http://www.economist.com/news/business/21586344-xiaomi-often-described-chinas-answer-apple-actually-quite-different-taking-bite-out

Founded in 2010, Xiaomi is a rapidly growing smartphone designer and app developer based in China. By offering their flagship smartphone, the Mi-3, Xiaomi has become a serious threat to Apple in the booming Chinese market. According to the article, Apple’s unlocked iPhone costs around $860 in China; Xiaomi’s Mi-3 handset costs only $330. While Apple’s expensive smartphone has the highest margins in the industry, Xiaomi sells the Mi-3 to consumers at or near cost. A co-founder of the company, Lin Bin, explains the reasoning behind the Mi-3’s relatively low price, saying that “the idea is to make a profit from customers as they use the handset, rather than from the sale of the hardware.” Like Apple, Xiaomi sells games and other apps to its costumers through a virtual store; however, they sell their smartphones directly to customers online instead of through retail stores.

I believe that Xiaomi has to the potential to completely dominate Apple in the Chinese market, but I do not think that they have the ability to expand and compete with Apple on a global scale. Xiaomi does not necessarily has to expand outside of China in the near future, because they will not be able to compete with such established brands as Apple and Samsung. Also, Chinese smartphone sales are growing at twice the rate of global smartphone sales. Xiaomi does not even have to leave their home country to capture a significant share of the world market, because China accounts for over one-third of the world’s smartphone sales.

There are several benefits that Xiaomi receives from staying in China. First of all, Xiaomi is a Chinese company, making their products more appealing to domestic customers. Another key point of difference is their pricing strategy. Apple’s unlocked iPhones are wildly more expensive than other smartphones, because American phone companies subsidize the production of locked iPhones, so that more people will pay for their services on a contract. In contrast, Xiaomi sells their handsets at or near cost directly to online customers. This direct sales model facilitates Xiaomi’s strategy of selling a large number of handsets for a low price while making most of their profit from sales made within the virtual store. The Chinese government requires Xiaomi’s smartphones to run on a form of the Android operating system without Google’s own built-in applications. China’s required operating system for smartphones are a double-edged sword for the company; while this makes their product less flexible, Xiaomi can offer efficient replacement services to its consumers. If Xiaomi continues growing at such a rapid rate, they have the potential to dominate the Chinese market, but I do not believe that they have the capabilities of challenging Apple or Samsung on a global level anytime soon.