Huawei and Xiaomi’s Global Rise

In 2003 at the World Telecom Conference in Barcelona Huawei missed out on a place in the conference and set up an improvised tent on a nearby beach making the unknown company a bit of a joke among the other participants at the event. Few are laughing now as the firm recently overtook global rivals to become the world’s third biggest smart phone producer. Not bad for a firm whose real strength is its development of communications networks rather than mobile handsets. Another significant milestone is that Huawei now draws more of its revenue from abroad than it does domestically – making it China’s first true multinational.

Born out of a venture originally controlled by the People’s Liberation Army Huawei is a rather unusual operation – privately owned by its employees it has so far avoided listing itself on the stock market and it operates on the basis that all its employees should benefit from the success of the venture. Huawei’s early growth can be attributed to its relentless focus on the customer, which sounds obvious but in the 1980s and 1990s in China many firms were still very much in the Communist mindset and customers were seen as more of an annoyance than anything else in the telecoms industry.

Huawei has come a long way from its Communist roots and plans to be the world’s biggest smart phone supplier in five years from now, aiming to overtake market leaders Samsung and Apple. As things stand it lies in distant third – with 27.5 million units sold in Q1 2016 compared to Apple’s 51.2 million and Samsung’s 81 million.

But perhaps crucially it is currently on a roll and sales are rising at a time when the rest of the market is suffering from slowing growth as the smartphone market in many western countries becomes saturated. Huawei is also well placed to be a success in emerging markets (as their handsets are relatively inexpensive) which represent the major growth market for mobile devices in the foreseeable future.

One hurdle to global growth is that Huawei is barred from becoming involved in telecoms infrastructure development in the US because of fears it might be using this to spy on the country. There were also unfounded rumours that it was implanting spyware into its devices which were strategically given away as gifts to diplomats which could then be spied upon.

Huawei’s competitor Xiaomi (now often shortened to just Mi) has been a huge success over the last decade, but has recently lost its footing. Analysts reckon that Xiaomi’s new phone release missed its recent 2016 Q2 sales target (although the company disputes this) and the firm have started selling unrelated products with a view to selling goods and services through its handsets which might be a good move long term, but in the short term demonstrate (to some at least) that they have lost their focus.

Xiaomi has also faced major problems expanding abroad leaving it particularly exposed in emerging markets, it was banking on making inroads into India (the next big smart phone market), but many other firms have seen the sub-continent’s potential and it now faces tough competition there.

But with the acquisition of a raft of patents from Microsoft Xiaomi plans to crack the US market where it has a huge advantage over partly banned Huawei which has a tarnished repuatation in the US.

Xiaomi’s design approach have left it open to criticisms of being a copycat. Jawbone’s chief creative officer accused it of stealing a design for a speaker and its new notebook air drew similarities to Apple’s own orginal version.

But the potential for drones to be a lucrative new consumer market could mean that the company should not be written off just yet. Drones might seem a niche product – mainly used by the military and by flying enthusiasts,  but if as many hope drones start delivering packages and take over jobs like window cleaning then Xiaomi could be a pioneer in a profitable new market.