger: Donovan, can you start by telling us a bit more about yourself and what brought you to Xiaomi?

Donovan: Sure. I joined Xiaomi four years ago and currently serve as the director of product management and marketing for Xiaomi’s global business. Previously, I was in New York working for Spotify as their first US based product manager.

So what brought me to Xiaomi… well to start off I was born and raised in the US by Chinese parents. My wife grew up in Fujian (China), but also spent time in Hong Kong and Singapore, and most of her family still lives in China today. When she and I came to visit China in the early days, I saw how quickly the Chinese tech scene was developing and wanted to get involved. In many ways, it was developing faster than that in the United States or Europe. I wanted to leverage my experience at various technology companies in the US to participate in this trend and help a Chinese company go global. I thought that would be an amazing, once in a lifetime experience. And so I made the move.

The Harbinger: What was the transition like for you to come to China?

Donovan: Overall, my move to Xiaomi was straightforward. Xiaomi is led by CEO Lei Jun, who is an extremely strong product leader. When I interviewed with Lei Jun, it was clear to me that he has a very deep understanding of his products and technologies. This was certainly also the case at Spotify (CEO Daniel Ek), as well as Google, Youtube, etc. From that perspective, Xiaomi was very similar to those other top companies. Build an amazing product, focus on the user, and all else will follow. Beyond this, Xiaomi moves fast. It is a very flat organization with little bureaucracy.

On the other hand, one of the main challenges for me was language. The advantage of most US companies, or even most European companies (like Spotify), is that English is a primary language… English is currently the world's language for commerce, for almost everything. In fact, when you build a product at Youtube or Spotify, from day 1 there is a certain amount of internationalization, or global demand and activity. You're speaking English, and the whole world adapts to English to an extent. Xiaomi is certainly the first company I’ve worked at where the primary language is Chinese. I grew up speaking Chinese but never had to read or write Chinese professionally before I came here.

Furthermore, Chinese technology companies often implement a “996” schedule – working 9am to 9pm, six days a week. At Xiaomi, this is the norm, and can often go beyond that. Meetings often go past midnight, and work is frequently required on Sundays. Xiaomi executes much faster than the Western companies I have worked at. This reflects the stage that many Chinese companies are in right now. There is a tremendous opportunity in front of them and a sense that speed and execution can win above all else.

 

That being said, I still feel that there are more similarities between Chinese and Western technology companies than differences.

Xiaomi’s Global Strategy

The Harbinger: Can you tell us more about your role leading Xiaomi’s global growth and can you describe Xiaomi’s strategy for global expansion?

Donovan: I have been on Xiaomi's global development team for almost four years now. When I first joined, I led our internet product team. Over time, my responsibilities have expanded to include managing our hardware products and our marketing team. I have also taken on responsibilities as our global spokesperson, which involves talking to the media and developing Xiaomi's global brand. I am an advocate for our culture and values, and these days I am posting more and more on social media.

I have seen the global team grow from a handful of individuals to several hundred, not only at our headquarters, but across the globe. We have entered markets in India, Indonesia, Vietnam, Thailand, Russia, UAE, Egypt, and recently countries in Western Europe, including Spain, France, and Italy. My team focuses mainly on our products, new launches, and marketing.

The Harbinger: What is the methodology for selecting the countries you choose to enter?

Donovan: Many Chinese companies are trying to build a global presence for the first time. While there are not many prior examples to learn from, we have developed a number of best practices. One of the first metrics we look at is the population of a country. Larger countries mean larger markets. We look deeper into the number of active internet users, and how active they are across different platforms. We also look at gross domestic product per capita, and the size, penetration, and growth rate of the smartphone market. We consider the use of social media and whether the e-commerce market is sufficiently developed. Furthermore, compared with other Chinese technology companies, Xiaomi has a well-rounded business model. Xiaomi does not just depend on the internet, or a piece of hardware, or e-commerce, but rather a blend of all these elements. Let me give you a quick summary of how this works.

The first pillar of our model is high quality hardware sold at near cost. Of course we make phones, which is what we're famous for. We have a lot of product lines, including our high end (Mi Mix Series), our flagship series (Mi 6, 7, etc.), our lower end (Redmi note), etc. We've also invested in a number of ecosystem companies that have enabled us to make a variety of consumer IoT and lifestyle products. We have a total of over 1600 SKUs already, including: electric scooters, laptops, TVs, rice cookers, routers, drones… the list goes on and on. All these together give us a range of products, which is pretty much unmatched across the industry. Hardware has an advantage, because it crosses borders very easily. Maybe you make a software product like wechat or a music app, and it may not localize so well. However, everyone appreciates quality hardware at quality prices.

