Xiaomi goes to Brazil, but will the US be next?

Xiaomi Corp's decision to make Brazil the first market outside of Asia for its smartphones represents an opportunity to establish a foothold in Latin America. It may also serve as a stepping stone to enter the United States, according to analysts.

Last week, Xiaomi, the world's third-largest smartphone maker, announced it would begin selling the Redmi 2 in Brazil on Tuesday for about 499 reals ($160). The Redmi 2 is the latest version of its Android budget phone.

"Brazil is obviously a different market from China and it can serve as a model for other Latin American countries," William Stofega, program director for mobile phones for International Data Corp, said. "The pricing is ideal for Xiaomi. If you go higher, then the number of people who can afford the phone declines."

Jan Dawson, chief analyst at Jackdaw Research in Highland, Utah, the US, echoed those views.

"Brazil was an obvious choice as it is the largest market in Latin America, with a population of around 200 million, or around a third of the population of Latin America," Dawson wrote in an email.

A number of other handset vendors from other markets have prioritized Brazil as an important part of their strategy for the region, and "it is a great jumping-off point for the other countries (in the region)", Dawson said.

"Brazil also has a substantial aspiring middle class, the kind of customers Xiaomi targets－those who can afford more than the cheapest devices but can't perhaps quite afford the really high-end phones like iPhones and Samsung Galaxy S phones."

Stofega believes that the Brazil launch will not only help establish Xiaomi in Latin America, but also help the company eventually move farther north and enter the US market.

"This will be a litmus test to see how well they do in an Americas market," he said. "If Xiaomi is successful, it would at the very least provide some confidence for them to move into the US."

But Dawson does not believe that success in Brazil would translate into the US market.

"The US is really a unique market, and I don't see Brazil as in any way an entry point to that market," Dawson said. "Xiaomi's challenges in the US are pretty substantial when it comes to selling phones, and being in Brazil really doesn't help with any of those."

Among those challenges is Xiaomi's selling strategy. The company sells Android-based phones directly to consumers rather than through an agent or carrier, usually undercutting competitors by 50 percent.

Stofega said Brazil is a mixed market where consumers buy phones from telecom stores and order the devices online.

"The people there are very comfortable with going to a store and this is the area where most of the attention will be focused," he said. "Who is going to help the consumer if there is a problem? I'm sure (Hugo) Barra (Xiaomi's global vice-president) will make sure the company has an adequate support system in place."

Beijing-based Xiaomi selected Taiwan-based Foxconn (a technology manufacturing subcontractor) to assemble the phones in part to avoid a Brazilian tax on electronics imports.

The Brazil expansion comes as Xiaomi released first half results on Thursday that showed sales of 34.7 million units, a 33 percent increase from a year earlier. Still, that is less than half of the company's full-year target. Xiaomi faces competition in China from Lenovo Group Ltd and Huawei Technologies Co.