Strategies for International Development- of Xiaomi - Case Study Example

Business Synopsis The smartphone market in Malaysia has been captured by Samsung and Apple. The entry of Xiaomi in such a condition does not seem beneficial since the market is well-acquainted with the abovementioned brands. So, Xiaomi can enter Malaysia through joint venture; this will be the only successful market entry strategy for the company since franchise and licensing will not fetch in enough monetary benefits. The market entry proposal elaborates on details of the joint venture by critically reviewing national and company level issues. Recommendations The recommendations emerging from the analysis and evaluation of the joint venture are as follows: 1) Before approaching Samsung for the joint venture, Xiaomi should review structure of the Malaysian market in order to understand whether the company will be successful in drawing customers for their smartphones. 2) Xiaomi should also concentrate on expanding its product range of smartphones by developing its software; this will enable people in Malaysia to experience new applications and features that are not provided by leading brands in Malaysia. 3) Xiaomi should also focus on tastes and preferences of the Malaysian crowd so that the exact features and functions that are required can be provided. 4) Apart from smartphones, Xiaomi can also concentrate on developing other mobile phones with advanced software so as to target maximum number of customers. Introduction With increase in demand for international products in every nation, competition is rampant worldwide. This has forced managers of multinational companies to take strategic decisions so as to sustain in the global market. It is evident that companies need to increase products ranges and expand target market to the untapped regions in order to compete with others (Doole and Lowe, 2008.). When expansion plans are made, the foremost decision to be made is that of the mode of entry in the chosen foreign market. It can be said that international expansion provides promising new market to companies; however, this is accompanied by diverse risks, which are encountered in the new territories. The following essay constitutes the market entry proposal for Xiaomi in Malaysia. The proposal is prepared for Board of Directors of the company so that they can adapt and implement the proposed market entry strategy in Malaysia. Xiaomi is the fifth largest smartphone manufacturer and seller in China selling its products in China, Hong Kong and Taiwan (Peter, 2013). The company has been taking expansion decisions in major parts of developing nations. Hence, the company chose Singapore to be the starting point of business expansion. It had also planned to enter Malaysia. Malaysia is regarded as one of the most saturated smartphone markets in the world. About 80% of mobile phones used in Malaysia are smartphones (Figure 1) (Pasick, 2013). Figure 1: Share of smartphone (Source: Pasick, 2013) This fact poses considerable amount of challenge to Xiaomi in penetrating the Malaysian market; a market where the reigning smartphone giant, Samsung, has already captured the maximum market share (Figure 2). Figure 2: Sales of smartphone in Malaysia (Source: Pasick, 2013) In such a situation, it is difficult for Xiaomi to enter the Malaysian market for expanding threshold of its business. So, the company can take the help of market entry strategies, which will assist development of a new market in Malaysia. The company can involve in a joint venture plan with Samsung so as to efficiently establish market in Malaysia. The new venture will be named as Samsung- Xiaomi Pvt. Limited. Both the companies will have equal share in profit of the venture. Through the joint venture, Xiaomi will get the opportunity to penetrate in Malaysia since there are big players who have captured majority of the smartphone business. Market Opportunities in Malaysia The analysis of market opportunities in Malaysia includes Porter’s Diamond Analysis and Risk-Cost-Benefit analysis of the nation. Porters Diamond Analysis Porter’s Diamond Model attempts to elaborate on competitive advantage of a nation owing to availability of certain factors. This helps in analyzing and improving role of the nation in competitive fields. The figure provided below represents Porters Diamond Model: Figure 3: Porters Diamond Model (Source: Cho and Moon, 2002) The national level analysis of Malaysia can be elaborated through Porter’s Diamond Model. The four broad factors incorporated in the Porter diamond model are key tools for analysis of competitiveness of a nation: 1) Factor Conditions: These indicate human, physical, knowledge and capital resources along with the infrastructure of Malaysia. Malaysia is a newly industrialized economy and the best one in Asia with GDP growing up to 6.5% annually, after 1995 (The World Bank Group, 2014). The country has huge capital reserve since it is expanding its revenue base by industrialisation. As compared to other countries in Asia, Malaysia is estimated to employ 3 million workers who are outsourced from foreign countries and 10% of the population are employed in industries (New Strait Times, 2014; D-8 Secretariat, 2014). Thus, the factors are favourable for Xiaomi to enter into the Malaysian market through joint venture. 2) Firm strategy, structure and rivalry: Malaysia has emerged as a newly industrialised economy with a number of companies dominating their respective industries. The smartphone industry in Malaysia is quite well-developed; Samsung being the strongest player, followed by Apple. Hence, Xiaomi has to encounter stiff competition in the market. However, its plan for entering Malaysia through joint venture with Samsung will be a fruitful one since the latter captures a major portion of market share (Lymbersky, 2008). 3) Demand conditions: The demand for smartphones in Malaysia has increased over the years and in 2013, 80% of the mobile phones were replaced by smartphones (Pasick, 2013). So, Malaysia is a prosperous market for the sale of smartphones; this is a good opportunity for Xiaomi to penetrate in the market through joint venture. 