Profitable Strategy of XIAOMI Company - Case Study Example

Introduction Globalization has changed the way in which the world operates, diminishing at the same time the existed barriers that hindered ability of people to communicate and interact with each other across the world (Lawlor, 2007). In addition, the advancements in information technology have given a valid impact on the global landscape increasing such demand as for mobile phones. There are many players in the mobile phone industry today, which represent their abilities to add many new features to the mobile services and are capable to enter new markets with new schemes, additional facilities, and also introduce varieties of handsets as models a healthy competition (Kavipriya & Rengarajan, n.d.). The market for cell phone has also become very competitive. In this context, the purpose of the following paper is to illustrate how the modern companies make money and how they compete with others. Based on the research of Xiaomi, Inc., the paper will investigate how well the company positioned itself in such industry. It will also give the management of the company’s performance evaluation and show whether its current strategy is sufficient to guide the company into its future. How does the company make money and compete against other companies? According to Prasad and Sahoo (2011), China, India, USA and Russia are among the top countries where people use mobile phones and this number is increasing as the users are interested in having more than one device at a time. Source: http://www.csjournals.com/IJCSC/PDF2-2/Article%2061.pdf That fact gives many local and international companies to be interested in setting their business in such promising markets (Prasad & Sahoo, 2011). Thus, Xiaomi, a Chinese company, world's 3rd largest smartphone distributor focused on selling its low-cost phones with its flash sales, which have helped Xiaomi to get the top position in both 2014Q4 and 2014 in China. Apple, its main rival, placed the second position in 2014Q4 since its iPhone 6 and 6 Plus were only launched in China. Huawei takes the third place Source: http://www.idc.com/getdoc.jsp?containerId=prHK25437515 in terms of smartphone shipments, because it had many models in the low-end and mid-range segment (The China Smartphone Market Picks Up Slightly in 2014Q4, IDC Reports, 2015). The success of Xiaomi is explained by smart people once collected from Google, Kingsoft and Microsoft in order to create hardware, software and internet devices. It is now the international company that satisfies customers’ needs in Taiwan, Hong Kong, Singapore, Malaysia, Philippines India and Indonesia (About Xiaomi, (n.d.). Reid (2014) states that in its desire to overtake its main rivals, Samsung and Apple, Xiaomi successfully uses Chinese and Indian markets with their economic superpower to blaze company’s trail in such industry. Despite the little history of the company (Xiaomi was founded in 2010), this smartphone vendor has very impressive numbers and is a serious player in the phone industry. Such can be seen in Xiaomi ability to slow the growth of its competitors due to the low-cost device makers (Sanghoee, 2015). According to Fortune, Xiaomi Company with its market share of thirteen per cent in China market has already become the largest seller of smartphones compared to twelve per cent of Apple’s market share during the same period. The numbers of Xiaomi’s success constitute serious competition to Apple, which products are still popular in China (Sanghoee, 2015). However, the unprecedented rise of Xiaomi did not allow the company to make much money in 2013, as Jones (2014) reports. With the Wall Street Journal report about five hundred and fifty-six million dollars that the company earned in 2013, the Journal was wrong, since the company made a lot less money. The fact is true that Xiaomi’s business model works, however, money is not flowing like in Apple Company, for instance (Jones, 2014). Kharpal (2014) states that the company makes its money based on its strong image of affordability with the equal strong functionality for Apple’s phone at the same time. Besides, shipping its flagship Mi4 smartphones is the strategy that allows the company to provide its users a platform to use Xiaomi’s software. In addition, company’ long-term strategy that directed on building the ecosystem and pathway to get the software helps Xiaomi to be closer to its consumers. The other feature that the company started with its inception was the chat between the developers and consumers that allowed Xiaomi to quickly react on different feedback and release updates if necessary (Kharpal, 2014). A considerable percentage of its profit the company earned through selling of its phones in India and China using online-only channels. That kept the cost base down and allowed audience of tech-savvy to be able to purchase the needed item. In entering new markets, the Chinese company Xiaomi plans its international expansion to be directed by chosen markets where its low-cost business model will work properly (Wakabayashi, 2014). The company has