(Chinese Version)

When netizens were heatedly discussing about the truth behind Note 7’s burning batteries, Xiaomi’s senior vice president Hugo Barra, who was in charge of Xiaomi’s internationalization, announced that he had resigned from Xiaomi due to health issues, and that he is planning to return to the Silicon Valley. He also added that he would continue to be Xiaomi’s consultant.

Many netizens joked that Beijing’s smog had taken the blame for Hugo’s departure once the news came out. Many doubt that Hugo Barra, who had put half of his attention and energy on exploring the Indian market and a guy that had fought for Xiaomi in Beijing and traveled around the world, would be defeated by the Beijing smog. Needless to say, Hugo’s announcement is not convincing enough to many. In addition to that, his remaining consultant position also makes everything look suspicious. In this case, what are the true reasons for Hugo’s exit from Xiaomi?

Xiaomi’s success in the Indian market is not attributed to the Xiaomi model

The answer is obvious. The dissatisfying internationalization process is the true reason behind Hugo Barra’s exit. Aside from the Indian market, Xiaomi hasn’t made much of a big progress in other overseas markets. In reality, Xiaomi’s internationalization has been encountering lots of obstacles and hasn’t met the industry’s expectation.

In January this year, Xiaomi announced that the brand’s sales volume had hit over $1 billion in India, whit the shipment volume grew by over 100%, from the three million phones in 2015 to 6.5 million. Meanwhile, Lenovo, Xiaomi and Huawei have become the top three Chinese smartphone brands in India in terms of shipment volume, forging a competing force with Samsung and local brands.

Xiaomi’s CFO Zhou Shouzi stated that to achieve such success in two years, Xiaomi replicated its strategy in China, which was focusing on online sales and accessory product ecosystem. In addition to that, Xiaomi model also utilizes Xiaomi fans to promote for the brand. From his stand point. Xiaomi’s initial success in India can be replicated in other emerging markets and developed markets like Europe and America.

It’s quite apparent that Xiaomi did accomplish success in India to some extent, and the company attributes it the low-cost Xiaomi model: Internet development+e-commerce sales+fan-based marketing. This did help Xiaomi rise in the Chinese market, but I don’t agree with Zhou Shouzi’s theory. In my opinion, Xiaomi’s successful rise in the Indian market is mainly contributed the cost effectiveness Xiaomi’s products provide instead of the Xiaomi model.

Through social platforms such as Facebook and Twitter etc., Xiaomi has amassed a group of fans in India. Still remember Lei Jun’s press conference that featured the “hit song Are You Ok” in April 2015? That conference only offered 1,600 tickets and Xiaomi received over ten thousand applications for the tickets. Additionally, although India’s e-commerce industry is far from as mature as that of China and the U.S, emerging players in India, such as Flipkart, Amazon and Snapdeal etc., are Xiaomi’s market exploration partners.

Through social platforms such as Facebook and Twitter etc., Xiaomi has amassed a group of fans in India. Still remember Lei Jun’s press conference that featured the “hit song Are You Ok” in April 2015? That conference only offered 1,600 tickets and Xiaomi received over ten thousand applications for the tickets. Additionally, although India’s e-commerce industry is far from as mature as that of China and the U.S, emerging players in India, such as Flipkart, Amazon and Snapdeal etc., are Xiaomi’s market exploration partners.

However, fan acquisition is no easy task. And it’s difficult for Xiaomi to continuously optimize its products through interacting with the fans. The core issue here is that product localization requires better talent pool. MIUI’s past experience might not be suited for the Indian market. The very first obstacle for Xiaomi is the language barrier. Even though Hindu and English are the two main languages in India, there is no language that works in all regions in India as the country boasts 122 main languages and nearly 1,600 dialects. Such complicated language system posts great challenges to the development of phone system, requiring mass amount of human resource investment, especially localization R&D and market expansion talents(who help connect services with the products).

Fan economy model in some way helps Xiaomi boost the phone sales, but the true game changer is the cost effectiveness. In the Indian market, 70% of the phone products are around ￥1000, while phones priced at around ￥1,500 account for 23%. Under these circumstances, highly cost-effective Redmi series is the most popular one since It fits the consumption level of the local market. In contrast to that, the expensive iPhones are not that popular in India.

That’s why I believe Xiaomi’s success in India is mainly contributed by the cost effectiveness instead of the Xiaomi model.

There is no shortcut in internationalization

Ever since Xiaomi initiated its internationalization strategy, the journey has been bumpy. In accordance with Zhou Shouzi’s logic, Xiaomi’s difficulties in penetrating overseas markets are bound by the fact that Xiaomi is rushing the process. In April 2014, Lei Jun announced to enter ten countries, including India, Russia and Brazil etc., covering Asia, Europe and South America. The actual process has been slow. For example, Xiaomi only entered Brazil in July 2015.

In 2013, Xiaomi only tested the waters in Taiwan, Hong Kong and Singapore. In September 2014, the user data leak brought an unprecedented trust crisis to Xiaomi. At that time, Xiaomi was investigated by the authority in these three markets and it was also under public attacks for falsifying the shipment volume.

