FollowingNeteaseYanxuan,numerousInternetgiantshaveinvolvedinthemanufacturingindustryandopenedalotofselectedonlineandofflinestoreslooklike"ChineseMUJI",includingXiaomiYoupin,TaobaoChoice,JingzaoofJD.COM,SuningJiwu,focusingonthenewmiddle-class'lifestyle.

Amongthenumerouslatecomers,XiaomiwithyearsofmanufacturingexperienceisregardedasthemostpowerfulcompetitorofNetEaseYanxuan.Oneexpandsfromsmarthardwaretohomeproducts,whiletheothertakestheoppositepath,buttheygotowardstheverysamegoal.Xiaomi,amobilephonemanufacturer,isnowsellingbeddings;whileNetEase,whichsellsslippersandsocks,hasinvolvedinplugboardsandspeakersales.

IfNetEase'stransitionfromhomeproductstohardwareisregardedasadvancement,howcomeXiaomi,whichstartedwithmobilephonehardware,isattractedtothesmallhomeproductsbusiness?TMTrecentlyinterviewedGaoZiguang,VicePresidentofXiaomiecologicalchainandGeneralManagerofXiaomiYoupin,totalkaboutXiaomi'slogicofenteringlivingconsumptionfieldandhowXiaomiviewsthenewconsumptiontrend.

WhydoesXiaomiturntohomeproductsbusiness?

Gaolikestheself-deprecatingtitle"codingpeasant."FromTencenttoXiaomi,hehastakenseveralpositionsofproductowner.FromGao'sperspective,allproductsareactuallytypedoutwithrowsofcodes,andthebusinessisfocusedonusers'demandafterall,whichalsoexplainswhyXiaomiisengagedinretailbusiness.

XiaomiYoupinlaunchedonlineinApril2017,aftersplitfromXiaomiMijiaapp.Itspredecessorwasane-commerceentranceonXiaomiMijiadock,mainlysellinghardwaresurroundingproductsandconsumableitems.Xiaomisplitthispartandmadeitanindependentappinorderto"providemorecompletee-commerceshoppingexperienceandmoreabundanthomeproducts"asXiaomiYoupinclaimedwhenlaunched.

Asamatteroffact,XiaomiwasalreadyconsideringseparatingXiaomiYoupinattheendof2016.UntilDecember12,2017,LeiJunreleasedaninternallettertoannouncethatXiaomiYoupinteamwassplitfromMIOTandbecameYoupine-commercedivision.

GaoZiguang,VicePresidentofXiaomiecologicalchain&GeneralManagerofXiaomiYoupin

BeforetheestablishmentofXiaomiYoupin,GaowasinchargeofInternetofThingsbusinessinXiaomi,duringwhichthemassdataproducedmadeXiaomirealizethatmanydemandsofusershadnotyetbeensatisfied.SinceXiaomiusedtomainlysellhardware,thecompanyhasbeenthinkingabouthowtoincreasetheinteractivefrequencywithusers.

Inaddition,theusersofXiaomiaremostlymales,soXiaomiYoupinisalsoresponsibleforoptimizingXiaomi'suserstructure."Sincewedon’thavepopularproductslikeWeChatoriQiYi,wehavetotakeanewpathandwe'vebeenthinkingwhatelseourusersneed.Plusourservicesforfemaleusersaretoolittle,whichexplainswhyweinvolveinlivingconsumptionbusiness."

XiaomihasbeenexploringwhetherthesuccessfulXiaomiModelthathasbeenprovedwithmobilephonebusinesscanbeduplicated.TheXiaomiModelisalsoknownas"PopularModel,"whichXiaomiinterpretsas"maketouchingandaffordableproductsbymeansofInternet."

Sincefiveyearsago,Xiaomihasbeguntomakemobilepowersupply,wristband,airpurifierandroboticvacuumcleanertobuildXiaomiecologicchainthroughinvestinginsomesmarthardwarecompanies.

Havingbenefittedfromsmarthardware,Xiaomigottheideaofextendingtowardsconsumergoods.Soonafter,XiaomiYoupinappeared.

Unlikeothere-commercecompaniesthatadoptODMmodel,XiaomiYoupintakesthewayofitsownproducts+productsfromXiaomiecologicalchaincompanies+thirdpartyproducts.

Overthepastfiveyears,Xiaomiinvestedinmorethan200hardwareecologicalchaincompanies.TheinvestmentplanistheresultofXiaomi'sbalancebetweentheabundanceofproductlineandconcentration.FromGao'pointofview,ifXiaomimadetheproductsallbyitself,thecompanywouldseeoverexpansion,andcanhardlyensureconstantdevelopmentofallbusinesssegmentsatthesametime.

