"This model works because Xiaomi has realized that in China's domestic market, there is a large population of highly educated, digital savvy young consumers who may not have a high enough income to buy an Apple smartphone," Yu said.

At the same time, these consumers enjoy the fact that their achievements are being recognized and appreciated, so Xiaomi has captured consumer demand and turned its software system into a user co-creation platform.

"Such a setup has allowed Xiaomi to wring out disproportionate profits even when a comparable cellphone model from Samsung would cost at least twice as much," Yu said.

"Xiaomi has risen to the top of the mobile industry in China by practicing open innovation, building a community of users and branching out into different mobile services in a concerted effort to monetize its base of smartphones."

This business model makes Xiaomi's international growth disruptive, because latecomers like Xiaomi pose a serious threat to global incumbents.

By not focusing on manufacturing expertise, companies such as Xiaomi are forced to have a much firmer international mindset, so they can replicate their close interaction with consumers in overseas markets.

"They need to speak the local language and cannot come across as a Chinese firm," Yu said. "They will build a new team of local management to be in charge of day-to-day decisions, and English will be the official language for a lot of day-to-day meetings.

"The Chinese management will travel outside of China a lot to understand local market needs, and this takes the competitiveness of Chinese enterprises to the next level," Yu added.

A similar example is WeChat, a Chinese challenger to the successful WhatsApp, the instant messaging app purchased by Facebook last year for $19 billion.

WeChat, developed by Tencent, started with a platform similar to that of WhatsApp, but quickly moved into new features that resonate with its client base.

WeChat's "shake" feature allows customers to find fellow users nearby, and its "moments" feature allows users to share photos and comments with friends in a blog format.

But, more surprisingly, WeChat has increased its large customer base by movin into the online payment field.

"WeChat excites its user base continuously and is not afraid of boundaries," Yu said. "For example, its payment function is something Viber and WhatsApp would never think of, but WeChat represents a new wave of Chinese companies.