Q1 Is the Chinese smartphone industry
1.1 Competitive Rivalry
The spread of Internet usage has aided competitiveness. Consumers more options than ever before. Even inside China, Xiaomi has a slew of formidable rivals, including OPPO, Vivo, and Huawei, OPPO, and Vivo, and foreign businesses like Samsung and Apple. I n order to be successful, Xiaomi must overcome the challenges given by its current competitors. Foreign brands like Samsung and Huawei are able to easily copy Xiaomi’s cost-effective strategy. Apple’s iPhone devotes a higher focus on product design, which has helped them attract a huge number of Chinese customers. Sanctions on Huawei were implemented by the US, resulting in a drop in the company’s sales outside of China. Samsung and Apple also uses their large research and development capacity to acquire more market share in China. Even then, the competition is relatively high.
1.2 Threat of New Entrants
Despite the enormous number of smartphone companies, it’s hard for a newcomer to succeed quickly. Established smartphone manufacturers must spend a lot on R&D, let alone a new company with no customers. Newcomers must spend more time and money to catch up to industry giants’ innovations (Module 3). New enterprises must differentiate their products from those currently on the market. For a new player, product differentiation is key. Apple and Samsung dominate the smartphone industry, making it hard for others to compete. Apple’s high-end products and green supply chain are well-known. Huawei is recognized for its information and communication prowess; Xiaomi delivers high-quality goods at a reasonable price; and OPPO and Vivo are geared for the young with flashy smartphone designs and entertainment capabilities like high-quality music broadcasting. These effective brand settings deter newcomers.
1.3 Threat of Substitutes
In the industry, Xiaomi faces a significant danger of replacement. Xiaomi’s approach is to deliver reasonably high-quality devices at competitive prices, which has helped the firm in getting a huge market share. However, with companies like Huawei, Vivo, and OPPO, becoming more popular with comparable pricing points, Xiaomi is losing its price edge. Xiaomi confronts technological difficulties from its competitors, in addition to pricing. Apple is known for its own-designed operating system, IOS, and related devices based on the system. Apple’s traditional product design and high-end quality has gained a reputable brand recognition. Samsung has long been a leader in the smartphone business, with a devoted following of consumers who are impressed by its high-quality devices and fast-changing technology (Module 3). Samsung also has competitively priced consumer segments. Huawei, on the other hand, spends a lot of money on its own-designed semiconductors and has a solid foundation in information and communication.
1.4 Supplier Power
Before the pandemic, Xiaomi had a relatively weak supplier power due to the lack of a self-designed system and processors. During the epidemic, chip shortages affected several smartphone manufacturers. Consequently, the chip market turned into a seller’s market. When supply is low or limited, supplier power is high (Module 3). Customers of smartphones are keeping a close watch on chip makers that have produced a restricted quantity of chips. Other component suppliers provide Xiaomi and other firms with components. Xiaomi supports high-quality components at low prices, meaning that component suppliers would not earn more. Due to early obstacles faced by suppliers from outside of China and the growth of local vendors, Xiaomi altered its goal to interact more with Chinese-based suppliers. Suppliers of smartphone components in China want to collaborate with Xiaomi the opportunity for growth. In addition, Xiaomi is a Chinese IT powerhouse with a good reputation and a significant cash flow. It’s advantageous for component suppliers to work with Xiaomi and get timely payment, which is essential for manufacturers. As a consequence, Xiaomi has considerable bargaining power with its suppliers.
1.5 Buyer Power
In the Chinese smartphone sector, the bargaining power of buyers is significant. This is essentially the result of the fierce competition from the local and foreign brands (Module 3). Companies like Samsung and Apple have managed to diminish the bargaining power of consumers by increasing the range of products in their portfolio to create interdependencies. For instance, all Samsung or Apple products are highly interoperable, and acquiring one gadget from one brand’s portfolio often leads to the acquisition of more products. A Samsung Galaxy customer is likely to upgrade to other Samsung products. Consumers will eventually prefer items that function optimally in their context. Apple’s current atmosphere, which has been carefully cultivated, is an exceptional customer retention strategy. Xiaomi is also seeking to reduce the negotiation power of its consumers by expanding its product lineup and fostering product dependency.
Summary
For Xiaomi, the Chinese smartphone sector is highly attractive and profitable. This is despite the presence and dominance of other global brands such as Samsung, Huawei, and Apple which have a significant share of the market.
Q 2. Motivations of Xiaomi to go International and Pursue Internationalization Strategy
2.1 Aggressive Competition in China’s Domestic Market
China’s domestic smartphone industry is the biggest in the world, however following fast expansion in recent years, the pace of smartphone sales growth has slowed and is almost static. The pace of growth has dropped dramatically in comparison to the former growth rate. China’s mobile phone sales have dropped dramatically, indicating that the domestic mobile phone industry has reached saturation. Simultaneously, local firms’ competitiveness has improved, but the “pricing war” among big mobile phone brands has steadily lowered firms’ profitability. Xiaomi has relied on low-cost devices to win domestic customers. However, given the saturation, medium-sized firms’ survival space has shrunk and their competitiveness not guaranteed (Module 8). As a result, Xiaomi must look for international markets to expand.
