BEIJING -- On the sidelines of his attendance at the National People's Congress, The Nikkei interviewed Lei Jun, chief executive officer at Xiaomi, about his outlook for the leading Chinese smartphone manufacturer. Excerpts from the interview follow.
Q: Competition is intensifying in the market for smartphones, and Xiaomi is said to be losing ground to Huawei Technologies. How will you respond to this?
A: There are reports that we are in trouble because of decreases in the unit prices of our products. But price drops are the result of our technological innovations.
About six months ago, Huawei reportedly began releasing false information [that Xiaomi's products are inferior in quality]. However, we have retained the No. 1 sales position in China since last year. We are proud because a venture business like us is rattling such a large company.
Q: Xiaomi released its new flagship model, the Xiaomi Mi5, in March. What is your sales target?
A: We are confident the Xiaomi Mi5 will become a leader in the smartphone market. To back up our confidence, the smartphone has received more favorable responses than expected from Xiaomi fans while also being praised in both the domestic and foreign media.
But we do not have a target [for public release]. In the past, I have talked lightheartedly about sales prospects that often drew much attention in a direction we did not expect. We will keep up production of the model while analyzing sales.
Q: What are the problems you foresee over the next five years?
A: China has already become a major manufacturing country. But made-in-China products are still seen as cheap goods, and a key issue is how to eliminate this image in the eyes of consumers. Over the course of 10 years in the 1970s, Japan transformed itself into a formidable manufacturer whose products were yearned for by consumers all over the world. Just as Sony led the charge with the release of innovative products [such as the Walkman portable audio cassette player], Xiaomi would like to lead the Chinese manufacturing industry's transformation.
Q: What are some specific areas you plan to focus on?
A: We are paying attention to the virtual reality field. We set up a research and development team at the end of last year to devise products, but the market will need three to five years to mature.
We will also reinforce our intellectual property strategy to meet changes in consumer needs in China. We filed 3,183 patent applications last year, the sixth-largest amount.
Q: You declared that Xiaomi will not make an initial public offering of shares in the next five years. You haven't changed that stance, have you?
A: No, I haven't. We want to make Xiaomi into a great company. We aren't working hard only to make profit by going public. For a company, listing is a step toward growth.
Listing has drawbacks as well. For example, once you go public, you are exposed to short-term pressures from the market and thus additional management restrictions.
For me, Xiaomi is my second start in business, and I want to make full use of my experience. I've never said that listing is unnecessary or that we would not go public. We will when we are ready, but we have no specific plan right now.
Q: When do you plan to break into markets in advanced economies?
A: We are focusing on the reinforcement of our business base this year and next year, and we are concentrating on the development of markets in China and India until the end of next year. Though we already rank high in terms of sales share in India, we didn't gain that position overnight. We have been studying how to develop overseas markets on a long-term basis, and we are positioning India as an experimental area for our overseas strategy.
We will look to move into other countries, but we do not expect the size of our operations to become so big in them.
Note on Xiaomi:
Xiaomi became one of the world's largest smartphone makers in five years after its establishment in 2010. It logged 74.3 billion yuan ($11.4 billion) in sales in 2014.
Xiaomi CEO Lei Jun, 46, founded the company after holding positions such as top executive at a software company.
Interviewed by Nikkei staff writer Tetsuya Abe.