In an increasingly competitive market, China's 'Apple' stumbles

Xiaomi, once the undisputed leader in Chinese cell phones, has lost considerable market share and been overtaken by Huawei Technologies.

Jeff Chiu/AP
An Xiaomi phone is held aloft by vice president of global operations Hugo Barra after a presentation in San Francisco, Thursday, Feb. 12, 2015.

The Chinese company Xiaomi is quickly losing its once-undisputed prowess in China's highly competitive smartphone market. 

A successful launch, charismatic style, and passionate fan base gave the smartphone maker a reputation as "the Apple of China," but competitors have now taken several bites from the company's market share.

Although its hardware is not available in the United States, the meteoric rise and fall of Xiaomi illustrates the swiftly changing tech potential in China, a competitive market where Apple itself is struggling to keep up. 

Xiaomi was the world's most valuable tech startup in 2014, valued at $1.1 billion after just four years. The company marketed its app and additional services by selling high-quality smartphones at "rock-bottom prices," The Wall Street Journal reported.

Analysts saw Xiaomi as China's decisive answer to Apple, which had stumbled upon entry to the Asian country, and the company aimed to sell 100 million phones in 2015, Rob Price reported for Business Insider.

But Xiaomi's lack of marketing – the company disdained paid advertising in favor of word-of-mouth sharing, an energetically loyal fan base, and news-making speeches by the top executive – cut into the now-saturated market when Chinese competitors Oppo and Vivo made an aggressive entry, Bloomberg reported. The company shipped 10.5 million phones during its second quarter this year, compared to 17.1 million in 2015, Bloomberg reported, falling 38 percent.

“The success of Huawei, OPPO, and vivo in the market can be attributed to their concerted effort to build their brand and aggressive marketing to attract the consumers, along with the focus on product differentiation,” Xiaohan Tay, senior market analyst for the research firm International Data Corporation (IDC) said in a press release announcing the sales fall.

The rapid changes in the top three of such a large market suggests smartphone makers must work harder to differentiate and stay ahead in China. 

"The Chinese market, the world’s biggest, has grown increasingly competitive as domestic manufacturers have improved their quality, design and marketing, putting pressure on global leaders Apple Inc. and Samsung Electronics Co. Apple saw shipments in China drop 32 percent in the second quarter and the iPhone maker fell to fifth in the market, according to IDC," Peter Elstrom wrote for Bloomberg. 

Chinese state media reported Tuesday that Apple plans to open an “independent” research and development center in China, according to The Wall Street Journal. Although the company has provided no details as yet, it could be a response to Apple's difficulty with both China's market and its regulations, as the company lost two lawsuits, including a trademark infringement case. Some of its services were shut down after the company refused to share its source code with Chinese authorities. 

The US company may have additional challenges, but Apple and Xiaomi are competitors up against a similar, challenging market. 

“The iPhones lack features such as waterproofing and wireless charging. Apple needs to catch up with the competition if it wants to compete,” Canalys research analyst Jessie Ding wrote, according to Bloomberg. 

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