"Otherbusinessesbeyondthecorebusinesswouldbeinevitablymargined,resultingalackofsustainabledevelopmentimpetus.Moreover,qualitycontrolandcontinuousiterationoftheproductsisveryimportant.Ifourteamhadtomanage10,000productitemsofourownbrand,Xiaomiwouldsoonbecomeacompanywith200,000employees,"Gaosaid.

XiaomimodelandXiaomi'svalue

Basedontheaboveconsideration,Xiaomibegantoenrichitsproductlinethroughinvestinginecologicalchaincompaniesfiveyearsago,buthasretainedseveralcorehardwareproductssuchasmobilephonesandTVsforitself.

Unlikemanyothercompanies'"buy,buy,buy"investmentstyle,Xiaomi'sinvestmentstrategyisbeingashareholderinsteadofacontrollingshareholder.GaosaidXiaomi'spurposeofinvestinginecologicalchaincompaniesistoestablishcontinuouscommunicationwiththecompaniesviaequityrelationship,thusconstantlydeliveringXiaomi'sconceptandvalue,andmaintainingtheecologicalcompanies'consistentpaceswithXiaomi.

"Wecontroltheproductsnotbysimplymakingasetofrules.Itisthepracticeoflawtoauditbeforedeliberationandrandomlyinspectafterthedeliberation,whichcanhardlysolveallproblems.Ofcoursewehaverules,butitismorelikebuildingaconstantcommunicationprocessthroughinvestmenttoensuresomanycompaniestobeconsistentwithus,"Gaosays.

"Value"isawordXiaomifrequentlymentionsinpublic.GaosaysthesimplewordisactuallythekeytoXiaomi'ssuccess.

"Manywonderwhyourhigh-qualityproductsaresoldatlowprices.Thisquestionisabouthowtoresisttemptation.Oneproductcanbesoldateither10RMBor20RMB,thepricedifferencewouldmakeusmissoutseveralhundredmillionsRMBinoneyear,soitisverydifficulttoresistthetemptation."

TobecomeamemberonXiaomi'secologicalchain,thecompanymustidentifywithXiaomiModelandXiaomi'svaluefirst.Italsoneedstheabilityofoperatingproducts,whichincludethewholeprocessfrommanufacturingtoiterationandthenaftersaleservices.

AsforR&Dandsupplychainability,Xiaomithinksmoreofthecompanies'R&Dcapacityincludingdesign.AccordingtoGao,forsomecompanieswholacksupplychaincapacity,Xiaomiwouldhelpthemcontactsomeexistingcooperationpartners.

Inaddition,Xiaomi'sdesignteamisalsoinvolvedinthejointdevelopmentwithecologicalchaincompanies."Manyofourproductsarejointlydevelopedwithecologicalchaincompaniesinsteadofdirectlypurchasedfromfactories.Theyfeaturecertainuniqueness."

AtXiaomiYoupin'sheadquarters,TMTexperiencedanautomatichandwashingdevice,whichcanautomaticallydispensefoamwhenitsensorsreachinghands.ThisproductwascreatedinXiaomi'srepeateddiscussionwithadailychemicalcompany.

"Thisisatypicalprocess,becausethecompanyknowsthedailychemicalindustrywell,andweareveryfamiliarwiththeInternetandsmarthardware.Wediscusshowtosolvesomepainpointsinourdailylife,andthenjointlydefinetheproductbeforethecompanystartsR&D,modeling,manufacturingandtest,"Gaosaid.

Thisiswhymanypeerscarry10,000SKUsannually,whileXiaomiYoupinonlycarriesover3,000SKUssofar.ThelongcyclefromdefiningaproducttotheintroductionoftheproductmakesXiaomiYoupinSKUsgrowslowly.

AccordingtoGao,bulkpurchasingfromfactoriescandrivefastexpansionofSKU,buttheproductsoftenlackuniqueness.Moreover,qualitycontrolisverydifficultforacompanyindependentlyoperating10,000SKUs.

XiaomiYoupin'ssolutionistohaveoneproductcategorycorrespondwithoneortwocooperatingcompanies,whichfocusontheR&Dandversionupgradesoftheproductcategory.Inthemeantime,sincethecompanies'brandsareretainedinsteadofOEMproduction,thecompanies'senseofownershipgivesthemstrongersubjectiveinitiative,whichhasgreatlyrelievedthepressureonXiaomi,andallthelatterneedstodoisgeneralprocessedmanagement.

Xiaomi'sprospectusshowsthatbyMarch31,2018,thenumberofcompaniesXiaomihasinvestedinandincubatedhadreached210,ofwhichmorethan90areengagedinR&Dofsmarthardwareandlivingconsumptionproducts.

GaorevealsthatXiaomiisexpectedtocover80%to90%oftheproductsinlivingconsumptionscenarioinoneortwoyearsthroughcooperatingwithecologicalchaincompanies.AlittleSKUselectionmodelwillbeadoptedforeachcategory,tosolvesomepainpointsinconsumers'dailylifewithsomeoriginalproducts.