2.2 Broader Foreign Markets
As a consequence of global economic imbalances (Module 8), smartphone adoption rates in a number of developing nations are typically low, leaving a lot of room for growth. India, being the world’s second most populated nation, has enormous market potential. The quick growth trajectory of the Indian smartphone industry in recent years is remarkably similar to that of the Chinese smartphone market, creating new prospects for local smartphone entrepreneurs. In addition to its concentration on developing markets, Xiaomi is interested in additional nations and areas with fast economic growth, such as Southeast Asia, Africa, and Latin America. Low-end smartphones account for the majority of market share in these emerging smartphone markets, which will help Xiaomi sell its low-cost goods.
2.3 International Competitiveness Improvement
If a company is complacent and just increases its local market in the context of the world economy’s globalization, it will almost surely be removed from competition both at home and abroad (Module 8). Because of the global market’s openness and competition, businesses are compelled to continually update technology and improve management processes in order to establish their own competitive advantages. Domestic enterprises can only strengthen their core competitiveness if they fully integrate all they own, use their capital cost advantages to speed the internationalization process, and dare to compete in an open market. If Xiaomi succeeds in the international market, it will be able to obtain lower-cost smartphone parts, increase its bargaining power with suppliers, and expand Xiaomi’s brand influence in the international market, in addition to driving volume growth, expanding product production scale, and achieving scale effects. The most important thing is that, once in the local market, Xiaomi will be able to continue to build knowledge in nationalized operations and increase its global competitiveness.
Summary
Compared to developed-market firms, the motivations align on some levels. For example, competition in the domestic market, attractiveness of new markets, and the need to improve international competitiveness are major motivators.
Q3. Xiaomi in Hong Kong, Taiwan and India
The business model of Xiaomi has taken off not only due to the company’s low-cost business model and relatively high-quality products, but also due to the company’s strategic maneuvers, which have garnered success over the course of time. One notable trend with Xiaomi is how it strategically chooses the markets it enters, especially away from China. Integration of new goods, prices, and marketing strategies into the business as smoothly as possible is the key to the company’s continued success. The common features of the major markets chosen by Xiaomi is a large market size, a relatively low competitor’s position, markets with scope for growth, and markets with low smartphone penetration.
Xiaomi chose to enter the Taiwan and Hong Kong markets due to the enormous market sizes and the room for expansion and growth that these markets provided. Additionally, Hong Kong and Taiwan had a relatively low smartphone penetration, giving Xiaomi the opportunity to have first-mover advantage over other competitors like Samsung. Additionally, these markets also had the right target audience of young people interested in high quality products at a competitive market price. Lastly, Hong Kong and Taiwan were chosen because they would be representative of other emerging markets in the international scene. As a result, Xiaomi would have a feel of what the rest of the world would be like and how responsive other markets away from China would be to the Xiaomi products. Large marketplaces like Taiwan and Hong Kong were important for Xiaomi to continue growing with a relatively low competitor position and a larger market share compared to smaller markets.
India was chosen by Xiaomi in Southeast Asia for a myriad of reasons. First, India has the second largest population in the world. This meant that the market was large enough for Xiaomi to enter late and still dominate. Secondly, India has a huge population of young people with access to the internet. Due to Xiaomi’s low-cost strategy, penetration in India meant aggressive pricing strategies without the traditional investments in brick-and-mortar stores. This strategy worked very well for the Indian market. Thirdly, India had a relatively low smartphone penetration. This meant that the available brands were not as effective in reaching the millions of young people as Xiaomi was able to do. This was an opportunity for Xiaomi to penetrate the market. Lastly, the competition in India was comprised of Samsung’s low-end products. Xiaomi saw a market space and scope for growth in India to expand.
Q4. Xiaomi international market
When Xiaomi first started selling its products in India and Europe, the company decided to export those products since doing so was the least risky choice. When compared to other models, the export model is easier to implement, requires a less investment in the market being targeted, and produces a smaller loss in the event that a risk really materializes (Module 10). At the same time, the performance of sales in the targeted market will dictate whether or not new strategies are implemented at any given time. The first step that Xiaomi took toward entering the Indian market was to focus on exporting first, followed by an attempt to imitate India’s inventive marketing concepts and a partnership with Flipkart, India’s largest online retailer, to offer their products exclusively for a limited time through the use of hunger marketing. This strategy resulted in a huge boost in the popularity of Xiaomi products in India, although it was implemented. In order to accomplish its long-term objective of penetrating the Indian market, Xiaomi decided to establish its own independent supply chain, build factories, expand its presence in India through the opening of more experience shops, and integrate a direct sales model into its official e-commerce platform. This decision was made since Xiaomi’s sales in India continued to climb, which ensured that the firm would maintain its position as the leader in the industry. This move was made by Xiaomi in order to better position the company for long-term growth and to bolster its presence in international markets. In order to market its products across Europe, Xiaomi started working together with the regional carriers there. The export model was successful.
