Xiaomi acquires the rest of Zimi – a shift in its ecosystem partnership strategy

Xiaomi recently fully acquired its ecosystem partner Zimi International Corporation, which beforehand Xiaomi had 49.91% stake. Zimi specializes in the development and manufacturing of smartphone accessories and smart hardware, including battery packs, power adaptors, and IoT accessories. Xiaomi aims to leverage Zimi's battery and IoT related capabilities to strengthen its competitiveness in a highly competitive market, where most competitors are also aggressively forming their respective ecosystems.

Historically, Xiaomi's investment strategy was to gain limited share in new tech startups by funding and incubating them. Xiaomi's "ecosystem partnership" model provided support in the form of software platform services, sales channels, and development resources for these innovative ecosystem partner firms to grow. In-turn, partners helped develop and grow Xiaomi's brand and appeal by creating compelling products that usually work well with Xiaomi's core devices. This model helped uplift many ecosystem partners which were at a very nascent stage. However, with rapid development and expansion, a few partners have gradually grown bigger and will eventually compete head-to-head with Xiaomi, with Xiaomi losing its leverage over them.

Huami for example, Xiaomi's ecosystem partner which produces Mi Bands, has matured under its support over the years. After reaching scale, Huami wanted to be more independent and became one of Xiaomi's first ecosystem partners which successfully went public, straining their relationship further as Huami continues to establish itself in the wearables market. Xiaomi intends to avoid this situation by taking a new approach – stabilizing the relationship with partners via acquisitions. By acquiring Zimi, Xiaomi will be able to leverage the acquired resources and capabilities to its full advantage, giving the company more certainty and confidence in its strategic alliances to further strengthen the Mi ecosystem.

The acquisition of Zimi marks a shift in Xiaomi's approach towards partnership strategies. The new strategy is expected to result in a stronger bond between Xiaomi and partners, which will encourage the development of new ecosystem-driven features. From a long-term product synergy perspective, Xiaomi needs to build its R&D capabilities and to extend its AIoT integration further into many more aspects, especially with the help of partners such as Zimi. Overall, Xiaomi is putting a strong message to its ecosystem partners with this acquisition in terms of both operational and bottom-line synergies.