Samba fatigue

Xiaomi pulls back from Brazil in the wake of challenging sales environment

Xiaomi w

When Xiaomi first arrived in the Brazilian market last year, stocks of its Redmi 2 launch model were depleted within a couple of hours. Xiaomi was delighted, reported ZDnet, claiming that it would thrive from keeping prices low by selling online to consumers. Less than a year later, the phonemaker has put its expansion plans in Brazil on hold.

Its online sales policy is one of the problems. Brazil was Xiaomi’s first non-Asian market and it turns out that local shoppers aren’t as enthusiastic about online shopping as Chinese ones. According to 21CN Business Herald, 15% of the population is prepared to buy phones online, compared to 25% in China.

Xiaomi’s tactic of “flash sales” – offering a limited stock of its products in “deal of the day” style – is also uncommon overseas, according to Wang Yanhui, head of the Mobile China Alliance, an industry consortium.

Beijing-based Xiaomi surprised the industry by rising rapidly to the top of China’s smartphone market in 2014 with a lean sales strategy based around online sales. Last year its sales stagnated, however, and it is no longer one of the world’s top five smartphone sellers, after being overhauled in the first quarter of this year by Chinese rivals Huawei, Oppo and Vivo, says the Wall Street Journal. Samsung and Apple are the top two sellers.

Back in Brazil, Xiaomi’s standard policy of underpricing its competitors hasn’t worked as well as it hoped either. The brand’s Redmi 2 model retails for $160, roughly half the price of competing products. But Xiaomi’s global vice president Hugo Barra conceded to 21CN that Brazil’s taxes and distribution costs made it harder for Xiaomi to maintain its low-price strategy. Brazil imposes high tariffs on imported electronic goods in order to protect its domestic suppliers, 21CN explained. Xiaomi has tried to circumvent the impact of tariffs by working with a Foxconn factory in Brazil to assemble its phones domestically. But relatively high costs for labour and components have made the local arrangements less attractive, and the future of the partnership is in doubt.

Barra elaborated further that government policies on production requirements and taxation levels seem to be in flux, which has discouraged Xiaomi from releasing new models.

“We will make decisions regarding the importation or manufacture of local products available in Brazil according to each product. These will be produced in Brazil only if it is more advantageous than to import,” he said.

In light of this hiatus, Xiaomi has closed down its social media and marketing teams in Brazil and stopped selling through its own platform. Sales in the Latin American country will continue through third party sellers, however, and a small number of Xiaomi’s service teams will remain there too.

Xiaomi isn’t the only Chinese smartphone company to have struggled in the world’s fourth largest smartphone market. ZTE and Huawei both backed out of Brazil once before, only to return in 2015 – but 21CN says neither firm has made much of a commercial breakthrough.

The leading brand in Brazil’s smartphone market is Samsung, occupying 42.9% of the market. Xiaomi, ZTE and Huawei are so far behind in market share that they fall under the ‘others’ category in the rankings.

The brighter news for Xiaomi last week was that it had inked a deal with Microsoft for 1,500 of its patents in exchange for pre-installing Microsoft Office and Skype on its devices. Analysts say Xiaomi wants the patents as part of its preparations to enter more developed markets, where it is wary of litigation risks over intellectual property. Barra said recently that the US market is “on the radar” for Xiaomi, but not in 2016.

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