Another component of our strategy involves new retail, which includes our eCommerce channels (such as Mi.com), as well as our offline stores (Mi authorized stores and Mi homes). We've already opened over 300 Mi homes in China, with quite a number in India and more around the world. That part of our model allows us to sell directly to consumers and really build up this word of mouth more easily.

The third thing of course is internet services. The fact that we have such a wide variety of products and channels set up allows us to establish our brand and positioning more clearly in a number of countries.

(Source: Pandaily + Xiaomi)

The Harbinger: And how are you doing in those markets today?

Donovan: Some quick stats… in the four years I have been at Xiaomi, we have expanded from operating in China to being present in 74 countries. Last year, our revenue crossed 100 billion RMB ($15.3B) for the first time. By comparison, it took Google 9 years, Facebook 12 years, and Apple 20 years to achieve this mark.

Three years after entering the market in India, we are the leader in smartphone sales with over 30% market share in terms of shipments. In Indonesia, after a few years of setting up local manufacturing, with our local production lines set up, we are now the second largest smartphone brand in that market in terms of shipments. Six months after entering Spain, our first Western market, we are number three in smartphone sales. In over 15 countries globally we’re in the top 5, sometimes in the top 3. All this data gives us confidence that our model works not only works in developing markets, but also developed markets.

We're starting to bring many of our ecosystem products, our consumer IoT products abroad as well: routers, TVs, scooters, action cameras, etc. And we're very confident that all of these products will be well received. One of the key reasons is that we sell our products close to cost. A few months ago, we pledged to all our users that we will forever limit our net profit margin on all our hardware products to 5%, with anything above 5% returned back to the users. This is a promise to our customer to keep our prices competitive.

The Xiaomi Business Model

The Harbinger: What is the driving force behind this business model? Is the forever 5% hardware profit margin a testament to business strategy or rather due to Lei Jun’s vision of enabling everyone to access quality products at reasonable prices?

Donovan: This model has been with us since day one. Our mission all along has been to sell amazing products at honest prices. We think that costs to customers should reflect the costs for us to make a certain product, and not be artificially inflated. By advertising this policy to our customers, it crystalizes our policy, and everyone knows we are not making profits off of hardware. Ultimately, we are not just a smartphone company, we are an internet company, with the smartphone and IoT at its core. An internet company cares most about user growth and retention. If we can acquire active users, then we can upsell them a variety of internet services, and of course these have much higher profit margins than 5%.

The Harbinger: What services does Xiaomi offer to customers abroad that may be different from services for customers in China?

Donovan: Currently, Xiaomi’s internet services are most advanced in China. Xiaomi starts by building its brand and selling high quality hardware, setting up sales channels, and once there are enough users, we develop customized internet services for that market. In China, we have a variety of internet services, and our mobile platform has over 190 million monthly active users (MAU).

We have a team of over 1000 people working on killer apps. We have 38 apps with over 10 million MAU, and 18 apps with over 50 million MAU. Some of these apps include things like our app store, browser, game center, etc. We also have value-added services like our music app, our video app (which is one of the most popular apps in all of China), etc.

In terms of our global expansion of internet services, the largest, most advanced market to date is India. A month ago, we announced a few interesting internet services, including a music app called Mi Music, which we hope can be quite popular. We also launched the Mi Video app, where users can upload videos, but we’d also like to add some live streaming content to it as well. We are actively partnering (and sometimes investing in) local content providers on this. A third exciting service is Mi credit, which allows users apply for microloans. As we continue to expand our market share in other key markets, we will be able to determine which services are appropriate and introduce new services in those markets.

Sales Channels and Products by Market

The Harbinger: Can you describe the channels that Xiaomi has developed to sell hardware?

Donovan: Local market conditions strongly dictate the channels we use to sell our hardware and systems. Regardless of the channels, our overall strategy will remain consistent. In China and India, we are very successful with our own online channels, but there also exist Xiaomi’s Mi Home retail stores and retail partners. In India, Xiaomi partnered with the largest e-commerce company, Flipkart, along with Amazon and Snapdeal. Indonesia, however, is mostly offline so Xiaomi has a larger distribution network to get physical products onto store shelves.

Spain has a more developed market with an active eCommerce channel, so we activated all channels from day 1. This includes Mi.com (third market we opened this in after China and India), and we partner with other eCommerce players such as Amazon, Carrefour, etc. We also partner with a variety of offline channels, including MediaMart and Walmart. And lastly we’ve opened our own offline authorized stores.

In France, which we entered recently, we also employ an omni-channel strategy, activating Mi.com, Amazon, offline channels, etc.

We also work with global carriers such as Vodafone, Telefonica, and Orange. So in short, when entering a new market, we leverage different channels, such as our own Mi.com, Amazon, and local carriers. These all fit into the overall strategy of selling high quality products at honest prices.

