From Local to Global: Strategies for International Development - Case Study Example

From local to global - Strategies for International Development AFFILIATION: Introduction Due torapid advancements in the field of business world, the organisations are utilising all the opportunities available so that they can avail the cost saving and profit generation avenues. Most of the companies are undertaking the international expansion initiatives so that they can penetrate in new and attractive markets (Omar & Porter, 2011). Presently, Xiaomi is viewed as the leading smartphone brands in China which has been excelling exponentially in the consumer electronics sector. After attaining appropriate market share, the company is considering the option of entering into an international market i.e. Malaysia. When entering into different markets, the companies have to assess the feasibility of surviving within a contemporary region. Moreover, there are other possibilities which have to be evaluated such as accessibility to the resources, skill level of labour, legal requirements, economic performance and political situation (Kelly, 2009). Xiaomi has been able to develop a strong brand in its international operations in Taiwan, Hong Kong and Singapore. Although Malaysian market is different from these regions but the company needs to evaluate the market entry strategy so that it can enhance its international business effectively. Brief History of Xiaomi Xiaomi is a company which is privately owned enterprise involved in the designing, development and selling of consumer electronics, smartphones and their applications. In August 2011, the company launched its foremost smartphone for gaining huge market share in the mainland China. The company was inaugurated in 2010 by seven people. During the initial funding phase, Temasek (Singapore based government run investment automobile company), Qiming Venture Partners, Qualcomm (developer of processor for mobile) and IDG Capital were the major institutional investors (Xiaomi, 2013). MIUI which was the initial Android based user interface was introduced by Xiaomi in 2010. Following year in 2011, MI-one phone was released and it was dispatched with MIUI user interface on the basis of Android which has similarity with iOS of Apple and TouchWiz of Samsung. The company made sure that all of its products were created with superior quality components so that the customers were satisfied with their offerings. Furthermore, in 2013, it opened a retail outlet in Beijing and later that year it was ranked as the fifth best brand in smartphone category in China (Xiaomi, 2013). In order to move ahead with its international expansion, Xiaomi offered its products in Singapore. In the city-state, the company’s global headquarters are set up so all activities are synchronised and future projects are strategically planned. Additionally, the management team decided to hire Hugo Barra from the Google Corporation as the Vice President of Xiaomi Global Division in 2014 (Xiaomi, 2013). Nation-Level Analysis Malaysia is reported as the economy which comprises of upper-middle class income people and has an open economic infrastructure. According to The World Bank (2013b), the country is placed in the group of 13 nations which are identified to have made records of having average growth of above 7% on yearly basis for twenty-five years and more. This statement was made in the 2008 Growth Report developed by the Commission on Growth and Development. In order to fulfil its commitment, the country successfully reduced the poverty problem by reducing it to 2% in 2012 from 50% in 1960s which was about US$ 8.50 on daily basis. The economy of Malaysia resumed thrust and it gained momentum in 2013 which was evident in its GDP growth rate of 6.3% and it continued till September 2013. The main driver for the robust performance was the private consumption and it accelerated to 10.7% in the same period. Even the exports amount increased in the last quarter due to enhanced performance of the education sector and the critical element was the investments in inventory (The World Bank, 2013c). Ultimately, the growth was moderate as it reached to 4.5% in 2013 from 5.6% in 2012 despite sufficient contribution from the buoyant final consumption and fixed investments. It is estimated that exports will be slower due to low demands on domestic level and it can pick-up momentum later in 2014. The local demand will have headwinds due to cuts in subsidy and hikes in tax rates (steps taken for fiscal consolidations), declining exchange rates and rising interest rates (normalisation of global monetary situations) and accelerating pressures on the budgets of each household (The World Bank, 2013a). By the end of 2012, US had smartphone penetration of about 48% and Malaysia’s rate stood at 27%. It was estimated by the Malaysia’ Telecommunication and Multimedia Communication that the smartphone sector will account for about 23% of the latest mobile phones which are sold in year 2013 (Osman et al., 2011). It is reported by Mothar et al. (2013) that the Malaysian consumers are not impacted by the price of the smartphones as they buy the product on the basis of a set of