Xunlei's team-up with Xiaomi a shrewd strategy

Investor interest in Chinese Internet companies in the US and teaming up with Xiaomi makes Xunlei's announcement far more likely to lead to a successful and imminent listing. Provided to China Daily

Xunlei, China's 12th-largest Internet company, offering digital content acceleration and online video services in China, recently filed with the US Securities and Exchange Commission to raise up to $100 million in an initial public offering.

The company originally set terms to raise $114 million on the Nasdaq in July 2011 with a $1 billion market cap but postponed and eventually withdrew its IPO that October.

Xunlei's announcement comes on the heels of the successful trading debut of online retailer JD.com and the highly anticipated listing of e-commerce company Alibaba.

Clearly, there is considerable investor interest in China's burgeoning Internet sector, particularly where the United States is concerned.

JD.com, China's second-biggest e-commerce company, saw its share price jump by more than 10 percent after it started trading on the Nasdaq.

JD.com's upbeat debut confirmed a robust investor appetite for Chinese online companies, which can only continue to build ahead of the listing of Alibaba, which filed for an IPO earlier this month and is expected to raise as much as $20 billion.

Xunlei's team-up with Xiaomi a shrewd strategy

Unlike other leading Chinese Internet companies, Xunlei has recorded healthy profits for years and will go into its listing process in good overall financial shape.

Profits at Xunlei jumped to $10.7 million in 2013, up markedly from the $500,000 recorded in 2012. In the first quarter, the company reported profits of $400,000 on increased revenues of $41.2 million.

But what makes Xunlei's announcement far more likely to lead to a successful and imminent listing is not just investor interest in Chinese Internet companies in the US but the teaming up with smartphone producer Xiaomi.

Earlier this year, Xiaomi, one of China's leading smartphone brands, pumped an investment of just over $300 million into Xunlei. It was widely regarded as a strategic decision aimed at supporting an imminent IPO in the US.

Xiaomi's financial and market position not only will enhance Xunlei's US listing but will also create a powerfully symbiotic relationship between two compatible Internet brands.

Xiaomi's smartphone business is inherently linked with Xunlei's fast-growing e-services.

In addition, Xiaomi's dominant market position in the Chinese mainland recently enabled it to embark on its first foray into international expansion with market entry in Singapore, Malaysia and India.

While JD.com's success with its Nasdaq launch and the likely Xunlei and Alibaba listings has produced positive investor input, it must not be forgotten that these companies will face major challenges in their pursuit of international brand-building.

An initial splash on the Nasdaq or any other major US or European stock exchange also leads these young Chinese companies to becoming exposed to the full force of global competition.

In order to build internationally, strategic alliances and/or possible joint ventures with similar-sized, Internet companies may prove critical to long-term, sustainable success.

Teaming up with Xiaomi, therefore, represents an extremely shrewd, strategic maneuver by the Xunlei management and one that other Chinese companies with similar, global aspirations could emulate.

In so doing, many small and medium-sized Chinese companies will be following the international expansion successes enjoyed by South Korean chaebols.

In effect, these family-owned conglomerates have been able to establish the necessary joint working relationships between younger, smaller Korean firms with global expansion aspirations.

Sansung is very much the jewel in the chaebol crown, the proof in the chaebol pudding, by rising to global brand status as a result of participation in a multitude of industry alliances under the chaebol umbrella.

If Xunlei or any other Chinese company is to reach anything like Samsung-status in the future, it must engage in a series of alliances and joint ventures with suitable partners. Xunlei's teaming up with Xiaomi is an exciting step in this direction.