Xiaomi could use other potential entry modes for its international expansion. Xiaomi could use partnering and strategic alliance for the international markets. The advantages of using this entry mode according to Module 10 include shared cost thus reducing the investment needed, generally reduces risk, and would give Xiaomi the benefit of being seen as a local business. One advantage of having a relationship with a local firm is that it is more likely than a company from outside the region to know more about the local culture, market, and business practices (Module 10). Partners are particularly useful if they already have relationships with potential customers or if they have a well-known and recognized brand name in the nation where the collaboration will take place.
Q5. Xiaomi in trouble
Xiaomi’s present predicament stems in part from their decision to join the market via export. When commodities created in one nation are sold directly in another country, this is known as exporting. Exporting has a long history and is a tried-and-true method of entering foreign markets. There is no need to invest money in factories in other nations since the things do not need to be created in the place where they will be sold. The majority of money spent on exporting is spent on marketing. One of the issues with exporting is that transporting items to the target country may be costly and environmentally harmful. Furthermore, some nations impose import taxes, which will have an impact on the amount of money the firm generates. Furthermore, companies who utilize contracts to market and sell their goods have less control over those operations and must, of course, pay their distribution partner a price for the services they perform.
During the course of the marketing process, it was discovered that Xiaomi had misled customers on a large number of different topics and had made claims that were untrue, incorrect, and dishonest. As a direct result of this, the Taiwan Fair Trade Commission took disciplinary action against Xiaomi (TFTC). Hunger marketing was one of the strategies that Xiaomi utilized during their online shopping campaign in December of 2013. This helped them sell products faster. The corporation provided inaccurate information about the total number of units that were sold during the different flash sales that took place in Taiwan, which was one of the factors that led to the imposition of the embargo. This was done in order to increase the brand’s visibility and value, however Xiaomi’s online presence was shut down before all of the phones were sold, therefore the strategy was ultimately unsuccessful.
As a result of a lawsuit filed by Ericsson against Xiaomi in December 2014, Xiaomi is now engaged in a patent battle in India. In 2014, the court granted Ericsson an injunction preventing Xiaomi from importing and selling the phone in India due to its infringement of Ericsson’s patents on communications technology. After determining that Xiaomi was selling the phone in violation of Ericsson’s patents, the court issued the injunction. As a result of Ericsson’s complaint claiming likely patent infringement, the court has prohibited Xiaomi from selling or importing mobile phones into India. The lawsuit seemed to have severely hampered the company’s aspirations in the foreign development area it designated as its most significant. As a consequence, Xiaomi’s sales in India decreased significantly, pushing the firm to make the offer. Due to the fact that some of the phones included Qualcomm processors instead of Ericsson chips, the court decided to restrict its judgment. Xiaomi was only prohibited from importing or selling smartphones using contested Ericsson CPUs after the court issued its injunction; however, the company was able to continue manufacturing Qualcomm chips in India.
Q 6. Jun Lei’s Decision
It’s possible that Jun Lei may decide to solve Xiaomi’s problems by resorting to contract manufacturing and outsourcing. Contract manufacturing refers to the process in which an organization places an order with a third party to produce a product or component that is then included into the organization’s finished good. Depending on the specifics of the situation, a firm may decide to work with a contract manufacturer for any number of reasons. When a product’s complexity increases, for instance, it may become less cost-effective for a business to handle the creation of each component independently. This is because the complexity of the product increases. To begin, contract manufacturing enables a company to make its items without incurring major overhead expenses. These expenses often include rent, utilities, and insurance. When a business has a finished prototype, all it has to do is find a reliable contract manufacturing partner who can make the things that the business will sell or the components that the business will assemble. This is the only step that needs to be taken by the business. Utilizing the technical experience of the manufacturer is another benefit that comes along with contract manufacturing (Module 10). A reliable contract manufacturer will be able to advise Xiaomi on the best materials, processes, and applications when it comes to sourcing a new product, for example. It’s possible that resolving these challenges will be less complicated with the aid of partners in contract manufacturing. These partners could also be able to help you bridge the gap between you and your overseas suppliers by bridging the distance between you and them. Because it would be working with a contract manufacturer that already has contacts all over the world, Xiaomi will not have to be concerned about the challenges of communicating in a foreign language or the high costs associated with traveling to a foreign country. By using the ties that an existing contract manufacturer already has (Module 10), Xiaomi may be able to save money on the costs associated with researching prospective partners and building new ones. Making things in-house, on the other hand, could wind up saving money in the long run, despite the fact that Jun Lei and Xiaomi will save a significant amount of money in the short term on expenses related to personnel and equipment. When dealing with a contract manufacturer, you run the risk of having problems with the dependability of your business partner, and there is also a possibility that your intellectual property may be compromised.
