Stepping into Chinese smartphone maker Xiaomi’s new office building in Beijing’s Haidian district, one cannot but help notice a playground slide in the middle of the reception hall that leads to a Google-style workplace.
“We are not ready,” said a Xiaomi employee, pointing to an “Out of Service” signboard placed near the end of the slide.
He’s right, in a way, as Xiaomi is certainly not playing on any downside slide. The much-hyped handset maker, co-founded by Lei Jun in 2010, recorded a neck-breaking growth in sales last year. It sold 18.7 million cell phones in the twelve months ended December, more than double its 2012 figure. It also announced plans last month to build a high-tech industrial park in Beijing’s IT hub Haidian, with a target to reach annual sales of 100 billion yuan.
The success story of the four-year old mobile phone brand has gone viral in China. While some mainland companies have vowed to copy Xiaomi’s success by studying its “Internet Thought Process”, a concept summarized by Lei Jun as “focused, striving for perfection, word-of-mouth, fast”, some have taken the shortcut by producing knockoff Xiaomi cellphones.
“Some knock-off ones are of high quality. Sometimes I also find it difficult to tell the difference,” said a Xiaomi staffer who joined the company three years ago, as he showed photos of Xiamoi look-alikes seized from an earlier crackdown. “We are deeply troubled by that.”
Roughly for every two authentic Xiaomi phones sold, one counterfeit product is sold. Last year, Xiaomi sold an average of 1.6 million handsets each month, while the number of counterfeits that hit the market reached half that amount.
About 3.6 percent of handsets in mainland China are counterfeits. Xiaomi is the second most popular target of copycats, accounting for 17 percent of the total, according to a report from 360 Internet Security Center in mid-March. About 73 percent are fake Samsungs. Five of Xiaomi phones, namely Hongmi, MI-2, MI-2s, MI-3 and MI-2A are on the list of the 20 best-selling knockoffs.
The Beijing-based firm has set up a team specialized in tracking factory lines of Xiaomi knockoffs. “It’s difficult as some local governments are reluctant to cooperate with us on the crackdown. The knockoff production business also provides employment opportunities,” the worker said.
Therefore, Xiaomi has collaborated with various anti-counterfeiting agencies across the nation. It uncovered up to 60,000 knockoffs at a Shenzhen factory line during an earlier crackdown. “It’s only the tip of the iceberg,” the staffer said.
A low-quality Hongmi knockoff costs as little as 200 yuan to make. Selling prices are close to the real ones, at 799 yuan, resulting in fat profit margin of almost 600 yuan for each knockoff sold. Knockoffs of Xiaomi products are available in fake retail stores, as well as online marketplace such as Taobao and Groupon.
Some of the knockoff sellers gained access to the IMEI, International Mobile Equipment Identity number, and the serial number through the purchase of a real Xiaomi phone. The IMEI is then repeatedly cloned in a large number of counterfeits using specific software. Then the Xiaomi replica will be identified as a valid device.
Xiaomi knockoffs are the most widespread among all domestic brands. Fake handsets of its major rivals such as Huawei, Meizu and Lenovo each took up only 1 percent of the copycat market.
Xiaomi sells its phones online in batches. Because of the limited quantity offered each time, they typically sell out within minutes after launch, creating an opportunity for Xiaomi knockoffs.
Meanwhile, no Xiaomi phones are available at retail outlets which only sell accessories. “Fewer shoppers could test-drive our products; hence they could not differentiate between our products and the knockoffs,” the Xiaomi staffer noted.
As for the estimated loss incurred from widespread knockoffs, “it’s difficult to quantify,” a technology hedge fund manager said, pointing out that “there are too many variables, such as quality and price tags for different knockoffs”.
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