The Harbinger: What are the various hardware products that Xiaomi makes available in different markets?

Donovan: The first product we start with is usually the smartphone. These are at the core of our model and allows us access to so much more. Most of Xiaomi’s ecosystem and Internet of Things (IoT) devices can be controlled with a smartphone. We are also starting to release more ecosystem products globally. For example, a few months ago we launched TVs for the first time globally (outside of China) in India. In Europe, it turns out that one of the most popular ecosystem products is the electric scooter. There are a lot of cities in Europe, like Madrid, Paris, etc. where the ground is quite flat, which makes it quite easy to navigate by scooter.

(Source: http://electricscooterreviews.co.uk)

In some markets, we might even launch ecosystem products first. For example, in the US, we've already launched a few ecosystem products starting last year with a partnership with Amazon, including the scooter that we mentioned, our power bank, our action camera, our webcam, etc. We're going to bring more and more of those products to all of our markets globally.

The Harbinger: What is required to enter developed markets successfully, and how does that compare to developing markets?

Donovan: Xiaomi decided about a year ago to invest heavily in Europe. It was a risk since our previous experience had only been in developing markets. Entering a Western market was a big step and our team is excited by how well it has worked.

In Spain, we went from nothing to #3 in terms of smartphones, which was a pleasant surprise for us. We have had huge success entering the smartphone market in Spain which gives us confidence that our model will work well in other developed markets.

(Source: www.techwarf.com)

In terms of customizations... whenever we work with carriers, of course every carrier has their own customization requirements and we aim to meet those as much as possible. We're still a small team, especially on the global side, so we don't always have the resources to make every customization, but we’re already proving we’re capable of quite a lot on that front.

Xiaomi’s Secret Sauce

The Harbinger: Xiaomi seems to be very good at creating leverage, at maximizing ROI on its efforts. Take the Xiaomi ecosystem for example… there’s a team that helps review potential hardware start-ups to invest in. The Xiaomi ecosystem team then provides initial advisory, product design, supply chain, sales channels, and other resources, ultimately enabling the lucky companies that get funded to quickly bring their products to market. This enables Xiaomi to sell an entire suite of smart hardware products that it couldn’t possibly produce on its own. So for the Xiaomi global team, I’d like to understand what are the resources applied to each market, what's the organizational structure, what's your approach to managing and maximizing value creation from this "small" global team?

Donovan: Yes to your point, the team is a few hundred people, which is quite small for the scale that we're operating at, being the 4th largest smartphone manufacturer in the world, and the fastest growing internet company in the world… One of the key things I can emphasize, is that one of our core values is efficiency. Efficiency in sales, marketing, operations... everything. We don't want to include mark ups on products that we sell to consumers, we don’t like waste. We want to ensure that we're spending money on marketing the right way (e.g. in general we don't spend much money on big billboard ads or TV ads or celebrity spokespeople). We focus on word of mouth, working with our Mi fans, social media, PR, etc. We are still very young… the company is 8 years old overall, and global team just 3-4 years old. We're all still trying to keep up with the pace.

(Source: Xiaomi Global Twitter)

The Harbinger: Xiaomi seems to have succeeded in going global where many Chinese companies have not. What does Xiaomi do differently to enable this?

Donovan: Xiaomi has many advantages. We were lucky to catch a good wave of the mobile internet phenomenon. China has become one of the key manufacturing hubs in the world. Beyond this there are two main elements that have allowed us to succeed.

The first element is our products. We spend significant time ensuring our products are well designed and are very high quality. Even our CEO is intimately involved in the development and testing of products, often using them for months before the initial release. These products almost market themselves because they are so well designed. The second aspect that helps explain our success is our business model. And I reiterate – we sell high quality products at prices near our costs, which is hard to beat.

Xiaomi’s global team plays a crucial role in bridging the gap between employees at our headquarters and those overseas. We are starting to work harder to ensure our values are transmitted abroad, such as our pledge to limit hardware cost (curb hardware profit margin at 5%). We have implemented programs where senior employees will travel to local offices to help develop and nurture the Xiaomi culture. This is an effective method to replicate our way of operating a business around the world.

The Harbinger: Last question. Recently, escalating tariffs and a looming global trade war have been on everyone’s minds. How does this uncertainty impact the global strategy for Xiaomi?

Donovan: I can only say that a trade war benefits no one, and it is not a positive thing for Xiaomi. That being said, our mission is to bring high quality products to everyone, including people in China, the United States, Europe, and elsewhere around the globe. We are constantly observing changing conditions, whether economic or social, but this does not impact our end goal, our mission to provide quality products to everyone at reasonable prices.

The Harbinger: Donovan, thank you for your time. I wish you the best of luck on this mission and hope global policies are supportive in helping you and Xiaomi achieve your goals.

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