Despite being three years old and having only 3,000 employees, private company Xiaomi could become a disruptive force in the smartphone market, currently dominated by two of the biggest companies in the world: Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF)

Despite its small scale of operations, Xiaomi is already selling more smartphones in China than Apple. This is very surprising because there's a common belief that a company needs to be big in order to succeed as a smartphone manufacturer. Apple and Samsung dominate the market, while small companies, like BlackBerry (NASDAQ:BBRY), are struggling to survive. However, Xiaomi has enough competitive advantages to avoid becoming the next BlackBerry. How does this Chinese start-up plan to conquer the fierce smartphone world?

Xiaomi's explosive growth plans
Xiaomi seems to have studied BlackBerry very well, as it is avoiding some of the biggest mistakes made by the Canadian manufacturer. Like BlackBerry, Google, and Apple, the company knows that creating a mobile operating system is the best way to promote its own payment ecosystem. However, in a world where Google's Android and Apple's iOS combine for more than 91% of total market share, Xiaomi realized it had to create not only a friendly operating system, but also something compatible with Android or iOS.

This is why, unlike BlackBerry, the company based its MIUI operating system on Android, which has an active open-source community. Therefore, any Android device can run Xiaomi's operating system. So far, more than 20 million users, including many Android users, have downloaded it.

But, Xiaomi's operating system isn't just another Android variation. From a lock screen flashlight to a one-click cache clean up option, the company has added more than 200 new features. It has also given more personalization power to the user.

So, why is Xiaomi promoting its own operating system? The company is selling its devices very cheap, practically at cost price. Therefore, it plans to get profits through its software.

During the development phase, the company tried to remove and replace Google services with its own cloud services, games, paid themes, and apps store. This shows Xiaomi is well aware of the importance that Google Play and iTunes have in Google and Apple's cash flows.

Of course, Xiaomi's apps store is not as rich as iTunes or Google Play, but unlike BlackBerry OS, the company can easily rely on Google Play to offer localized applications and content if it ships overseas.

Notice, however, that despite its size limitations, Xiaomi's app store is performing better than expected. It reached one billion downloads in only 391 days.

In terms of hardware, Xiaomi's flagship product, the Mi3 TD, has nothing to envy in the world. Compared with Apple's iPhone 5s, the Mi3 TD has bigger resolution, a more powerful camera, and larger display. More importantly, the Mi3 TD is equipped with some of the most powerful mobile processors the world has ever seen. Xiaomi's customers can choose between Nvidia's Tegra 4 quad-core -- the world's first 1.8Ghz quad-core processor -- and Qualcomm's Snapdragon 800.


Source: Xiaomi

Xiaomi's smartphone is so good that even Samsung's latest device, the Galaxy Note 3, may have trouble competing in China, despite having a similar processor. This is because Xiaomi offers top technology for a bargain price.

In terms of sales, Xiaomi's Mi 2S device is the most popular phone in China, according to Chinese benchmarking company Antutu. Technically, the Mi 2S performed better than HTC's flagship device, but was slower than Samsung's Octa S4. However, that was no problem for Xiaomi because its phone sold for less than half the price of Samsung's S4.

But, Xiaomi's aggressive pricing is allowing the company to capture more than just market share from Samsung. Xiaomi has already beat Apple in China. According to Quartz, the company shipped 3.3 million phones in the last quarter, versus Apple's 4.3 million.

Final foolish thoughts
Xiaomi's aggressive pricing, outperforming hardware, and user-friendly Android-based operating system have contributed to the company's amazing early success in China. The company can easily replicate this growth story in other emerging economies, where the increasing smartphone penetration ratio is still low, and customers are highly price-sensitive. It won't be hard to replace Apple in South America, East Asia, and Africa.

After it develops a strong community of users, strengthens its brand, and increases the number of applications in its store, Xiaomi can move to mature markets, where Apple and Samsung remain securely positioned.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.