"Competitionamonge-commercecompaniesorretailisalreadyveryintense,andthere'snowaytocompetewithJD.comandTmall.comforplatform.Thereforeitneedstobeconsideredwhethertobuildaplatformormakeaproduct.Currently,ourideaistofocusonbeingaproductcompany,"Gaosays.

WhydoInternetgiantsswarmintothemanufacturingindustry?

IntheearlystageofInternetera,themainstreambusinessmodelistomakemoneywithtraffic.TheriseofXiaomimakesmanyrealizethatit'spossibletobecomeabigcompanybystartingfromthemanufacturingindustryandcreatingaproductwithhighpricetoperformanceratio.Asthevisionofonlinesuccessbecomessmaller,moreandmoreInternetcompanieshaveinvolvedinthemanufacturingindustry.

Asaresult,Alibaba,whichinsistednottodoself-operatedstores,hasintroducedTaobaoXinxuan,followedbyretailgiantssuchasJDandSuning,whichhavealsolaunchedtheirself-operatedonlineandofflinestores.

Withrespecttosuchchanges,GaobelievesthatInternetcompanies'involvementinthemanufacturingindustryisactuallyaderivativeofthechangingretailenvironment.Thepreviouslyseparateonlineandofflineoperationsarebeingmerged,bringingsomenewchangesinthewholeretailfield.

Suchevolutionshowstwodirections:oneistheevolutionoftrafficsecureforms,theotheristheevaluationofproductcategories.Sociale-commercerepresentedbyPinduoduoandYunjihavechangedtheoldtrafficsecuremethods.Thechangesofproductcategoriesarebroughtbyconsumptionupgradetrend–insteadofcompetingfortraffic,thecompaniesattractcustomerswithdelicateanduniqueproducts.

Meanwhile,themanufacturingindustryisalsoexperiencingsomechanges.Manyfactoriesarefacingshrinkingexports.Ontheotherhand,domesticdemandkeepsincreasing.However,domesticsalesarealsonoteasytodoforfactorieswithoutdomesticcirculationexperience,whichhasbroughtopportunitiesformanyretailgiants,makingthemjointhemanufacturingindustry.

Therehavebeentwothinkingaboutconsumptionupgrades.Onebelievesthatconsumersarewillingtopayhigherpricestoenjoybetterproductsandservices;itisalsoheldthatconsumptionupgradedoesn'tmeanhigherprices,instead,itenablesconsumerstopaylessorthesamepricetogethigherqualityproductsandservices.

Xiaomiisobviouslythelatter.AccordingtoGao,withthedecreaseofinformationasymmetry,mostbrandscanhardlymakemoneythroughbrandpremiumexceptforsomeluxuryproducts.

"Theeducationdegreeandwaytosecureinformationofthosepost-90mainstreamconsumersaredifferentfrombefore.TheycanfindoutthepricesofcomputerCPU,memoryandhardwarecosts,reflectingthedecreaseofinformationasymmetryintheinformationera.

Gaosaysthedecreaseofinformationasymmetrywouldreducetheexcessivelyhighbrandpremiumwhileretainingreasonablebrandpremiumrange.PopularModelisthecorethatmakesXiaomiimprovesqualitywithoutincreasingtheprices,whichistocutunnecessarynichedemandandsatisfymostpeople'sdemandwithhigh-qualityproducts,thusrealizingcostallocationbyincreasingshipments.

Inordertoletconsumersexperiencetheproductsmoreintuitively,XiaomiYoupinisbuildingonlinestores.GaosaysXiaomiYoupinopensofflinestoresinordertoletusersexperiencethecombinationoftechnologyandlifeinamoreintuitiveway."Xiaomiusedtohighlightthesenseoftechnology,orknownaselectronics,nowwewanttocombineconsumableitemswithtechnology,todemonstratebothtechnologyandartinthesamestore."

However,Xiaomiisverycautiouswhenopensofflinestoresduetothehighcosts.ItwasreportedlastmonththatXiaomiopeneditsfirstphysicalstoreinNanjing.Gaosaysthestoreisactuallyfortestingsomenewtechnologiessuchasself-servicepayment.Xiaomiwillopenanotherseveralstorestotestconsumers'recognition.

Gaosaysofflinestorescanbeeitherlarge-orsmall-scale.Thepurposeofopeningsmall-scaleofflinestoresistoexposebrandsratherthansellingproducts,whilelarge-scalestoreoperationdependsonwhetherthegrossprofitofasinglestorecancoverthecosts.Atpresent,XiaomiYoupincanhardlymakedecisionbetweenthetwomodels,butitwilleventuallygettheansweraftertestsinafewstoresforacertainperiodoftime.

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