China’s Xiaomi ‘We Have Big Plans for Europe’

In an exclusive interview with Handelsblatt, a top executive at Chinese smartphone maker Xiaomi said the company has its sights set on Europe -- and on rival brands like Tefal, Dyson and Germany’s Miele.
China's newest tech superpower -- smartphone maker Xiaomi -- is on the rise and coming to a neighborhood near you soon. Here, the Xiaomi chief executive, Lei Jun, at a promotional event in Beijing in July 2014.

Xiaomi is a privately-owned electronics company in China that started in 2010 but now ranks among the world’s largest smartphone makers. Su Jun runs the company’s Smart Home division. Mr. Su was interviewed recently at his office in Xiaomi’s Beijing skyscraper.

 

Handelsblatt: Mr. Su, Xiaomi has rapidly risen to the top in China. When do you plan to take on Europe?

Su Jun: We don’t yet really have a presence in the European market with Xiaomi. So far, we have been concentrating on Eastern Asia, India, Brazil and a couple of other countries where consumers pay particularly close attention to price. Our business model is to offer a high quality at especially low prices. We have big plans for Europe, the USA and Japan. Consumers there also love high quality products that they don’t have to shell out a lot of money for.

We will try to score in Europe with cool products at favorable prices. Su Jun, Executive, Xiaomi

When will we be able to buy products from Xiaomi in Europe?

Products like Mi Band, our smart fitness monitor and sleep tracker, can already be ordered in Europe over our webpage mi.com. It will take some time before we also sell tablets and smartphones. Xiaomi is a small company. We first have to build up a system to be able to offer our customers outstanding service.

 

Su Jun, CEO of Xaomi unit Zhimi Source Handelsblatt

 

And how do you plan to go about doing that?

First we look for partners in Europe. We are on the lookout for dealers in Germany. There is already great interest in, for example, the self-balancing scooters from Ninebot and Segway, which are part of the Xiaomi cosmos. We already offer many products under the label Smart Mi, such as fitness monitors, air purifiers, water purifiers, action cameras. Many of those interested consider our products to be of very high quality.

When will you be selling smartphones and tablets?

The market for smartphones in Europe in completely different than in China. There are a couple of hurdles for us. Just recently we signed a licensing contract with the U.S. semiconductor company Qualcomm. We are tackling the huge subject of patents bit-by-bit.

You spoke of partners in Europe. Do you want to take over European companies or acquire an interest in them?

Yes. There are some excellent brands in Europe. We are very much interested in them. [German appliance maker] Miele, for example, fascinates me. That’s a really great brand. But my impression is that it isn’t performing so well anymore since there has been cheaper competition from China. But the same can be said of other brands, as well, like the French cookware company Tefal or the British vacuum cleaner maker Dyson. These brands enjoy an outstanding reputation in China. We are not necessarily interested in a takeover. We can also envision partnering with these companies.

How specifically?

The largest factor are the costs. China offers excellent production conditions. The production of clothing might be shifting bit-by-bit to other countries in Southeast Asia and Latin America, but we are still unbeatable in the field of industrial production.

Why?

There are several reasons for that. First, there are legions of technicians and engineers in China. German engineers are excellently trained but their number is much smaller than in China. Moreover, their income in the People’s Republic is still relatively low. The second reason is the excellent conditions in China.

What do you mean exactly by that?

For example, we can produce a lighter in China for 0.15 yuan (2 cents). Plastic, metal, the other individual parts, all the materials can be organized in China for a low price. If we were able to sell such a product under a European brand, it certainly would be possible to achieve a sales price of €10 or €15 ($10.93 or $16.39). China still offers tremendous potential, thanks to low production costs.

Xiaomi is constantly being accused of imitating competitors’ products, such as Apple’s iPad. Why doesn’t Xiaomi have a design of its own?

That is a process; something like that happens step-by-step. Xiaomi is only five years old. Apple is the worldwide leader in consumer electronics. The first products from Sony, Panasonic, or Toshiba were also inspired by the U.S. market. That is a normal process. A young company first has to learn a lot.

Where are the limits?

That doesn’t mean that a company can violate copyright laws. Chinese smartphone makers like Huawei or Meizu all orientate themselves on Apple. The same is true of other smartphones in the world, Samsung included. The reason is that Apple is the leading producer and many consumers love the products. We have been able to observe this trend not only with Apple. This was also the case in architecture and the Bauhaus’ design in Germany. Bauhaus was copied and became an international style. Buildings and products the world over look similar. Bauhaus was practical and beautiful. That is why it is imitated everywhere. Bauhaus has had a strong influence on us. Many buildings in China’s cities look like the Bauhaus design.

In China you earn through additional fee-based services on devices by Xiaomi. These services are specifically tailored for China. How do you plan to set up these services for Europe?

That will be a long road. In China, for example, we have already integrated the electronic wallet into the Xiaomi system. More than 100 million customers are already using our platform in the People’s Republic. Similar to Alibaba, our system is based on the mass of the customers. Even if only a small percentage of our users pay for the additional fee-based services, that can mean a tremendous profit overall. That is the key to the business model. It works in China, naturally, thanks to the huge size of the population.

But Europe is much smaller.

Yes, Europe looks different. There are already a lot of providers in various branches, each with only a small market share. That is a challenge. Apple has already been able to establish itself very well. It will be difficult for Xiaomi.

Is the challenge too great?

Xiaomi doesn’t make money just with its operating platform. The air purifier, for example, works completely without other Xiaomi devices. It is simply a smart household appliance. We are not dependent upon supplemental services to make a profit. Naturally, our products are very low in price, but that doesn’t mean that we can’t make money with them just the same. Our margins are tightly calculated. Our principle is to offer only one outstanding product in each category. The next generation of air purifiers will replace the old generation. We will try to score in Europe with cool products at favorable prices.

An air purifier is a good product to deal with the smog in China’s major cities. But what device can Xiaomi offer that is urgently needed in Europe?

Xiaomi’s ecosystem is a big product. It is our goal to drive 100 companies forward with the Xiaomi model. So far we have become involved in 60 companies. Only 20 of them have brought a product out on the market. So there will be a lot more products in the future.

For example?

Looking at our current range of products, I am sure that many Europeans will be interested in our self-balancing scooters. At 2,000 yuan (€280), our price is very low. Every young European can probably afford that. Many use the scooter only as a toy, for others, it is a good form of transportation to places close by.

Xiaomi is now also selling stuffed animals, handbags, and backpacks. Do you have a distinct brand at all?

We have to adapt our marketing strategy, that’s clear. Smartphones, TVs, tablets, and routers will continue to be marketed under the Xiaomi label. We will have to develop another brand for the devices in the Xiaomi ecosystem, like the fitness-monitoring bands, and the air and water purifiers. We’ll establish a lifestyle brand for them. We will announce the details on that soon. Many people no longer know for which products our company stands. That’s supposed to change in the future.

 

Stephan Scheuer is Handelsblatt's China correspondent, based in Beijing. To contact the author: scheuer@handelsblatt.com

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