Xiaomi: How this Chinese smart phone vendor beat out Samsung

Samsung is losing the smart phone war in China.

According to data released Tuesday by market research firm Canalys, the Korean tech giant has taken second place in smart phone shipments to Xiaomi, the privately-owned Chinese electronics company founded in 2010 and based in Beijing.

It has been widely reported that Xiaomi's recent success landed it in the position of fifth largest smart phone vendor worldwide in the second quarter of 2014, according to data released last week by research firm Strategy Analytics. However, statistics released last week from market research firm IDC indicate that LG, not Xiaomi, holds the No. 5 spot. 

In China, while Samsung shipped around 13 million smart phone units in the second quarter of 2014, Xiaomi shipped close to 15 million, according to the data from Canalys. During the same period last year, Xiaomi had shipped just 4.4 million units whereas Samsung had shipped 15.5 million units. That totals a 14 percent current market share for the Chinese upstart, up from 10.7 percent in the first quarter of 2014. Meanwhile, Samsung's market share decreased to 12 percent from 18.3 percent in the first quarter, according to The Wall Street Journal.

And Xiaomi's growth is not limited to China. Other countries to which it's expanding include Malaysia, Singapore, the Philippines, and India. But the company's success is still almost completely limited to its home country; it sold only around 100,000 smart phones outside of China in the second quarter, according to Reuters. 

After Samsung, the next three top smart phone merchants in China are all local: Lenovo, Yulong, and Huawei, according to Canalys. It's a testament to a greater shift in the Chinese tech market in favor of local vendors at the expense of foreign ones. That, and Chinese suspicion of US spying efforts in the past year have made operating in China increasingly difficult for foreign technology companies, especially US vendors. 

In the world's largest smart phone market, Xiaomi stays competitive by keeping its phones priced low – close to the manufacturing cost – and by keeping fans on the edge of their seats with near constant new releases of its own version of the Android operating system, called Miui. To generate profit, it sells apps, games, and other mobile services. 

But another key component of the company's success stems from its marketing campaign, which closely resembles that of Apple. Clad in jeans and a black shirt as he addresses large crowds, Xiaomi's founder Lei Jun has drawn criticism for mimicking the style of Apple co-founder Steve Jobs in the way he announces new product releases. This has led to Chinese media nicknaming Xiaomi as the "Apple of the East." 

Moreover, the company has come under fire for playing loose with intellectual property laws. For example, pictures taken from places like National Geographic and the photo sharing site Flickr were passed off as being taken from a Xiaomi smart phone camera, Reuters reports. 

On a global scale, smart phone shipments are still topped by the heavyweights Samsung and Apple. Samsung shipped about 74 million smart phone units in the second quarter, while Apple shipped about 35 million, giving those two companies a combined 37.1 percent of the global market share, according to IDC. Similarly, Strategy Analytics also reported around 74 million Samsung shipments and around 35 million Apple shipments in the second quarter.