Some ambitious electronics OEMs are staking out new markets in BRIC nations in contrast to the typical focus on Western countries and in defiance of the recent spate of negative news across the globe. If these bold market plays succeed, might we see a follow-on disruption along the channel and a shift in the leadership balance?
China’s Xiaomi is one of the companies that have plunged headlong into the BRIC nations with the hope of diversifying and broadening their sales. Let’s look at why Xiaomi’s launch into Brazil is strategically important for the company and also explore the implications for the electronics supply chain.
Despite real growth hopes for 2015, we’ve endured more of a mixed bag of economic news from both the global arena and from within the industry: Greece’s serious debt troubles, forex challenges, ongoing Russian trade sanctions, and continued geo-political instability, coupled with the many shifts along the electronics supply chain due to mergers and consolidations.
The current logic is that global economic trends and our industry are coupled, so these doldrums should give OEMs pause. Within the industry, semiconductor and electronics companies are vying for new markets in the face of slowing smartphone, PC and tablet uptake and a yet to launch IoT growth promise, reinvigorating volume sales is on every OEM wish list.
So what of the hopes pinned to the BRIC nations with so many yet untapped consumers? Can we still look to them for strategic market and economic growth prospects for the electronics industry? Maybe, but the promises are not as easy to come by as they once were. According to the recent Bloomberg rating of the worst economic performers, the four BRIC nations bookend both the highest and lowest end of the 2015 growth scale: Russia (-3.5%) and Brazil (-1.6%) are forecast to be the second and third worst economic growth performers, while China (6.9%) and India (7.5%) hold the top second and first positions, respectively.
Clearly, there is a flaw in the BRIC category if emerging economic growth is the prize. Yet, looking at market strategies by leading electronics OEMs, there is more to the discussion of the validity of BRIC and market growth than generalized economic growth metrics alone.
In the midst of a relatively stagnant first half of 2015 and on top of Bloomberg’s poor outlook for Brazil, once one of the BRIC shining stars, is again seen as holding a strategic position for emerging market consumer growth. Xiaomi announced their Brazil launch on July 1 with Hugo Barra, global vice president, leading the event in Sao Paolo. Obviously, Xiaomi is making very calculated, strategic market entries into emerging countries, so how do we understand the disconnect with this savvy, global OEM and the views of economic analysts?
We need to look at what is really at stake for smart mobile device OEMs like Xiaomi: market leadership and volume from locally-based operations. Clearly, Brazil presents a great opportunity for Xiaomi because there is a real opportunity for rapid growth by making lower-cost, feature-rich, smartphones available to the right socio-economic demographic in one of the leading emerging markets in terms of population size.
Brazil is a key opportunity for price-wise Xiaomi, who is working closely with Foxconn through their well-situated facilities. Brazil, like other BRICs and emerging markets, impose high import taxes, making localization and pricing leading strategic points for garnering sales.
As Barra offered in a recent interview with Reuters, “We offer high quality product at incredibly aggressive prices, so we’re starting with larger developing markets where people are very price sensitive.” While Brazil was set to be a market launch after the Philippines, India and Indonesia, there was a leap frog moment for this major Latin American nation which will now be the first smartphone production location outside of China for Xiaomi.
There was a further strategic nod from Barra about the move, namely that Mexico is also on the horizon – along with other nations including Russia. It seems that Xiaomi believes their path to success is paved with BRICs as well as the rest of the emerging market nations, where it is ensuring local production, local service and support to maintain razor thin margins while ensuring favorable pricing.
So, maybe it is not that there is something tarnished with the BRIC outlook, maybe what needs polishing is the market strategy to successfully compete. Xiaomi, unlike the top, global OEM competitors it seeks to unseat, was born in a leading BRIC nation, they may have a different perspective on how to succeed. If they do succeed in Brazil and other emerging markets, it is likely that much will shift along the electronics supply chain.