no intention to avoiding those areas of potential intellectual-property-litigation risk that are so often in the industry of smartphone designing and production. In addition, the company seeks to enter those markets where the price for smartphones will compose the big part of the income of its consumers (Wakabayashi, 2014). In its desire to enlarge its products, Xiaomi passed Apple and Samsung becoming the best-selling smartphone in 2014. Despite such success, experts predict that in its desire to expand its activities to U.S. and Europe, Xiaomi will face patent infringements since it has not enough intellectual property to defeat the cross-licensing patent deals with other competitors in smartphone industry. In terms of threat from competitors, the company poses a threat to other itself, since Xiaomi wants to accept low margins on hardware in order to make money in other places. Thus, Xiaomi’s popular Redmi phone costs a quarter of Apple’s iPhone 6 price and is sold for eight hundred dollars in China. Evaluation of Xiaomi management performance In order to enlarge profitability of the company in the future, Xiaomi wants to sell other services such as games, television shows and apps along with its smartphone products. In addition, higher-margin accessories would also enable the company to increase its earnings (Mozur, 2015). Thus, the company has an ambitious plan to establish strategic partnership with internet companies. As Technode (2014) informs, Xiaomi starts its cooperation with Youku Todou, Chinese internet company, acquiring the latter’s circulating shares in order to develop a multi-screen media and entertainment ecosystem (Lee, 2014). Despite the statement of Xiaomi’s founder about the partnership as an inaugural project, lack of high price hardware and online video as an integral part of its business model, the company can face such troubles as the authorized licensees and copyright infringement lawsuits. However, Youku’s content still expects to be present on Xiaomi’s smart set-top boxes, phones and tablets. Moreover, the same Technode (2014) states that Xiaomi plans to make its further step in entering the digital content market investing three hundred million dollars in iQiyi, another online video site in China. The other strategic move of the company is to enter the new market, the U.S.’s one with mini hadnsets, as Farivar and Amadeo (2015) informed. While the company is known for maing smartphones in China, now it is time for company, as its president and founder considers, to take more from the new market, because size matters the most. It also reveals that the company does not look for making more money, but to bring more devices to users. U.S. market is now the leading market by contract-driven carrier-subsidized handsets, which would give the company another advantage over its competitors. However, the carriers have tight control in U.S. and the company is not sure if its strategy of almost free product would be suitable for American carriers (Farivar & Amadeo, 2015). In order to gain more customers, Xiaomi’s strategy is not directed toward spending millions of dollars on marketing, as stated in International Business Times article (2015). Instead, the company’s admirers value the products without those features that are plastered with advertisements. It is the freshness and geeky aspect of Xiaomi brand loyalty that promotes itself in the eyes of customers and their ability to spread the products around the world. While enthusiasts use the term “mi-fans”, such attentiveness to fans gives Xiaomi opportunity to sell its products within minutes (Agomuoh, 2015). The other important strategic move of the company was launched before the inception of MIUI and Xiaomi phones. It started as the establishing of active mobile community where users could discuss their experiences and what they would want in the next generations of electronic devices. According to Majumdar (2015), in six month after the inception of MiTalk, the company has already accounted three million users. Hence, Xiaomi took talking and numerous considerations into account and employing a team of professional people developed UI and then led to the customization of Android (Majumdar, 2015). The other aspect of Xiaomi marketing strategy is in production of small amounts of products that implies no surplus raw material and thus gives the company opportunity to increase its efficiency. Such hunger driven market led to the demand to be more than the supply. The unusual marketing strategy of Xiaomi ensures the company reduction of costs in logistics, advertising, storage, delivery and managing of its materials. However, that provides only better quality of products that customers can expect from Xiaomi. In addition, the company adopted its innovative way in keeping the relationship with the customers, reducing the distance between two sides of the company to limits. Such approach is seen when Xiaomi management team acts as customer service, discusses aspects of theirproducts with users and listens to the advice from them. In addition, all the Xiaomi employees use Weibo social network which is the most famous website in China in order to interact with internet users as well. The Xiaomi management considers such method as an effective one that enables users to feel themselves as a part of Xiaomi (Chinese innovation, n.d.). The desire of Xiaomi to improve and discover new business models for reinvent ion of smartphone business leverages its plans in adopting a model similar to Kindle of Amazon that relies on hardware and software and generates revenue in the long term (Gupta & Dhillon, 2014). Is its current strategy sufficient to guide them into the future?  