Recently, China's Xiaomi established a Korean subsidiary and is preparing to aggressively target the domestic smartphone market. With its strength in cost performance, Xiaomi is garnering attention to see if it can create a crack in the domestic device market, which has been solidified by the dominance of Samsung and Apple. However, forecasts suggest that if Xiaomi sticks to its existing online sales strategy without expanding its offline sales network through mobile carriers in Korea, often referred to as the 'graveyard of foreign phones,' it will encounter limitations.
According to the telecommunications industry on the 2nd, Xiaomi recently established its Korean subsidiary, Xiaomi Technology Korea (hereafter referred to as Xiaomi Korea), in the Mirae Asset Center One building in Euljiro, Seoul, and hired 12 employees. Xiaomi Korea plans to open its first offline store, 'Mi Store,' in Seoul soon and will embark on expanding its smartphone sales network.
Xiaomi is the world's third-largest smartphone manufacturer, competing with Samsung Electronics and Apple. According to market research firm Counterpoint Research, as of the third quarter of last year, Samsung Electronics held a 19% share of the global smartphone market (by shipment volume), followed by Apple with 17% and Xiaomi with 14%. However, in the same period, the market share in Korea was dominated by Samsung Electronics at 80% and Apple at 19%, highlighting Samsung Electronics' overwhelming influence. The market share of other foreign phones, such as Xiaomi and Motorola, is only 1%.
Xiaomi began selling smartphones in Korea through its sole distributor in 2018. Sales were primarily through online platforms, and some products were also sold through the online platforms of the three major telecommunications companies. The product range was limited to some low-end devices priced between 100,000 and 200,000 won, preventing it from expanding its influence in Korea, which is centered on premium products. A telecommunications industry official noted, 'Xiaomi's efforts to resolve distribution issues with domestic carriers through its sole distributor resulted in limitations in negotiation power,' adding that 'Xiaomi's success in the domestic device market depends on securing offline distribution networks through local carriers.'
Some suggest that the repeal of the Device Distribution Improvement Act (known as the 'Subsidy Law') might offer Xiaomi an opportunity to secure a distribution network with carriers. In the context of the repeal, the absence of competition among manufacturers, a significant component of device subsidies (shared between the carrier and manufacturer), could place a burden on telecommunications companies. An adjunct professor at Chung-Ang University stated, 'Introducing new competitors into the market to encourage manufacturers to expand subsidies could align more closely with the interests of telecom companies,' adding that 'one of the carriers might take the first step to partner with Xiaomi to create a type of 'catfish effect.' 'If carriers offer substantial subsidies on high-end devices from Samsung and Apple to induce subscriptions to high-priced plans post-repeal, it might result in inadequate support for mid-range devices and users on mid-tier plans, which could be remedied by Xiaomi's entry into the market.'
However, there is also a perspective that integrating Xiaomi into the offline distribution network will be challenging for carriers. Hong Dae-sik, director of the ICT Law and Economics Research Institute at Sogang University, stated, 'It is true that the closed distribution networks between carriers and manufacturers have remained unchanged for a long time.' He added, 'The reason foreign phones failed in Korea is the absence of an offline distribution network, and it will be difficult for Xiaomi to secure offline distribution from carriers solely based on its efforts.' He continued, 'As most of the latest devices from Samsung and Apple are 5G devices, Xiaomi's mid-range 4G phones may have a possibility of expanding their market share in the low-cost mobile market, which is centered on self-supplied phones.' According to the Ministry of Science and ICT, the usage rate of self-supplied phones in Korea increased from 20.4% in 2021 to 33.7% last March.
An official from Xiaomi Korea stated, 'We plan to announce our official launch soon after establishing our domestic business strategy,' adding, 'We will expand our offline stores and introduce a variety of products in Korea, ranging from mid-range models to premium products.' However, he also mentioned, 'Currently, nothing is decided regarding the expansion of the offline distribution network through carriers.'