After Xiaomi’s power bank success, Lei Jun talks efficiency

Xiaomi was founded to address the low efficiency haunting China’s manufacturing industry, its founder and CEO Lei Jun said on Thursday.

Lei delivered the speech at the 2016 China E-Commerce Innovation and Development Summit, emphasizing that Xiaomi boosted the smartphone industry’s efficiency, and later expanded its operations to cover more areas, including power banks, fitness bands, and air purifiers.

According to Lei, consumers in China are forced to spend more money if they want to buy quality products. He gave an example, saying that a good shirt costs over RMB 1,000 (USD 149) in China, while the price in the United States for something similar is a little more than 30 dollars.

“The underlying reason is that the entire industry in China is inefficient ,” said Lei. Companies spend a large proportion of money on marketing and sales promotion, squeezing the budget set aside to cover raw materials, design, and production processes”

Xiaomi’s solution to the problem is to release only a few models of smartphone every year – and thus minimize the cost of R&D, inventory, and logistics.

On top of that, the smartphone maker reassigns costs by taking full advantage of the internet. It sells phones via its website, taking advantage of word-of-mouth style marketing. Lei said the in the first three years, the company’s marketing expenditure was close to zero; in traditional enterprises this expense accounts for roughly 30% to 40% of operation costs.

Founded in 2010, Xiaomi is a game changer in China’s smartphone industry. It grabbed 15% of the smartphone market share in China in 2015, according to IDC – although its sales growth plummeted to 15% in 2015, down from the massive 227% and 160% of 2014 and 2013, respectively.

Xiaomi expanded that business model of efficiency to other fields. It is the world’s largest maker of power banks, self-balancing scooters, and air purifiers by volume – and it is the second-largest maker of fitness bands, according to Lei.

The world portable power bank market is estimated to reach a value of USD 17.8 billion by 2020, according to market research firm MarketsandMarkets.

Xiaomi was valued at RMB 45 billion when it landed USD 1.1 billion financing in December 2014, and is rumored to be launching an IPO in 2025.

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