Targeting bargain hunters
Beijing-based Xiaomi, the world’s third-largest smartphone vendor by shipments, is also trying to gain a foothold in Taiwan, but it is focusing on the lower end of the market, where international and Taiwanese brands do not yet dominate.
Founded in 2010, in just four years Xiaomi has become one of the world’s most successful handset vendors on the back of its feature-packed, low-priced devices. Xiaomi accounted for 6% of the 320 million smartphones shipped globally in the third quarter, according to the research firm Strategy Analytics.
Xiaomi entered Taiwan in April 2013 and gained market share quickly with its Hongmi handset priced at $135 ($NT 3999). It was able to do that because it introduced a new handset product category to Taiwan, says Roger Sheng, research director at Gartner Semiconductors & Electronics Group in Shanghai. “Before Xiaomi, there were no vendors in the Taiwan market offering low-priced and decent-quality smartphones with so many features,” he says.
Taiwanese consumers also were familiar with Xiaomi from the extensive coverage the company received in the Taiwanese media. “Local media reports emphasized Xiaomi’s high functionality and low price, which helped it build a positive brand image in Taiwan before it ever entered the market,” says IDC’s Yen.
Ryan Li, a 32-year-old process engineer with a technology company in Hsinchu, bought his Hongmi six months ago during a promotional event in Taipei. Li says he bought the phone because it was a good value and and has a dual SIM card function, which he needs for work.
“I like the Xiaomi because it’s disposable,” he says. “I can change to a new model and it doesn’t cost me a fortune. But it is not easy to find in Taiwan. Usually, you have to buy it online.”
Xiaomi cannot rely on e-commerce to drive its Taiwan sales as it has in China, says IDC’s Yen. “Taiwanese consumers like to buy mobile phones in physical stores, which are conveniently located everywhere in Taiwan – unlike in China – where they can try out products, negotiate price and receive after-sales services,” she says.
Xiaomi needs to further localize for Taiwan, says MIC’s Chen. That means developing stronger relationships with the carriers Chunghwa Telecom, Taiwan Mobile (TPE:3045) and FarEasTone (TPE:4904), who account for 70% of handset sales in Taiwan, she adds.
But that will be difficult given the low margins Xiaomi typically offers carrier and retail partners, Yen says.
Meanwhile, Xiaomi’s market share slipped from 14% in the first quarter of 2014 to 11% in the quarter to June, while local competitor Asus’s (TPE:2357) rose from 2% to 15%, according to IDC. Asus’s market share has surged because it has better retail channels and carrier partnerships than Xiaomi and more credibility as a Taiwanese brand, analysts say.
Security concerns
Cybersecurity concerns are also contributing to Xiaomi’s woes in Taiwan. In September, the Taiwanese government issued a statement that said it was investigating whether Xiaomi was a cybersecurity threat. Some Xiaomi phones automatically send user data to the firm’s Beijing servers, which could lead to security breaches, the statement said.
It is unclear whether the investigation could lead to a ban for Xiaomi’s handsets smartphones in Taiwan. A decision would be made by the end of December, the Taiwan government said.
In the meantime, Xiaomi has yet to launch its new Xiaomi 4 and Xiaomi Redmi Note 4G in Taiwan, while competitors have already rolled out 4G devices, which has hurt sales, says Fubon Securities’ Peng.
Huawei has faced similar problems in Taiwan. Taiwan technology giant Hon Hai Precision Co. (TPE:2317), the world’s largest contract electronics manufacturer, withdrew from a $178 million deal to buy 4G equipment from Huawei in July after the Taiwanese government warned that Huawei posed a national security threat.
Concerns about data security could impede the efforts of Chinese handset brands efforts to expand internationally, says Gartner’s Sheng.
Xiaomi is responding. In October, the company’s vice president Hugo Barra said Xiaomi had moved some data on non-Chinese customers away from its servers in Beijing because of privacy concerns and to improve phone speeds. Data belonging to those users would be moved to servers in the US and Singapore in three phases, Barra said.
Those efforts have not convinced Chen Changwu, a 55-year-old taxi driver in Taipei, who is worried about the safety of the information on his two Xiaomi handsets. “I am afraid Xiaomi will send it to the Chinese government,” he says. Chen says he was attracted to Xiaomi by its low prices, but will never buy one of the company’s devices again. “The screens go blank all the time for no reason,” he says.
Xiaomi must resolve cyber espionage issues and increase transparency if it wants to compete globally, says MIC’s Chen. “It’s not just Taiwan who has raised the issue,” she says. “Singapore and India are also worried and are conducting investigations.”
Photo credit: Xinhua News, Huang Xiaoyong
