China-based TCL Communication and Xiaomi reiterated that a strong internet-focused strategy as the way to survive and thrive in the fiercely competitive technology sector in the years ahead. The heads of both companies, now hoping to replicate their success in the mainland in the wider global market, were among the main speakers at the recently held APAC Innovation Summit last week in Hong Kong.
“We are exploring a refocusing strategy with us moving towards smart appliances and a TV-plus services model,” said TCL chairman and CEO Li Daosheng, admitting that the company’s growth rate is not at par with that of other internet and social media firms.
TCL’s revenue has increased from 28 billion yuan ($4.6 billion) to100 billion yuan ($16.3 billion) since its first aggressive move into foreign markets, when it acquired Alcatel’s handset business and Thomson’s TV unit in 2004. The company’s international business accounts for 28% of its total revenues and is a major driver of its growth.
Banking on the internet
“It is true that the market has changed. There is no growth in color TV as people spend less time watching TV. But there are other things that we can do, like bundling internet services plus TV. You can apply new services to the TV,” said Li.
He added that companies today are adopting the internet model in running a business as well as an internet way of thinking. “The internet is into each and every aspect of a traditional business today, including finance.”
He pointed out that behind the success of Chinese internet giants Alibaba, Baidu and Tencent are unsuccessful bids of many companies that have fallen by the wayside.
“It is a winner takes all situation. You may not like this statement, but it’s a very real one. These companies have controlling roles in these particular industries, and some people have lost the battles and have had very painful experiences. So it is logical that these companies can now provide a sustainable return for shareholders and are valued at a high rate,” he said.
Meanwhile, TCL will invest $80 million in the first phase of a cloud service platform that it is setting up with Cisco as it steps up a push into Internet-focused services. The Guangzhou-based joint venture, in which TCL has 80% stake, will provide services including videoconferencing, which was showcased at the summit The videoconference services, which have been primarily offered to enterprise users, would be expanded to a wider consumer base with user-friendly functions and high video quality.
At the summit, Li announced plans to set up TCL’s largest R&D center in Hong Kong by renting an entire building in the city’s Science and Technology Park. It will be the company’s third R&D outside China after Silicon Valley and France. Expected to open in 2016, it would eventually house 1,000 people. Li also said the R&D center in Hong Kong is likely to work on cloud data and internet services.
Purely online retail
As TCL lays the groundwork for its new focus on internet services, Xiaomi had been upfront about its intention of putting the internet in the heart of its business strategy from the very beginning.
“Our key differentiator is that we set out to build a mobile internet company not a hardware company,” said Lin Bin, Xiaomi co-founder and president.
The fast-rising company is the world’s third largest smartphone supplier behind Apple and Samsung Electronics, according to market researcher IHS iSuppli. What sets Xiaomi apart from other mobile manufacturer is its purely e-commerce retail model, which allows the company to eliminate channel costs and offer high-end handsets at $275 and low-end ones at about $84.
Bin said that without good quality products, it is almost impossible to sell on the web. He added that competition in the smartphone market is so intense that one generation of success does not guarantee success in the next.
“The internet is an open platform, it’s so open that word of mouth is critical to internet companies’ success. And word of mouth plays either way. When you put out a good product, it goes viral and spreads. When you put out a bad product, it goes viral even faster,” he added.
“The biggest challenge for us is if we can push innovation and low prices on a yearly basis,” he said. “Technology innovation of course is the most important element for success.”
One thing that allows the company to push for innovations is by listening to customer feedback on its online forums which has 30 million registered users. Based on these comments, Xiaomi updates its OS every week on Friday at 5pm.
“We embrace the power of the internet to let millions of customers be our product engineers,’ Bin said.
In November, Xiaomi hit milestone number by selling 1.16 million smartphones in a record 24-hour sale on Tmall.com during the online shopping festival known as Singles Day. On the same day, it sold another 200,000 handset on its newly opened direct selling website in less than 10 hours.
“By the end of this year, we could be the number three e-commerce player in China,” Bin said.
This year Xiaomi has embarked on a global expansion with considerable success in India and Indonesia. But it has since scaled back on planned forays into other markets.
“We have to see if our business model would work outside of China,” Bin said, adding that it is not just about selling handsets but whether we can replicate the same market condition where mobile users are actively using a range of internet services, playing games, etc.
He also said it is not about profits but market share. So it is likely that Xiaomi’s next move would be into large markets like Russia and Brazil.
Meanwhile, Bin stopped any speculation of a possible IPO. “We are very young and want to stay a startup as long as we can. We have a lot to do and there are so many areas we can look at.”