This study investigates the sources of competitive advantage of ‘Xiaomi’ surging as the China's first and world's third largest smartphone vendor. Following the strategic concept of cost leadership and differentiation, we draw the sources of competitive advantage of Xiaomi and its limitation to sustain them from the resource-based view. Xiaomi initially launched its first smartphone in a transitory era of mobile telecommunication technology from 2G to 3G. Xiaomi has redefined a smartphone as a commodity melting ‘device- software-application services’ beyond an assembled gadget, which results in market extension. Xiaomi's strategies consist of several tactics; (1) entirely outsourcing a few models, (2) allowing consumers to preorder online without offline stores, and Xiaomi pursues the ‘low-end disruptive innovation’. These strategies help Xiaomi to target the niche market enjoying a comfortable cost lead. Simultaneously, they contribute to differentiate Xiaomi from leading companies, such as Apple and Samsung. Xiaomi positions their products at ‘high specification-low price’ to create ‘Xiaomi ecosystem’ focusing on (3) its own operating system, MIUI and (4) big fans(米粉; Mifen) communications. The competitive advantage, following a discovery driven approach, which Xiaomi obtains recently is a transient advantage under the rapidly changing smartphone industry. It makes cost leadership and differentiation of Xiaomi weaken on condition of a struggle along without big fans, ‘Mifen’ as well as a phase of stagnation or even decline. Therefore, Xiaomi confronts the difficult task of outsourcing key components stably, relieving a doubt on an infringement of Intellectual Property Rights(IPR) and appealing to a wider customer base globally.