Image source @ Visual China
Wen 丨 Bohu Finance, author 丨 Tang Bohu
Going to sea was an option in the early years and is now a must. It's just that taking mobile phones abroad to produce is really rare.
Recently, Argentine media reported that Xiaomi will establish a production base on Tierra del Fuego in Argentina for the production of smartphones, with an investment amount of millions of dollars, and the relevant announcement is expected to be released within 60 days.
The data shows that in the past, Xiaomi mobile phones have been selling well in Southeast Asia, India, Europe and other markets, and now they are running to Latin America to sell mobile phones, and they also want to establish production bases in the local area.
Opportunity
Beginning in 2017, Argentina began to focus on reducing tariffs on imported goods and opening its markets to bring in foreign investment and goods. The tax reduction categories of that year also gradually expanded, from soybeans, oil and gas equipment, to consumer electronics. By October 2018, Argentina had reduced tariffs on more than 100 consumer electronics.
It was also at that time that the outside mobile phone manufacturers were eyeing the tiger and successively entered the Argentine market, including Nokia, which was trying to be reborn, Blu, the mobile phone manufacturer in the United States, and Xiaomi.
In 2018, Xiaomi entered Argentina. According to reports, Xiaomi had talks with Novelsan and Solnik, factories in Argentina's Tierra del Fuego region. However, in view of the previous failures in building factories in the Latin American market, Xiaomi did not produce mobile phones locally in Argentina at that time, but directly sought cooperation with local distributors. Imported equipment is purchased through Xiaomi's official store.
Change will take place by 2021. In June of that year, China's Ministry of Commerce announced that Xiaomi had reached an agreement with local company Agentcor-Solnik to officially enter the Argentine market, and the two sides mentioned the issue of producing smartphones locally.
This time, on the day of the Winter Olympics, the Argentine president visited China. It is worth noting that February 19 is also the 50th anniversary of the establishment of diplomatic relations between China and Argentina, prompted by various internal and external factors, China and Argentina signed a memorandum of understanding on the "Belt and Road", Argentina became a new partner of China's Belt and Road, and received China's commitment: 23 billion US dollars of investment.
It is under such an opportunity that Xiaomi broke the news of entering Argentina to produce mobile phones.
Argentine media [Página12] mentioned that the foundry company will also provide after-sales service for Xiaomi, and Xiaomi will invest millions of dollars in the local area in order to build a production base.
However, the production site is located on Tierra del Fuego (province), and the local city of Ushuaia, located at 55° south latitude, is the southernmost city in the world, only 800 kilometers from Antarctica (equivalent to Wuhan to Chongqing), and is known as the end of the world.
(Tierra del Fuego)
Some analytical articles believe that Xiaomi wants to transport parts from tens of thousands of miles away, and then transport them from Tierra del Fuego island to the big cities in the north for sale after assembly, and the high transportation costs, customs review, and layers of applications in the middle not only need to bear financial pressure, but also delay the listing time of mobile phones.
You know, in 2015, Xiaomi mobile phones entered Brazil, even in the face of high import taxes nested at the federal, state, and municipal levels, they were still not assembled locally according to the wishes of the Brazilian government - because of the high cost of workers and accessories in Brazil. In 2019, after the returning Xiaomi restarted the Brazilian market, it still chose to ship the mobile phone assembled in China, which shows how careful Xiaomi is about building its own factory.
So this time, why is Xiaomi desperate to take the risk and go to Argentina to build a factory?
Helpless
In addition to the high purchase cost of tariffs, a more important reason for Xiaomi's discount on the Brazilian market is that Brazil's local shopping habits rely heavily on offline.
When Xiaomi entered the Brazilian market, only 15% of local consumers chose to shop online, but all of Xiaomi's advantages were established online.
(Xiaomi's first store opened in Sao Paulo, Brazil Source: Network)
But Argentina is a different story. According to relevant statistics, 18 million people in Argentina's 45 million population will choose to shop online, nearly one-third.
Moreover, Argentina is richer than Brazil.
Although due to political turmoil and industrial structure, Argentina's per capita GDP has been declining in recent years, from $14,000 in 2017 to $8,400 in 2020. But this figure still ranks more than 50 in the world, surpassing Brazil and more than four times that of India (in 2020, India's GDP per capita is $1900).
Selling mobile phones, one looks at the population (the market, such as India), and the other looks at the level of consumption (demand, such as Europe), both of which Argentina has.
Moreover, Argentina has always had considerable spread because of football and Messi, which is why Argentina has received attention and many mobile phone manufacturers have entered here.
However, this time, Xiaomi built the production base to Argentina, especially on the "end of the world" Tierra del Fuego Island, which more or less exposed Xiaomi's helplessness.
According to the data, tierra del Fuego's industrial base is quite weak, the main economic activity is sheep raising, followed by logging, fishing and hunting, the only industry is the extraction of oil and gas, some small refineries for local consumption, meat freezing plants, etc.
