Xiaomi’s Next Leap in South Asia: Bangladesh
Tech-driven businesses have thrived in India over the past decade. Will Bangladesh’s business scene follow their example? Xiaomi seems to be optimistic.
This article is an overview of Xiaomi's most important overseas market – Bangladesh. For Xiaomi's strategic layout in the country, please check the article Crouching Tiger: Xiaomi’s Strategic Layout in Bangladesh
► Bangladesh is a densely populated country with a fast-growing economy – it is likely to experience a major boost in the consumer electronics market over the next few years.
► The smartphone segment in the local handset market is providing new opportunities for Xiaomi and its peers.
In the first quarter of 2020, Xiaomi (01810:HKEX) reached a milestone with its overseas revenue mounting to 50% of the company’s total. Xiaomi’s epic journey around the world is based on its strategy of extending and localizing the business internationally. “Overseas markets offer us tremendous room to grow and we will further boost our share in these markets,” said Lei Jun, the Chairman of Xiaomi Corporation.
Having kept the No.1 position in the Indian smartphone market since 2018, Xiaomi’s success sets a role model for neighboring markets, where the mobile phone potential and customer traits are comparable. In 2016, Xiaomi stepped into Bangladesh, a market with a huge consumption potential empowered by the world's eighth largest population, as a strategic move intended to actively expand its international scale.
Since becoming an independent country in 1971, Bangladesh has shaped a status as a special market with profound historical and cultural roots. Long ago a part of India, Bangladesh nowadays takes India as a benchmark for its economic and business development. Though the population size and the mobile phone market structure are not exactly the same, India can nevertheless serve as a ‘foreseeable future’ model regarding the consumer electronics market.
Bangladesh embraced a noted spurt of GDP growth that surpassed that of India by 1% in 2018; still more impressively it came after violence that happened during a presidential election. From that until now, and looking forward to the next national election in 2023, the socio-political environment in the country shows signs of greater stability.
Xiaomi, which secured a strong foothold in the Indian consumer electronics market, further stretched out to Bangladesh in 2016. Bangladesh is currently a rather primitive market for smart devices. In 2019 the smartphone only took 23% of total mobile phone shipments. The number is approximately half of India’s smartphone penetration, which indicates a considerable potential growth in smartphone shipments and the ecosystem products around smartphones, with around 60% of 4G coverage capable of supporting more smartphone users.
Before Xiaomi broke into the promising market, the India-based company Symphony had over half of the total market share. Following their lead were Korean Samsung and local company Walton, which maintained significant shares in 2019, even with China-based vendors such as Transsion and OPPO wading into the pool.
Though Xiaomi struggled with Bangladesh initially, as its market share did not show signs of predominance, the company is quite likely to hold onto this market and wait for a proper opportunity to grab a bigger market share. Why does the South Asian region present an important chance for the company?
First, Bangladesh’s rocketing economy. As Lei Jun’s famous quote goes, “if a pig chooses the right spot to take off, it can fly successfully.” When the economy is soaring, it is almost certain that businesses rooted there will take free rides to sizable profits. The Asian Development Bank forecasted a well-above-Asian-average GDP growth for Bangladesh in 2020. Besides the macroeconomic environment, the rather low smartphone penetration provides fertile soil for the further shipments, since no matter how slow that process will go, the transition from 3G/4G feature phones to smartphones will definitely take place. Following the process through product iteration is how Xiaomi could break out of the siege.
Second, geography is a clincher. Since India has become the second largest smartphone market after China, moving ahead of the USA in 2019, the killer products and sales channels will naturally radiate outward to the countries nearby, such as Bangladesh, Nepal and Sri Lanka (we will soon touch upon Xiaomi’s business in the latter two countries.)
Except for the exchange and communications of products, cost reduction serves as another stimulus to have a strategic layout in these India-adjacent countries. As its financial announcement specifies, since 2015 when its first factory opened in India, till 2019, the number of Xiaomi’s factories grew to seven, producing an average of three mobile phones per second. More than 95% of Xiaomi's smartphones sold in India are assembled locally. Such production capacity could reasonably support demand from the Bangladesh market. In addition, if the orders of raw materials and the components such as chips initiated by Xiaomi India reach to a larger scale, a preferential price per unit will be offered and consequently show an advantage in price competition.