Xiaomi's long-term strategy is to customize its software and services, combine them with the use of consumer feedback and services-focused model (Singh, 2013). That would create other smartphone companies serious obstacles in making their activities. The way Xiaomi conducts its current business is people. According to Cook (2015), Xiaomi's Vice President of International states that the company lives with usual working hours, however, eighty per cent of its employees are working more contributing to the company’s activities since they feel they create much more for their customers. The secret of Xiaomi’s success is in evolving the concept of leveraging the Internet capability that enable people to collaborate and create personalized product experiences at Xiaomi. According to Shapiro (2014), the main difference of the company is that it is mainly the internet-made company and unlike Apple’s simple design and one solution to every customer, Xiaomi offers more opportunities to meet customers’ preferences, which can be changed. The great job is done by thousands of designers of all sorts of functions, looks and solutions that create their own personal Xiaomi experience (Shapiro, 2014). While Xiaomi profitability depends on the customers’ decisions, they are the only predictable units that enable the company to gain a market foothold (Sampere, 2014). In this context, the company has a considerable advantage over its Apple and Samsung since its products do not have high-margin price and thus, can be affordable more to the consumers with lower income. The sources of funds for Xiaomi are the ways of producing its smartphones. Some claim that these are the product introductions and operating system and the overall performance of the company. Besides, the company makes it funding more reliable in comparison with Apple’s since its products are launched not so often, one new product in two years in comparison to Apple’s launchings every 265 days. Besides, Xiaomi prices the phone just a little higher than the total cost of all its components. Apple, in comparison, gathers highest profits with the introduction of each new model that comes with the introduction of new margins that are high (Sampere, 2014). Besides, the investors’ preference in choosing Xiaomi Company is also dictated by the new generation of CE companies. Thus, unlike Panasonic and Samsung, Xiaomi attracts investments for being the hardware vendor along with the mobile internet opportunities its gives that comes without any baggage to investors. There are no factories, no physical retail stores and no inventory at Xiaomi. It only sells on the internet, no third-party distribution is involved (Low, 2014). Hence, such conditions create more favourable opportunities for the company’s earning its profit. More important, Xiaomi's founders successfully captured the flexibility of internet, which allowed the company to fix the low price of its phones and become the third largest distributor in the world. Xiaomi strategy of producing its phones in small batches and launching them over the internet gives more promising future to the company (Mezue, 2013). Between launchings, the company improves its new product, trims its costs and upgrades parts of the product. The successful online strategy that worked well in China, consumers’ recognition of Xiaomi's new phones gave the company possibility to earn trust and loyalty from customers, who became more eager for Xiaomi's newest models. Despite the low cost of its phones, He is not the cheap smartphone company that some people can consider. On the contrary, it has successfully built a reputation for high quality smartphones that are packed with reliable parts and components through collaboration and unique management of its people (Hein, 2015). As one of the moves that can lead Xiaomi to the perfect future is the duplication of the success of its smartphones with other devices that the company plans to launch. Thus, it has already invested more than two hundred million dollars in a Chinese home appliance company, Midea. While Midea has supported Huawei’s M-Box smart set-top box, Xiaomi has joined as one of Midea's partners. Such move give mopre perspectives to the company (Yoshida, 2014). The infant IoT market today is broad and nebulous. There's no clear IoT champion in sight, as Apple or Samsung are in the smartphone world. Xiaomi, this time around, will have to define products and lead the market, instead of following it (Yoshida, 2014). Conclusion After raising more