Having gained a firm foothold in the Indian market, Xiaomi now has its sights set further afield on the African continent.
On January 19, 2019, Xiaomi issued an internal letter to announce the appointment of several new overseas market managers; outside the company, most attention was paid to the establishment of the African department. The appointment letter shows that in order to explore the African market, Xiaomi established a new department led by Vice President Lingming Wang, who reports to Senior Vice President Xiang Wang.
This letter officially announced Xiaomi's ambition to enter the African market, a huge continent with a population of more than 1.2 billion. Previously, only a handful of Chinese mobile phone manufacturers have set up on the continent, of which Shenzhen-based Transsion Holdings, has been leading the way.
Transsion Holdings' brands of smartphone include Tecno, Itel, Infinix, and Spice, each of which targets a different market segment. Most Tecno consumers are middle class, Infinix targets the young and trendy, while Itel brands itself as a cost-effective product for the low-end market. The report Smart Phone Quantity in Africa, 2018, released by market research company Canalys, shows that the three brands rank second, third and fifth respectively in terms of production capacity, with the total market share as high as 38%. This number outperformed Samsung (23%), top-listed as a sole-brand company. Transsion Holdings is truly the king of smartphones in Africa.
Known widely for its advantage in the low-cost production of quality products, news of Xiaomi's entry into the African market is sure to attract attention. So what effect will it have on the formerly calm and stable phone market in Africa?
Entering the African market is the second big announcement made by Xiaomi, right after the announcement of turning its Redmi range into a sub-brand. Some people believe that Xiaomi's decision to enter the African market is due to its urgent demand of increasing capacity and its marketing strategy.
For Xiaomi, which has put much energy into developing overseas markets, one of the company's big goals for 2019 is to continue to expand its global shipments. In this regard, telecommunication industry expert Yongjie Sun says that Xiaomi's decision to enter the African market at this time came down to a combination of both operations and company considerations.
First thing is operations. Xiaomi views IoT as one of its core operations. And smartphone is absolutely the most basic facility and the entry of IoT ecosystem. Therefore, only a bigger production capacity could promote Xiaomi's IoT operations.
Then comes to corporation consideration. As a publicly listed company, Xiaomi prefers to define itself as an internet company. Internet companies value their user number more than anything. User number is also the main assessment factor employed by capital markets to evaluate internet companies. Mr. Sun said, "Different from traditional internet companies, Xiaomi is more product-oriented, so its client number lags behind. These also explained why Xiaomi's share price went down, despite its mobile phone selling record was fantastic." He emphasized that most of Xiaomi's customers were for their products. To build capital market's confidence, Xiaomi needs to sell more phones and grab more consumers. Here comes Africa. The continent is not new to Xiaomi. Before Xiaomi had African Department, it has done a market test back in 2015.
In November 2015, Xiaomi started selling Redmi 2 and Xiaomi 4 smart phones in South Africa, Nigeria and Kenya. Back to that time, Xiaomi has not developed its own direct sales channel, but chose to cooperate with a local dealer called Mobile in Africa. This dealer is a big company who is famous for its online market. It owned online stores and full operations systems in 14 African countries. The importation, logistics, operations, sales and after-sale services of Xiaomi were all provided by Mobile in Africa.
However, Xiaomi did not find its success in Africa that time. The fast growth in Indian and Southeast Asian markets in 2016 also distracted Xiaomi's focus from Africa.
Having gained success in the Indian market, Xiaomi is now relying on its new brand POCO to gain traction in Southeast Asia. Considering the growing trend of global smartphone market, Africa becomes Xiaomi's next target. The overall global smartphone market is slowing down, but Africa is the only exception. IDC's research shows there were 22,400,000 smartphones made in the second quarter of 2018 in Africa, which represents a 9.8% growth compared to the quarter before, and 6.0% growth compared to the same time in last year. Low-end and middle-range smartphones are the main growth driver for the entire African mobile phone market; at the same time, low-end and middle-range products with great price/performance ratio happen to be the masterpiece of Xiaomi, the company's success in India and Southeast Asia proving its competitiveness in the price range.
With a good rate of growth, relatively basic market development and an overall market demand in line with its product positioning, will Xiaomi's journey into the African market be a successful one?
Will there be a fight with the 'King of Africa'?
Unhappiest to hear the news of Xiaomi's entry into Africa will be Transsion Holdings.
Transsion Holdings has enjoyed great success in the African market, though it is a little-known firm in China.
Arif Chowdhury, the Vice President of Transsion Holdings had a theory about the African market. Last September, he said in a Chinese interview that Transsion Holdings developed a special camera function to suit darker skin tones. This application has been used on Tecno phones, which has made great selling records.
In Africa, dialling between different phone operation networks is expensive. To solve this issue, Transsion Holdings developed dual-SIM card phones (four-card maximum). Due to the underdeveloped electricity infrastructure in some areas and related charging inconvenience, Transsion Holdings made a series of products with long battery life; some of them even could last for 20 to 30 days.
Transsion Holdings almost did everything in the African market and met all the user demands. The young pupil is an expert now. Xiaomi, on the other hand, has solid foundation as well. It knows how to do customization, and Indian market was a successful example. Customized innovation was one of the keys to Xiaomi's success in the Indian market.
In the near future, competition will likely emerge between Xiaomi and Transsion Holdings in the low-end and mid-level markets of big cities. Nigeria, with a population of nearly 200 million, is the biggest smartphone market in Africa; Transsion currently sells more than 2 million mobile phones in the country every month. At the same time, big cities in other big countries like Ethiopia and Kenya are full of Transsion street stores, first-mover advantages that Xiaomi will have to consider.
Will the African market follow the 'Indian mode'?
Compared to the stability of the Chinese smartphone market, the Indian smartphone market has become the most competitive field for Chinese phone manufacturers. India is almost always the first overseas market Chinese companies chose, then followed by Southeast Asia and Europe.
Would other Chinese smartphone manufacturers follow Xiaomi's entry in Africa? Would the manufacturers be proactive to this brand-new market, just like what they did to Indian and Southeast Asian markets?
Yongjie Sun pointed out that, after Xiaomi's entry in Africa, Huawei might put more efforts there, even it has a certain amount of market share already. Other Chinese manufacturers might hold a little if they have not entered in yet.
African market has greater uncertainties compared to Indian and Southeast Asian markets. There are some limitations. The African market is more dispersed. Different countries or places have different market status and user demands. Product requirements would be harder to meet and more difficult to fulfil, overall operations and sales would be more complex, and cost would be a lot higher.
According to Yongjie Sun, the demand for new markets is not simply about increasing sales, but enhancing the value of brands globally. "At present, Huawei, Xiaomi, OPPO and Vivo are the only four smartphone manufacturers capable of entering the African market. Xiaomi and Huawei are already there, while OPPO and Vivo are currently making good profits." Sun adds that OPPO and Vivo should prefer to enter the relatively mature and high-end European market rather than that of Africa which is in its early stages of development.
Of course, OPPO and Vivo still have great potential to succeed in India and Southeast Asia. As the number of mobile phone manufacturers present in the Indian market continues to increase, competition there is likely to heat up in 2019. Both companies will need to ensure their stability in China, expand their presence in India and Southeast Asia, while at the same time establish their brands in the high-end European market. Africa is not the priority.
In conclusion, Xiaomi and Transsion Holdings will be the two major players in the African market in 2019. How both businesses play out on the African continent will emerge as a striking case study with which to interpret this emerging market.
This article was edited by Dido Pang.