The truth is, the crisis mentioned above won’t cause much impact on Xiaomi’s internationalization, but did reflect that Xiaomi had been failing to handle these matters right, which could become major problems in the future. Before entering the market, the smartphone maker has to get the details right, eliminating as many hidden problems as possible. Different countries and regions have different culture, and leaving small problems behind, which might grow into big problems, can backfire one day.

Xiaomi model’s success is hard to be replicated in overseas market. This is the core reason for the dissatisfying performance. Xiaomi model worked in China for our enormous population and hence the big demand. In addition to that, China’s infrastructure had greatly improved and meanwhile the e-commerce industry and social networking platforms were taking off, providing the soil for smartphone market. And looking back at these emerging markets, they are nothing like the Chinese market six years ago except for the big market scene.

Xiaomi not only faces challenges brought by payment methods, logistics, and embarrassment contributed by the immature aftersales system and low e-commerce popularization, but also challenged by the fact that all those marketing strategies that work in China don’t really work overseas even if the company has brought up a fan base via Facebook and Twitter. There are numerous cases where internationalization goes wrong, showing that Chinese enterprises must get to know the real and local market, and that some details that are not relevant in China might make a big difference in other markets. For instance, the logistics cost in China is low, but in other markets it might be incredibly expensive. In reality, many Chinese companies who are exploring overseas markets are still treating them like China. Therefore, failures are inevitable.

Xiaomi failed because the company thought there’s a shortcut in internationalization and that cheap and quality products could build up brand influence. The harsh reality taught the phone maker what it is like in the real international market. Similar to forerunners like ZTE, Huawei and Lenovo etc., Xiaomi’s internationalization journey is destined to be bumpy. To truly penetrate into a local market, long-term investment and constant explorations are necessary.

The most classic case is that it took less than one year for Xiaomi to exit from Brazil. In May last year, Xiaomi announced that the company would temporarily exit from Brazil and not launch new phones in the country, and that the team would return to China. “In Brazil, the taxation policy for online sales and production regulation keep changing. We decided to not launch new products in Brazil for that. Even though our fans are really looking forward to our new products, but considered the current state, we believe it’s a good option,” Hugo explained.

That said, the uncertainties presented by the changing policies disrupted Xiaomi’s local smartphone production plan in Brazil completely, which caused the company to exit from the country. Just like India, Brazil is one of the fastest growing phone markets in the world, with an annual sales growth of 50%. Xiaomi had many visions for the Brazilian market and even looked at it from an ideal state. But underestimating the emerging market resulted in its exit.

Hugo Barra is to be blamed for the fact that Xiaomi hasn’t entered the American market yet

Even in the Indian market, Xiaomi had also encountered major obstacles. In December 2014, Xiaomi was sued by Ericsson in India for violating the company’s patent rights including ARM, EDGE, and 3G etc. The ending was that Xiaomi agreed to pay for the licensing to have temporary right to sell phones equipped with Qualcomm chips. On the other hand, phones with MTK chips were banned.

The crisis directly exposed Xiaomi’s patent shortcoming in internationalization, which is something Xiaomi has to face. Xiaomi didn’t spend much time or energy in accumulating patents in the fast-growth period and now is paying the price. Statistics show that Xiaomi has 7,171 patents and 92.55% of them are invention patents. Last year, Xiaomi filed 3,280 patent applications. Without a doubt, Xiaomi has gathering strength in patents through getting licensing from Qualcomm and Microsoft and acquiring Intel, Microsoft’s patents. This would help Xiaomi expand in overseas markets.

However, compared with patent giants like ZTE and Huawei etc., Xiaomi doesn’t have much of advantages in this field. Smartphone industry has quite a high patent threshold for new players and no new player can make up the patent gap in a short time. That’s why emerging companies have lots of difficulties regarding patents in the U.S and Europe. Still, the American market is a must-take market for internationalization.

At present, Xiaomi’s business in the U.S is mainly about phone accessories including smart wrist bands and power banks. In May last year, Xiaomi TV Box appeared on the I/O conference, signaling its official entry into the American market. However, it takes forever for Xiaomi’s phones to enter the American market. Perhaps Xiaomi could explain that it’s because they have been focusing on the developing countries. However, many can tell that it’s attributed to the lack of patents.

Given the fact Xiaomi’s core business is still its phone business, we can hardly say Hugo Barra has done a great job at Xiaomi since after his three years of leadership, Xiaomi still hasn’t entered the most important market, the American market, despite the company’s success in India. What’s more, Xiaomi’s shipment volume has been dropping in China, and the company is in great need of new markets. Xiaomi’s biggest rival LeEco has already officially entered the U.S market in October last year and has made its TV, smartphone, bike and VR products available.

From my perspective, Hugo Barra shouldn’t be complete blamed for Xiaomi’s dissatisfying internationalization performance, but Xiaomi’s own previous legendary success. Xiaomi enjoyed a high growth when emerging, which blinded itself from issues like lack of patents, brand image, and offline channels etc. It wasn’t until recent two years that Xiaomi finally picked these issues up and tried to improve them. However, it’s quite natural for Hugo Barra, the director responsible for Xiaomi’s internationalization, to resign from the company as he had obviously failed to make it work.

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[The article is published and edited with authorization from the author @Going Jinhui, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.