than one billion dollars in investment, the Chinese smartphone company Xiaomi is valued at forty-five billion dollars, which makes it the world’s highest valued technology start-up business (Spence, 2014). Such numbers predict it’s the success in 2015 on both hardware and software areas. With strong presence in China where there are millions of customers of Xiaomi products, the company expects its handsets to be sa successful in the market of U.S. What the company can do next is to conquer Samsung that is currently dealing with falling sales and reduced profit. In the same context, Xiaomi is capable to take more risks and grow the user base better than Samsung. However, in such markets as European and American, Xiaomi should put its all efforts to earn the fast-growing markets and find new strategies that would allow it to attract new customers. Whether the 2015 does not become the year of Xiaomi intervention to U.S. and European markets, it will still have serious ipact on the world of smartphones. References About Xiaomi, (n.d.). The official website for Xiaomi, Retrieved from Agomuoh, F., (2015). Xiaomi’s Marketing Plan? Counter Apple, Samsung's Million-Dollar Ad Buys With Viral Events, Fanatical Fans, International Business Times, Retrieved from Chinese innovation, (n.d.). Retrieved from < http://entrepreneurs-innovation.com/tag/xiaomi/> Cook, J., (2015). Employees At Xiaomi Work Insane Hours – Just Like Apple, Business Insider, Retrieved from Farivar, C. and Amadeo, R., (2015). Xiaomi’s plan to take over the world: One handset, tablet at a time, Arstechnica, Retrieved from < http://arstechnica.com/gadgets/2015/02/xiaomis-plan-to-take-over-the-world-one-handset-tablet-at-a-time/> Gupta, S. and Dhillon, I., (2014). Can Xiaomi shake the global smartphone industry with an innovative services-based business model? AIMA Journal of Management & Research, August 2014, Volume 8 Issue ¾, Retrieved from Hein, K., (2015). Marketing Proposal and Strategy for New Xiaomi Product “MiSpectacles”, Retrieved from Jones, L., (2014). Xiaomi’s successful but does not make much money, Mobile burn, Retrieved from Kavipriya, T and Rengarajan, P., (n.d.). User’s level of satisfaction with mobile phone service providers - with special reference to Tiruppur district, Tamil Nadu, Abhinav journal, Vol. N.1, Issue N.9, Retrieved from Kharpal, A., (2014). What’s behind rapid rise of ‘China’s Apple’ Xiaomi? CNBC, Retrieved from Law, A., (2014). Five reasons why Xiaomi is a serious smartphone player, CNET, Retrieved from < http://www.cnet.com/news/five-reasons-why-xiaomi-is-a-serious-smartphone-player/> Lawlor, B., (2007). The Age of Globalization: Impact of Information Technology on Global Business Strategies, Senior Capstone Project, Retrieved form http://digitalcommons.bryant.edu/cgi/viewcontent.cgi?article=1000&context=honors_cis Lee, E., (2014). Xiaomi To Invest Millions USD in Video Site Youku Tudou, Technode, Retrieved from http://technode.com/2014/11/12/xiaomi-to-invest-in-youku-tudou/ Majumdar, N., (2014). Understanding Xiaomi's Marketing Strategy, Linkedin, Retrieved from Mezue, B., (2013). Can Chinese Smartphone Darling Xiaomi Compete in Western Markets? The Harvard Business Review, Retrieved from < https://hbr.org/2013/09/can-chinese-smartphone-darling-xiaomi-compete-in-western-markets/> Mozur, P., (2015). Xiaomi Releases Financial Data Showing Its Growing Strength, The New York Times, Retrieved from http://bits.blogs.nytimes.com/2014/12/15/xiaomi-releases-financial-data-showing-its-growing-strength/?_r=0 Prasad, V. and Sahoo, P., (2011). Competitive advantage in mobile phone industry, International Journal of Computer Science and Communication, Vol. 2, No. 2, Retrieved from Reid, B., (2014). Xiaomi Looking To Overtake Apple, Samsung To Become World’s Top Smartphone Vendor, Redmond Pie, Retrieved from Sampere,О., ( 2014). Xiaomi, not Apple is changing the smartphone industry, The Harvard Business Review, Retrieved from < https://hbr.org/2014/10/xiaomi-not-apple-is-changing-the-smartphone-industry/> Sanghoee, S., (2015). Can Apple win China in a market of cheaper smartphones? The Fortune, Retrieved from < http://fortune.com/2015/02/24/can-apple-win-china-in-a-market-of-cheaper-smartphones/> Shapiro, J., (2014). Disrupting the Disruption Myth, The Entrepreneur, Retrieved from Singh, S., (2013). Xiaomi's Growth Strategy Detailed, Tech-thoughts, Retrieved from Spence, E., (2014). Xiaomi's Future Smartphone Success In 2015 Will Ignore America, The Forves, Retrieved from < http://www.forbes.com/sites/ewanspence/2014/12/29/xiaomi-45-billion-valuation/2/> The China Smartphone Market Picks Up Slightly in 2014Q4, IDC Reports, (2015). International Data Corporation press release, Retrieved from Wakabayashi, D., (2014). Xiaomi Defends Its Smartphone Business Model, The Wall Street Journal, Retrieved from < http://www.wsj.com/articles/xiaomi-defends-its-smartphone-business-model-1414521120> Yoshida, J., (2014). Mobile Internet Strategy Fuels Xiaomi’s IoT Ambitions, EE Times, Retrieved from http://www.eetimes.com/author.asp?section_id=36&doc_id=1325130&page_number=2 Read More