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Little Rice

Smartphones and China

Clay Shirky

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Xiaomi comes from xiao mi or 'little rice'. Gone from a2010 startupto beating Samsung as no 1 phone vendor in China, the largestmarket in the world.

The rise of Xiaomi in less than 5 years impt bc mobile phones are special. Offer the sort of freedom and interconnectednessthat autocratic rulers have traditionally feared.

Every year, Economist calculates price of a Big Mac everywhere as a way to assess each country's currency value. Rationale being that the hamburger is proxy for a bundle for a bundle of products and services - cost of flour and beef, of wagesand taxes, plus cost of power and security.

So consider what goes into a smartphone - hardware and software, operating systems and apps, a'quality vs price' tradeofffor a hundred different components, and an incredibly complex system of sourcing and distributing materials and finished product.

Chinese govt policy of 'cyber-sovreignty' - the idea that there should be borders and controls over what crosses the borders, just as physical world borders. To pull thisoff, you need deep international isolation (Arab world can't achieve this bc common language across many countries), significant tech talent (most autocratic countries such as Turkey don't have enough engineers to build credible local alternatives to what it wants to block), and capital markets to fund local internet suppliers.

Xiaomi started with Android, and concentrated on rewriting it so their product performed better than the competition. In particular, battery life, bc that was a noticeable point of difference.

Conventional wisdom held that Chinese wd prefer cheap basic phones for years. But by 2010, local Nokia staff reporting that even migrant workers were saving up for smartphones. But Nokia ignored them, and made a catastrophically bad bet to not develop with the market. In 2010 Nokia still the biggest cell phone supplier in China, with 3/4 of the market. But a year later, it was less than half, and by 2012 the position was reversed, with smartphones taking 3/4 of the market, and Nokia fighting over scraps.

Chinese notorious for tolerating 'good enough', or "happy crappy". But smartphones offered possibility to start with basic handset which cd then be improved with software. Xiaomi releases a slightly improved version of software very Friday.

Xiaomi also keeps its hardware for two years or more, slowly dropping the price as price of components get cheaper (often by as much as 90% over the product cycle). The initial margin is tiny, but the ending margin is huge, for a good average.

China is urbanising ata stunning rate. It's building infrastructure - it has the two largest subways in the world, and is building mass transit rail in 25 cities simultaneously (vs US which can't even get one running properly), but still can't keep up with urban growth. Describing Shanghai: "Imagine New York, but busy and crowded".

The Qingdao Refrigerator Company rebranded itself Haier, so that people wdassociate them with German products.

The population of Chinese mobile phone users is larger than the combined population of the US and Europe (not the cell ph users of those countries, the whole population).

China used 1/3 more cement in the first 3 years of this decade, than the US used in the whole C20. (6.6 billion tons v 4.5 billion tons).

In the (fairly short) history of industrilaizing nations, some single-party systems have lasted into middle age. The Liberal Democrat party in japan, the Industrial Revolutionary Party in Mexico, and the National Democratic Party in Egypt, and the Communist Party in Russia. But none of them lasted 75 years. Chinese Communist Party has been ruling for 65 years.

In 2013, Spain had 150 tourists for every 100 citizens. France had 120. China had 4, and most of those were fromeither Taiwan or HK. Outside a few enormous cities - Beijing, Shanghai and Shenzen - foreign faces are a rarity.

China is remarkably homogenous. There are dozens of minority groups, but there re 1.2 billion Han Chinese out of a population of 1.3 billion. Outside the big cities, most people have never interacted with someone of a different ethnicity.

Apple is steadily losing ground. Just as IBM made PC revn possible, clone amnufactures took market share, so has Apple pioneered smartphones to see Android-powered phones gobble its market.

Now Indian firms selling 'Indian' smartphones, French companies ditto - but all components sourced from Shenzen.

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