features. Majority of the users of these phones are young adults and teenagers and it is forecasted that the number of smartphone users will reach one billion consumers by the end of 2016 (SKMM MCMC, 2013). The main success factor which has contributed towards the success of smartphones is the ‘affordable plan’ developed by the country’s telecommunication companies as they are also known as ‘contractual plans’. Each of the plans is developed in accordance to the customer requirements so that they can easily buy their desired phones with ease. These contracts are offered by only three companies in the region i.e. Digi, Maxis and Celcom (SKMM MCMC, 2013). In a study conducted by Osman et al. (2011) among the Malaysian university students found that the graduates are using mobile or smartphones as the necessities of life as it is altering the learning process. In most of the higher learning organisations, the students are using the devices for sharing the notes among classmates, recording of the lectures, taking pictures of important assignment for referencing in future, sharing the examination results through Facebook and even Bluetooth for sharing vital data (Osman et al., 2011). Hence, smartphones are being used both as entertainment and learning tool by Malaysian people. Country attractiveness – Porter’s Diamond Model When assessing the attractiveness level of a country, the most feasible option is to apply the Porter’s Diamond Model which assists a company in evaluating the nation’s competitiveness from every aspect (Luthans & Doh, 2011). The graphical representation of the model is shown below: (Source: Luthans & Doh, 2011) The foremost element which is reviewed is the factor conditions i.e. the availability and accessibility to the resources. In addition to the capital, Xiaomi has to take account of labour, wages level, infrastructure, physical sources and human resources in Malaysia. It is evident that the country has abundance of suppliers along with employees as its unemployment rate is high. Moreover, the company is investing in the education sector to capitalise on the human capital aspect. Even the Malaysian government is supportive of foreign competition so there are less strict rules and regulations for Xiaomi. As the company has been successful in its other international projects, it sheds light on strategic alignment of its structure and business strategy. Malaysia has developed to become the dominating location for manufacturing and outsourcing activities. Xiaomi will be able to have easy access to the related industries of smartphone especially the suppliers of components. Further ahead, as the brand is successful in China so it can employ its competitive edge tools in this new country simultaneously. Hence, overall chances of the company’s prosperous penetration are evident from the growing smartphone industry of Malaysia along with increasing demand of such superior quality products in the region (The World Bank, 2013b). Firm-Level Analysis In addition to the nation level analysis, it is imperative to perform self-assessment so that an enterprise can determine its true position and carry out realistic evaluation of its international business plan (Peng & Meyer, 2011). Xiaomi has been able to become the well-known smartphone brands in China due to the quality and features presented to the customers. One aspect which has been capitalised by the management team is the excellent customer service along with highly innovative and friendly working culture (Xiaomi, 2013). Every firm is well-aware about its core competencies and strives to offer consistent level of services to its customers by enhancing the sources of competitive edge. In order to understand the competitiveness of Xiaomi for expansion in international market i.e. Malaysia, VRIN framework developed by Barney (1991) is being applied. International expansion feasibility – VRIN Framework According to Barney’s VRIN framework, the resource has to be assessed that whether it is a source of competitive advantage on sustainable basis or not. In order to fulfil this requirement, a resource should possess four characteristics i.e. Valuable, Rare, Inimitable and Non-substitutable (Peng & Meyer, 2011). Being valuable implies that the source should have great value as compared to that of competing firm in terms of the cost and benefits on relative level. Likewise, the rare element means that it is relatively scarce in demand for being used or produced. Simultaneously, it should not be easily copied and does not have any other functional substitutes. Considering the scenario of Xiaomi’s portfolio, the only resource which complies with this framework is the human capital because the intellectual capabilities of the employees cannot be copied. Recently, it made the decision of hiring Hugo Barra for managing its international operations. It even has excellence in manufacturing and value chain framework which allows it to offer the customers a customised range of offerings. However, it has to overcome the threats posed by cheap substitutes of smartphone available in the market by reinforcing its brand image. Mostly consumers believe that Chinese products have low quality than other