Xiaomi Confronts Counterfeits as Fake Products Eat Into Sales

Xiaomi Smartphone
A man holds a Xiaomi Corp. branded smartphone in Beijing. Five years since its founding in 2010, Xiaomi has grown into China’s top smartphone vendor and -- at $45 billion -- the world’s most valuable startup. Photographer: Tomohiro Ohsumi/Bloomberg

Xiaomi Corp., the Chinese smartphone vendor that overtook Apple Inc. and Samsung Electronics Co. in the world’s largest market, now faces another foe: counterfeiters.

Sales of the company’s Mi Power Bank battery pack for smartphones hit 14.6 million units last year, less than half what the total should have been, Chief Executive Officer Lei Jun said at a press conference at the company’s headquarters in Beijing Thursday.

“What is the biggest problem? There are many fakes,” Lei said. “If there were no counterfeits, our sales would be double or triple. The product has been recognized by everyone.”

Five years since its founding in 2010, Xiaomi has grown into China’s top smartphone vendor and -- at $45 billion -- the world’s most valuable startup. Now, it must handle growing pains from counterfeits to perceptions that investments in smart-device startups risk compromising strategic focus, according to Lei.

Xiaomi doubled revenue last year and more than tripled smartphone shipments to 61.1 million units. Xiaomi’s sales are projected to rise to as much as 120 billion yuan ($19 billion) this year, from 74.3 billion yuan in 2014, Lei said last month.

The smartphone maker sells at least three configurations of the Mi Power Bank on its website in China at prices ranging from about $7.90 to $21. At those prices, the revenue lost to counterfeiters would be equal to at least $115 million. The devices are produced by Jiangsu, China-based Zimi Corp., one of the startups backed by Xiaomi.

Online Sale

Markets in China “facilitate the distribution of significant quantities of counterfeit merchandise for consumption in China and abroad,” the Office of the United States Trade Representative said in its review of “Notorious Markets” released on March 5. China’s Vice Premier Wang Yang last month said the country will step up efforts this year to fight piracy and counterfeiting.

To expand its range of smart devices, Xiaomi has backed 27 startups, 10 of which have now brought products to market, Lei said. Xiaomi will stay focused on smartphones, televisions and routers, while letting partners supply other products to stock its online store, Lei said.

In an online sale Wednesday to celebrate the company’s founding, Xiaomi sold 2.1 million smartphones, 38,000 televisions, and 770,000 smart devices in 12 hours, Lei said.

Many people argue the range of products coming from Xiaomi’s partners mean the company is losing focus, and this is a “great misunderstanding,” the billionaire founder CEO said.

“Xiaomi has three products and these three products are the mobile phone, TV and router,” Lei said. “These three types of products are our main business. We will be focused on these three products for a very long time.”

— With assistance by Edmond Lococo

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