It is significant that Android’s Hugo Barra is leaving Google to join Xiaomi, a three-year-old smartphone maker that is already valued at $10 billion. And it’s just as significant that he is taking on a role as head of Xiaomi’s global expansion efforts.
Until now, Xiaomi, like most Chinese companies, has focused steadfastly on China with a bit of dabbling in Taiwan and Hong Kong (which PRC officials, but not all of the locals, will tell you are part of China anyway). China’s population of 1.3 billion people, 590 million Internet users, and 464 million smartphone owners is large and complicated enough for any Internet company to keep itself busy for some time – especially given China’s unique market characteristics, which affect everything from design to price to sales points to marketing.
But some Chinese tech companies are demonstrating a desire to break outside their borders, particularly in Southeast Asia, where there are fast-growing mobile Internet markets, but also in giant markets such as the India and the US. Xiaomi’s big hire indicates that it very much intends to join the small group of expansionists.
For Xiaomi, there are compelling business reasons beyond just general growth to look outside China’s borders. The biggest factor is the cut-throat competition in China’s smartphone market.
Xiaomi makes Android-powered high-spec handsets and sells them, largely online, for affordable prices. Its Mi2 phone, for instance, is comparable to top-of-the-line Android phones available in other markets, but it sells for $240 a piece, a good $400 cheaper than what it costs for an iPhone in China. It recently released a $130 model called the Hongmi, the first 100,000 of which sold out in 90 seconds. Like Amazon, Xiaomi keeps its hardware margins slim and strives to make money on software services, some of which are attached to its MIUI interface, for example, which allows users to add new designs to their Android handsets (an option, by the way, that’s available for any Android phone).
However, despite its low prices, hype, and big fan following in China, Xiaomi is just one of many handset makers jostling for a slice of China’s smartphone market. It recently overtook Apple in China, a story that was a big headline grabber in the US, but it is still in sixth place with 5 percent market share, well behind Samsung (17.6 percent) and other homegrown brands, including Lenovo (12.3 percent), Yulong (12.2 percent), ZTE (8.7 percent), and Huawei (8.6 percent). To justify that $10 billion valuation, Xiaomi will need to prove its phone and software can sell in other markets, even if it does one day make a killing off its set-top boxes and, um, smart shoes. Barra, then, a top Android executive who was one of the public faces for the Google mobile division, represents not only an important symbol of a more international Xiaomi but also a serious commitment of resources to the expansionist cause.
Barra will add valuable international experience to the Xiaomi team. He grew up and was educated in Brazil before heading to the US, where he earned a master’s degree in computer science from the Massachusetts Institute of Technology. He joined Google in 2008 as a product manager on the mobile team after filling a similar role at speech-recognition company Nuance Communications. His spent his first three years at Google in London before relocating to Mountain View.
In adding Barra to its executive team, then, Xiaomi has gained a Portuguese-speaking Brazilian who has operated at the top of the industry in the UK and the US. Brazil is on a list of priority markets for Xiaomi, according to China Daily, along with Russia and India. Latin America has the fastest-growing Internet market in the world, according ComScore, and Brazil is the fastest-growing market in Latin America.
The Barra news came a week after UCWeb announced that its UC Browser had become the number one mobile browser in India, making it the first Chinese Internet company to claim the top spot in two major markets. On the same day, UC Web also announced that it had added Alibaba founder Jack Ma, a Chinese Internet hero, to its board. Ma had previously embarked on the most ambitious Chinese Internet international play to date by taking Alibaba into, and later withdrawing it from, the US. Having his experience on the board could provide UCWeb with valuable insight, especially given that the company recently opened a Silicon Valley office and has its eye on Southeast Asia.
In talking to Internet companies in China during my reporting trip there, I found they were acutely aware of the cultural difficulties of transplanting a business from one country into another. That awareness came not only from an acknowledgement that China’s commercial industry – let alone the Internet industry – is still very young and that few Chinese companies have been able to establish global brands. But it also stemmed from witnessing the flailings of US Internet companies that attempted, with sometimes disastrous results, to establish themselves in China in the first decade of the millennium. High-profile failures have included eBay, Yahoo, and Groupon. Some people would also count Google, which no longer runs Search operations in China, among the failures.
China’s tech executives, many of whom were working at, or in opposition to, those American companies as their fortunes waned, saw in close-up the difficulties of adapting to a new business culture. UCWeb, whose founder told me that the company would be “like a student” as it entered the US, has demonstrated its international savvy in India, where its office is staffed and run mainly by locals. It has also localized its browser for the market.
Tencent, which has comparable global ambitions, particularly for its chat app WeChat, which now has 70 million users outside of China, is taking a similar “glocalization” approach. That much is apparent in the US, where it has a Palo Alto office staffed and run by Americans. Tencent has also expanded its international presence by investing and acquiring, such as South Korea’s KakaoTalk, India’s Redbus and MIH, and the US’s Riot Games.
Meanwhile, Baidu has taken first steps into Brazil, Vietnam, Thailand, and Egypt.
Xiaomi is still a young startup, but it is clearly of a kin with this current generation of Chinese Internet companies that spy opportunities overseas and have the self-belief to back themselves to get there. Part of that comes from having an international cast of investors, including Russia’s Digital Sky Technologies and Qualcomm, but it is also a result of a growing confidence in the idea that Chinese tech companies increasingly have the talent and the business acumen to make serious plays in other markets. In the case of markets such as those in Southeast Asia, Brazil, India, and Russia, all of which experience similar infrastructure challenges as seen in China, they arguably have a better chance than US companies at claiming winning positions.
For the Chinese tech industry, news of Hugo Barra joining Xiaomi is a bombshell. Barra’s defection is not simply a matter of a top executive leaving one of the world’s most powerful companies to join a hot startup and potential competitor. It is also an indication that Chinese tech is serious, and that it’s increasingly going to be global.
For more on Xiaomi, read the in-depth profile I wrote about the company after meeting with its president in Beijing last year. And also consider buying my eBook on China’s most innovative Internet companies (please) – the first chapter is dedicated to Xiaomi.
[Image Credit: WikiMedia]