international brands. Global sourcing and production Malaysia is among those nations which are emerging and developing into competent economies. Realising the potential of foreign businesses, the government of Malaysia has entered into various alliances with the World Bank with the foremost aim of developing the education and corporate sectors (The World Bank, 2013b). Since human capital is the major driver of economic growth, its education industry is undergoing drastic improvements with strong emphasis on IT sector. Even the graduates are shifting to technological gadgets for fulfilling their learning requirements (Mothar et al., 2013). It has even opened a range of avenues for those companies who want to shift their production facilities in the region. Moreover, the government is attracting FDIs in the form of outsourcing initiatives so that it can boost the local businesses. The industrial development in Malaysia will allow the international businesses to develop cost-effective operational policies so that they can penetrate effectively within this region. Hence, Xiaomi can consider the option of entering in this market which is the central and growing hub for global sourcing and production. Market Entry Strategy When a firm decides to move ahead with international expansion strategy, it has to make wise selection about the market entry strategy. The choices available are exporting, licensing, contract manufacturing, joint ventures, franchising, wholly owned subsidiaries, strategic alliances and E-commerce (Twarowska & Kakol, 2013). Each of the entry mode has a range of positive and negative aspects because there are various factors which impact the processes. However, the strategy has to take account of possible hurdles so that they can be avoided during the implementation phase. For Xiaomi, the recommended mode of entry is joint venture with a firm which is involved in the production of smartphones in Malaysia. By utilising this strategy, the company will be able to minimise the risk of failure and make sure that it offers the products in accordance to the demand of the market. However, the management team will have less control on the operations and structure of the firm will have to be realigned to comply with the partner’s mode of business. In the long-term, Xiaomi will get benefited as successful penetration in the region will be convenient, cost-effective and productive. In order to make sure that the market entry strategy is effective and desired targets are positively attained, the market entry framework will comprise of following phases: 1. Carry out market survey to determine the target market and analyse the feasibility of survival within the region. 2. Evaluate the possible partners with which joint venture can be created. 3. Meet with the partner’s management team to clarify the objectives and structure of the organisation. 4. Create a new company in Malaysia for running the business. 5. Develop an exit strategy so that the loss is minimised. 6. Evaluate the performance of the brand in the market on quarterly basis. Moreover, the implementation phase has to be monitored so that Xiaomi can evaluate its performance and make sure that any challenges are properly handled. Since the company wants to reinforce similar brand image, the management team has to offer the consistent quality to its customers by maintaining standard and efficient operations in its global locations. Thus, the management team should implement this plan to prosper successfully on international level and continue its efforts towards becoming a top ranked global brand. Conclusion Xiaomi is making a strategic decision by moving ahead with international growth plan in Malaysia as it will provide the opportunity of expanding in the Asian region where it is considered to be the best smartphone brand. In order to capitalise on its unique offering, the company should exploit this market effectively by undertaking appropriate market study initiatives. For the enterprise, entering this market through joint ventures is a wise choice as it will allow it to penetrate in the market effectively and attain the international business objectives efficiently. References Kelly, P., 2009. International Business and Management. USA: International Thomson Business Press. Luthans, F. and Doh, J., 2011. International Management: Culture, Strategy and Behavior. 8th ed. USA: McGraw-Hill Higher Education. Mothar, N.M.M., Hassan, P.D.M.B.A., Hassan, P.D.M.S.B.H. and Osman, D.M.N., 2013. The importance of smartphone’s usage among Malaysian undergraduates. IOSR Journal of Humanities and Social Science, 14(3), pp. 112-118. Omar, M. and Porter, M., 2011. Reducing risk in foreign market entry strategies: standardization versus modification. Competitiveness Review, 21(4), pp. 382-396. Osman, A.M., Sabudin, M., Osman, A. and Shiang-Yen, T., 2011. Consumer behaviour towards usage of smartphone in Malaysia. 2011 International Conference on Software and Computer Application, 9(2011), pp. 158-164. Osman, A.M., Talib, A.Z., Sansui, Z.A., Yen, T.S. and Alwi, A.S., 2011. An exploratory study on the study of smartphone usage in a developing country. 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