Show Me the Money

Xiaomi’s Billion-Dollar Expansion Plan

Yesterday, several major financial publications reported on a billion-dollar line of credit arranged for Xiaomi. According to The Wall Street Journal, the loan will come from 29 different banks spread around the world, a hint of Xiaomi’s global expansion plans. The bankers involved include Brazil’s Banco do Brasil, the Bank of Tokyo-Mitsubishi, Credit Suisse Group SA, Deutsche Bank AG, Goldman Sachs and Morgan Chase.

The locations of the banks are said be an indication of the markets of interest for Xiaomi, expected to make assertive moves in Brazil and Mexico. It’s worth noting that Hugo Barra, vice president of international at Xiaomi, is Brazilian and has been clear about the company’s interest in expansion in Latin America to sell smartphones and other consumer electronics products.

Xiaomi announced last week that it would build manufacturing facilities in India as part of its rapid expansion plans in Asia. It’s a risky investment but a wise move if past flash sales of its smartphones are an accurate sign of future demand. Xiaomi has many fans in India — Mr Barra refuses to call them users or customers — but the company has soured the market by being unable to satiate demand, leaving many potential buyers empty handed and slightly bitter.

Xiaomi’s flash sales have been consistently oversubscribed. The company needs to have its logistics in order and stock the products it advertises if it’s to succeed in other markets, and the new line of credit should help.

New Mi-branded products can be expected to cause disruption in other industries. Xiaomi is prepared to challenge television manufacturers with its Android-based 4K model, and the company also makes smart set-top boxes. Established players in those low-margin markets now have another concern.

Xiaomi has been making smartphones for three years and has already risen to become one of the global top-five smartphone manufacturers. It’s an amazing achievement, but stands as a reminder of how the barriers to entry into the smartphone industry have collapsed. There aren’t any comfort zones: as Xiaomi challenges Samsung, other Chinese brands such as Huawei’s Honor, OnePlus and Oppo have expansion plans of their own. Alibaba’s successful initial public offering has spurred Western bankers on to fund Chinese technology companies.

The money’s now at hand to make the market more exciting. However, this isn’t what the legacy players are looking for.