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Xiaomi : success formula decoded

Lei Jun : Dear friends, this is a very grand summit and I am actually having difficulty on choosing what to talk about. If i talk about Xiaomi people might think I am doing advertisement and in fact i really do not want to do advertising. There are a lot of people might came across Xiaomi especially those who using other high end and expensive brands smartphones but they do not really understand what is Xiaomi. Thus I decided to introduce to you all what Xiaomi really is.

1. What has Xiaomi been doing?

Xiaomi is willing at all costs to produce a good product. Our time has come to the era where we need to fullfill the demand of consumers. The quality of a product is a main ruler for consumer to determine whether the brand is good or bad. I think we are different compared to other companies in China because we emphasized that we should produce a good product regardless of the costs. Three years ago, we selected Qualcommm as our phone processor and the most expensive Sharp's screen.

Secondly, through business model innovation, from research and development to marketing channels to the various angles of innovation to improve our operational efficiency.There are some companies which gave me alot of inspiration before i founded Xiaomi. The first one is Wal-Mart, Wal-Mart was founded 65 years ago. In order to invest or build a shopping mall in US,  there must be 45% of the gross margin to earn money. They also need at least 22.5% gross margin to survive. People tend to open shop in most prosperous place such as city and care alot for the location. But what Wal-Mart did? He open the store in an urban area. He also does not build a new shopping mall like others instead he looked for some old warehouse and redecorate it. Don't look down on what he did as Wal-Mart managed to increase gross margin from 22.5% to  23%. Then by improving the efficiency in large-scale production they managed to top the world after 20 years.

Costco also gave me a shock with their performance. Few years back i made a visit to United States with my colleagues. All of them went Costco for shopping except me. I was wondering what things do not sell in China and they need buy it in United States. Then at night they came back and I asked what did you guys bought. They showed me 2 boxes, they bought too many things and need to fill it in boxes !  Costco is unique because they only earn profit ranging from 1 to 14 %.  If any merchandise gross margin exceeded 14 percent then it need special approval from CEO. Besides that, they said from the date their company was founded there is no margin for any commodity exceed 14%. This is a totally brand new strategy used compared to others in United States which focus on large profit margin.

In the past, our expenses such as R & D, manufacturing, maintenance, services, markets, channels, all add up only to 5% of our turnover, or 5% of the retail price. Due to this, Xiaomi can easily produce any products, equivalent to half the price counterparts, because we use many ways and forming one of the most efficient operating model. We use this principles here, first produce good product at all costs, secondly control the cost at 5-6 % and lastly cut down the cost to 50% compared to others.

2. What atrtibutes to the success of Xiaomi?

We are thankful as our company was founded in the era where e-commerce started to grow.Through e-commerce, the entire cost of all retail channels can be reduced. If we open a shop online, users can buy anything from there and the cost we need is very low to complete the entire sales process.

Secondly, we want to thank the social media era. Xiaomi was founded five years ago, with the growth of Weibo and Wechat gave Xiaomi a great opportunity. When your product is good and cheap, the news can be spread very fast. Everyone will advertise on behalf of us. In 2012 ,we earned 12.6 billion in the first year and in 2013 years we earned 32.6 billion, and  74.3 billion yuan last year. Therefore I estimate that we would hit our 100 billion target this year. I believe we are the fastest-growing company with those data provided.

The third point is the timing we founded Xiaomi was the year where smartphones started to conquer the world. 3 years ago, Motorola was sold to Google but Lenovo has recently acquired Motorola, Nokia announced that they they have to give up in this competitive smartphone market.Xiaomi entered in a right timing with the aid of Internet marketting, high specs with low price and thus created an explosive respond and supports from customers.

China has become the world biggest producer after revolution. There are alof of famous brand factories housed in China. Xiaomi is involved in the electronics field and majority of the goods in global manufactured in China. China has the advantage compared to other countries around the world. I believe in the future this advantage will become more and more obvious. So we started to focus on the hardware. We can do as good as international brand products of the same quality or even better.

One very good example is our Mi Band. Our Mi band's standby time last for 60 days or even more compared to other international brand which only last for 5 to 7 days. Their product sold for 1000 yuan and ours just 79 yuan. Within few months we became the world top smart band company.

3. What is the future of Xiaomi?

In smart home industry, Xiaomi core strategy is to connect the phone with other house appliances. We hope in 10 to 20 years, a large number of domestic enterprises can bring to the world and became the first in the world in various fields. So I believe that one day Xiaomi will be like Sony in 1970s which led the entire Japanese manufacturers, Samsung in 1980s, 1990s which affect the entire Korea industry.

I think in 10 years time China will lead various fields in the world. We do not just want to produce good products but we all want the whole world to know who we are. That is why last year we started to enter global market and entered 7 countries and region. 
This is what I talk about the future of a Xiaomi development plans and goals. Thank you!

Will Lei Jun's dream come true? What is your impression after using Mi products? Leave your comments below and lets discuss.

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