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How China's largest smartphone maker plans to conquer southeast Asia

Steve Vickers, Xiaomi's general manager in southeast Asia, is confident the company's e-commerce strategy can work in one of the most hotly contested mobile markets in the world.

Xiaomi's Steve Vickers believes southeast Asia is playing a pivotal part in the smartphone wars. Xiaomi

Xiaomi is one of the hottest tech companies in the world right now.

At barely five years old, Xiaomi has become the world's sixth largest smartphone maker and one of the world's most valuable startups, with a valuation of $46 billion. Earlier this year, it unseated Apple to take the No. 1 position in the world's largest smartphone market, its home country of China.

While Xiaomi's current strategy of launching in developing countries instead of richer, western markets such as the US may seem strange, the gamble appears to be paying off with successful launches in India and Indonesia. In Brazil, the company had to host its launch event twice due to the vast number of people who turned up.

CNET recently sat down with Steve Vickers, Xiaomi's general manager in southeast Asia, to talk about the company's strategy for the region, its focus for the future and how the company keeps prices competitive. Vicker believes the region is playing a pivotal part in the smartphone wars.

"It's a huge market for us, over 600 million people," Vickers said. "To date, in this region, we have launched in Singapore, Malaysia, Indonesia and the Philippines with a few more countries we are looking to cover in the near future."

Battleground: Southeast Asia

Despite its small size, Singapore has the world's largest smartphone adoption rate, according to a Consumer Barometer study released by Google, while other countries in the region such as Myanmar and Indonesia are going mobile-first, skipping the PC altogether. For many users in the area, their first taste of the Internet comes through smartphones. More developed nations such as Thailand and the Philippines, on the other hand, are obsessed with mobile e-commerce.

This has created something of a perfect storm in this region, which accounts for about a sixth of the world's population. While the usual suspects like Apple and Samsung do well here, smaller, budget-friendly manufacturers like China's Oppo and Huawei are most definitely contenders.

Xiaomi is facing quite the uphill battle.

"When Xiaomi first started launching in countries such as Singapore and Malaysia, there was quite a bit of hype and anticipation around it, but it soon died down or slowed down rather quickly in the subsequent quarters," said Tay Xiaohan, a senior market analyst at IDC Asia.

The challenges

Vickers attributes this to the lack of proper Internet retail channels in the region. "We sell a vast majority of our products via e-commerce channels in most parts of the region, but e-commerce is only just in its infancy."

The company does not use third-party resellers or retailers in southeast Asia (though it partners with Flipkart in India) and apart from infrequent carrier partnerships, Xiaomi sells its products chiefly through its Mi online store. This means that in vast swathes of the region, such as rural areas in Indonesia, the Philippines and Malaysia, people simply do not have the ability to purchase Xiaomi products.

That said, Vickers remains bullish about the company's prospects in the region, stating that it's committed to the e-commerce model and believes that it is only a matter of time until southeast Asia catches up with the rest of the world.

Another strategy Vickers is looking at is expanding its lineup. Xiaomi's offerings in most markets range from phones to power banks to wearables and accessories. In its native China, however, Xiaomi's product range is dizzying, including Internet routers, smart TV consoles, water purifiers and a cheap smart 4K TV.

Vickers explained that he and his team were often asked about that last item: the Mi TV, a 3D, 47-inch, full-HD IPS screen that retails for $600 (£325 or AU$820) in China.

"We do plan to eventually bring it to [southeast Asia] but there are still a few barriers to work out. It's just not an easy product to sell online because of the logistics of such a big device. In China, if you look at our proposition, it's a TV with content, so we would like to bring content as well," he said. "In China we have so much more. What I would like to be able to do is to bring to southeast Asia more of the stuff we sell in China."

Last year, Xiaomi signaled its intentions to be a content player, committing $1 billion from its war chest for a push into the Internet TV business.

IDC's Tay, though, has a different view. "It actually makes more sense for Xiaomi to work on their branding, and to ship a few key low-end models," he said. "They need to wait till their brand is well-known in these countries before expanding their lineup. It is actually a good strategy for them to work on promoting the few models first."

Bargain pricing for solid tech?

Xiaomi has built its reputation on high-end tech at midrange prices. The Mi Note, for example, packs flagship-quality specs: a quad-core Snapdragon 801 processor, 64GB of built-in storage and a 1080p, 5.7-inch screen. It costs around $400, significantly less than similarly phones from better known competitors. Xiaomi's budget phone, the Redmi 2, sports a 64-bit Snapdragon 410 chip and a laminated IPS display for about $100. It's this competitive pricing that has won Xiaomi so many fans in emerging markets.

And contrary to popular belief, Xiaomi is actually making a profit on each phone sold. How? Three reasons, according to Vickers.

"The first thing we do is utilize low-cost e-commerce retail, which is much cheaper than going to retail and using a number of distributors as middleman," Vickers explained. "The second is that we invest all our marketing resources into the online space and we encourage our fans to share their own positive feedback through word-of-mouth marketing...a much more cost effective way of reaching out to the audience."

"In addition to that, we have long manufacturing runs and we build large numbers of a few products, giving us economies of scale in materials," he added.

As for what the future holds, Vickers remains optimistic, saying that the company will keep on expanding into developing economies and will continue to give the major players a fierce fight.