Xiaomi faces test outside home turf

Mainland smartphone maker's success has built on price pitch, but brand-conscious Taiwanese may be harder to win over

PUBLISHED : Saturday, 09 November, 2013, 1:53am
UPDATED : Saturday, 09 November, 2013, 1:53am

Xiaomi Technology, the mainland maker of cheap iPhone lookalikes that is reaching offshore for the first time, will find it tougher to establish a customer base in Taiwan than at home, analysts say.

Beijing-based Xiaomi, founded just three years ago, has become the mainland's fifth-most popular smartphone brand, with 7.19 million units sold last year. It began selling its handsets in Taiwan about six months ago.

Taiwanese customers will be harder to please as they normally stick with older, trusted brands, consumer electronics analysts say.

Some look down on mainland products because of perceptions of poor quality and Xiaomi's fate in Taiwan is expected to offer clues about how well the brand might sell in other offshore markets.

Xiaomi needs new markets to ensure long-term success via diversification

"I think there's some audience that's interested in Xiaomi's offering, but definitely that group is not as big as the same audience in China," said C.K. Lu, a smartphone analyst with market researcher Gartner. "In Taiwan, brand is the concern, and not everyone knows Xiaomi, or it's not the brand everyone trusts."

Its Android smartphones, which sell for as little as US$320 on the mainland, eating into the market share of rivals Lenovo and ZTE, would attract cost-conscious Taiwanese consumers who liked to customise their phones, Lu said.

Analysts expect Xiaomi will build up a following among poorer Taiwanese and eventually in emerging markets beyond Greater China but to receive less enthusiasm elsewhere.

"Xiaomi has limited distribution channels outside China, its smartphone designs are not yet significantly different from most other Android competitors, and the Xiaomi brand is hard for Western consumers to pronounce, spell or remember," said Neil Mawston, a wireless device executive director at Strategy Analytics in Britain.

"We expect Xiaomi to follow a similar path trodden by Huawei and ZTE in recent years - a quick spurt of initial growth as distribution channels expand across a small number of countries for the first time, followed by a long hard slog over many years to get the brand and product recognised in a much larger portfolio of countries worldwide."

Xiaomi has been offering phones through Taiwan's No3 mobile carrier, Far EasTone Telecommunications, which gives them out with new service accounts. Far EasTone would not disclose figures for Xiaomi, but a company publicist called sales "feverish". Xiaomi could not be reached for comment.

At a busy Far EasTone outlet near Taipei's railway station, Xiaomi's 2S model is advertised as "fast", with three handsets on display for customers to compare with offerings from Asustek, HTC, LG and Samsung. The store has moved 30 to 40 Xiaomi handsets a month since the brand's Taiwan debut, a sales assistant said.

Chang Mao-ying began using a 2S model in Taipei last month because Far EasTone gave him the handset free with a mobile account. "It's cheap and the functions are about the same as the others," he said.

That rationale might give Xiaomi an eventual edge outside the mainland, said Mark Natkin, the managing director of market research firm Marbridge Consulting in Beijing.

Xiaomi also has sold directly to Hong Kong consumers since May.

"Apple continues to lead in terms of innovation, with the iPhone 5s currently way ahead of Xiaomi with a 64-bit processor and fingerprint scanner, but even considering features like these, many users in both China and overseas markets may find it increasingly difficult to justify the big price differential between the two brands," Natkin said.

Xiaomi may sell as many as 300,000 units in Taiwan eventually but would grab attention by pushing out just 100,000 to raise interest by implying scarcity, said Wilson Miao, a smartphone analyst with market researcher TrendForce. The same tactic has generated attention on the mainland.

Mainland private firms across a range of industries are seeking to expand overseas as competition and costs grow at home, cramping development. Much of that expansion has gone to Africa, Southeast Asia and other emerging markets.

Mainland media say Xiaomi has targeted Brazil, India and Russia for future sales growth. "Like a lot of mainland companies, Xiaomi needs new markets to ensure long-term success via diversification," Mawston said.

Some Taiwanese had complained that Xiaomi's after-sales service was slow and inadequate, Miao said. "The people who buy Xiaomi are people who are on lower incomes," he said. "The price will allow people to accept its quality."