However, Argentina has made the end of the world a free zone and intends to make it a manufacturing powerhouse. To this end, Argentina has a mandatory policy, and all mobile phones sold in Argentina must be finally assembled in the Tierra del Fuego factory.
As a result, foreign companies came to be the sowers of this experimental field.
Some domestic mobile phone manufacturers have said that argentina's production and transportation of mobile phones is expensive, and local customers are very easy to break the capital chain. This means that only a well-funded company like Xiaomi dares to come in.
However, one of xiaomi's biggest problems today is whether the gradually dispersed energy can support its overseas markets.
Last spring, Lei Jun proposed to take 10 billion cars in 10 years, and now the plan is more and more inflated, these days, Lei Jun feels that Xiaomi's low-end label is too dazzling, and then sent a Weibo that in the next 5 years, 100 billion yuan will be invested in research and development to enter the high-end market.
Whether it is a car or a high-end road, each one is a big investment, and it is impossible to see a return in the short term. In addition, xiaomi group's stock price has fallen again and again in the past year, and in the past few days, it has hovered at the issue price, and the total market value is only more than 400 billion Hong Kong dollars. This makes people ask, can the money on Xiaomi's account still support its overseas markets?
Foot heels
What underpins Xiaomi's bloated plans is its good performance in latin American markets.
According to data released by Canalys, as of the third quarter of 2021, Xiaomi has become the third largest mobile phone brand in Latin America, with a market share of 11% and a year-on-year growth rate of 19%.
In order to continue to open up the market in Latin America, Argentina is an unavoidable link, and to establish a market in Argentina, Xiaomi cannot avoid friends.
In terms of time, ZTE set up a branch in Argentina in 2005 and chose to set up a production base on Tierra del Fuego. Huawei entered Argentina earlier, entering Argentina in 2001, and in 2013, Huawei moved its South American headquarters to Argentina, which is regarded as a development center.
In terms of volume, the hegemony of the Argentine mobile phone market has always been Samsung. In 2015, Samsung alone accounted for more than 60% of argentina's market share.
Over the years, Samsung's share of the Latin American market has been declining, but it is Motorola that has replaced it.
Lenovo acquired Motorola for $2.9 billion in 2014 and has been active in latin American markets ever since. Lenovo's weapon is supply chain capabilities.
The Argentine market is not open, as mentioned above, requiring all manufacturers to ship parts to the local assembly, which is not only a cost issue, but also a supply chain capacity issue. A series of harsh conditions made Apple directly abandon the Argentine market.
But for Lenovo, this is not a big problem. The "assembly plant" is not good in the technology industry, but in the supply chain, it has become a killer for Lenovo's overseas expansion.
As early as 2011, Lenovo cooperated with local company Newsan, initially investing $15 million to build a production base, and then establishing an exclusive factory with a foundry. It is based on Lenovo's supply chain capabilities that Motorola has become the second largest brand in Latin America after Samsung.
Supply chain capabilities are the heels that Xiaomi has neglected in the past.
In 2018, Xiaomi opened three mobile phone factories in India. Mr. Lei has said that more than 95% of the products sold in India and Indonesia are manufactured locally. However, a person close to Xiaomi revealed that Xiaomi's factory in India has been losing money.
Overseas markets cannot escape the supply chain. As developing countries and third world countries, manufacturing can develop the local economy and drive employment, which is a position where they cannot regress.
In addition, as mentioned above, the rise of millet relies on online, but this set of play is not applicable in overseas markets, brazil is a typical case.
This means that the future overseas mobile phone market, supply chain and offline are a basic question and a compulsory question. On this subject, Xiaomi is not as good as vivo and OPPO, because these companies are self-built factories everywhere.
And now, the Latin American market has ushered in glory. In December 2021, canalys reported that Honor plans to fill the market space ceded by Huawei to meet the demand for Android high-end smartphones in the Latin American market.
Nowadays, the millet front is very long, from mobile phones to smart homes and cars, which is like a moat, but also like a precursor to breaking the embankment. From 10 billion cars to the current 100 billion mobile phone high-end plan, as well as the expanding overseas market to face the difficult diseases, every goal needs to be a friend of time, every friend is very tight at this time.
Compared with today's head smartphone brands, OPPO, vivo, glory, Apple, Huawei, Samsung, Xiaomi is the only one that can be called an Internet mobile phone in the true sense and survive beautifully.
Mr. Lei said that excellent companies make profits, and great companies win hearts and minds. It is time for Xiaomi to prove itself great to the world.
References:
1. Observer Network: After the leaders of China and Argentina met, Xiaomi finalized the production of mobile phones in Argentina
2. Southern Network: An Argentine sample of the Latin American smartphone market: Manufacturers explore the road of localization cooperation
3. Hugo.com: Latin American Market Analysis White Paper - Argentina
4. Zhixiang Network: "Parallel goods" Xiaomi returned to Brazil, and domestic mobile phones are expected to become the most popular brands in the future