4) Related and supporting industries: The introduction of Android in Malaysian market will help Xiaomi to satisfy customers in the target market. The software industry has constantly met expectations of the smartphone producers in Malaysia by providing the latter with newer inventions. Attractiveness of Malaysia for new joint venture (Risk- Cost - Benefit analysis) The joint venture will take place between Samsung and Xiaomi so as to form a new venture for smartphones, named Samsung-Xiaomi Pvt. Limited. The main challenge for Xiaomi in the Malaysian market is that people may not accept Chinese products. Though Samsung has a dominant market share in Malaysia, yet individuals there may not accept products of Xiaomi under its brand name. Nevertheless, if the venture is successful in Malaysia, then it will yield millions of dollars; thus, benefits of smartphones will surpass cost of production of the same (Lymbersky, 2008). Situation Analysis of Xiaomi The situation analysis of Xiaomi is elaborated through VRIN analysis, which is an analysis of ability of the firm to expand overseas and undertake global sourcing and production (Doole and Lowe, 2008). VRIN Analysis VRIN analysis of a company determines the usefulness of resources that are used by it to build competitive edge. VRIN analysis of Xiaomi is elaborated so as to ensure that resources form an integral source of competitive advantage for the company. Valuable: The value creating strategy of Xiaomi is noted to be the lower price, which is offered to its customers in China, thereby boosting the company’s competitive advantage. So, Xiaomi in Malaysia will apply a similar strategy of charging low price. Rare: In order to be valuable, resources needs to be rare. The strategy of charging low price for smartphones is rare in the Malaysian market since Samsung and Apple charge high prices for their smartphones. By charging low prices, Xiaomi can also capture the remaining 20% of the market (Figure 1) (Pasick, 2013). In-imitable: The resources can become a source of competitive advantage when they are not imitated by other firms. Xiaomi will charge very low prices ($50) for the smartphones so that such price strategy is hard to follow for other companies (Kerr, 2014). Non-substitutable: Xiaomi should set prices in such a way that other companies cannot provide any substitute product at the same price. Expansion of Xiaomi overseas Xiaomi is the fifth largest manufacturer of smartphones in China and has already established a prominent image for rest of the world. The first expansion plan of Xiaomi overseas is in Singapore. The company has entered Singapore on first week of February, 2014 (Yu, 2014). The company has also planned to enter India in 2014 by acquiring Motorola (Farooqui, 2014). The reason behind entering India is the large population. Majority of the population in India is middle class and cannot afford expensive smartphone series of established brands. It has been noticed that sales of smartphones in the fourth quarter of 2013 was only 18% (Figure 4). There is high possibility that the low priced products of Xiaomi will capture the restricted market of India. Figure 4: Sales of Smartphone (Source: Pasick, 2013) Therefore, it can be inferred from the above discussion that Xiaomi has the readiness to expand overseas. The joint venture of Xiaomi and Samsung is expected to be successful in Malaysia because of the huge demand of smartphones. Global sourcing and production The government of Malaysia has encouraged the demand for smartphones in January 2013. So, a large proportion of smartphone shipments to Malaysia significantly rose from the second quarter of 2013 (Sun Media Corporation Sdn. Bhd., 2014). International Data Corporation (IDC) recorded that shipment of smartphone has increased to become 49.6% of total shipment of mobile phone (The Malaysian Times, 2013; Digital News Asia, 2013). Market Entry Strategy Market entry strategy is defined as the method of distributing goods or services in a planned way to new target markets. The following paragraph elaborates the market entry strategy for Xiaomi. Market Entry Strategies for Xiaomi The list of market entry strategies for Xiaomi is joint venture, licensing and franchising. Joint venture with an established company in Malaysia will enable Xiaomi to penetrate the competitive Malaysian market. Xiaomi can provide licenses to small mobile phone retailers in Malaysia so that they can sell the smartphones of Xiaomi. The company can also open franchises in Malaysian market for selling smartphones to customers. Even so, the best option among the three is joint venture. Recommended choice - Joint Venture Joint venture is defined as a strategic agreement between two or more entities or individuals for engaging into a definite undertaking or project. Joint ventures and partnerships are similar in few aspects; however, implications involved are different. A partnership business involves in a continuing and long-term business relationship; whereas, joint venture is a single business project. The parties enter into a joint venture agreement for gaining individual benefit as well as sharing the project objective. The venture is carried out in order to develop an intellectual property or product. The expenses, revenue and asset ownership are exchanged through the joint venture to its participants since it has no legal status. The joint venture of Xiaomi and Samsung in Malaysia will help the former to enter the new market, where demand for smartphones is high. The venture will have an objective of establishing a new venture in Malaysia, which will provide mutual monetary benefits to these companies. The allied new business will offer products of both the brands to customers at a reasonable price. Strength and weakness of Joint Venture Joint venture between Xiaomi and Samsung will result in a good business in Malaysia; however, there are few weaknesses of the venture too. Main strength of the venture is that Xiaomi will gain advantage of entering the Malaysian market with the best brand in alliance. So, reputation of both the brands will ensure an excellent image for Xiaomi-Samsung Pvt Limited. The demand for smartphones has increased over the years in Malaysia and a mere 20% of mobile phone holders need to change their tastes. The main reason that can be attributed for this 20% of mobile holders is the high price of smartphones. Thus, in order to win over this niche group of mobile holders, Xiaomi-Samsung Pvt. Limited will provide them with lower priced smartphones. Through this strategy, the new venture can capture the market share of Apple (Millward, 2013). Main weakness of the joint venture will be acceptance of the Chinese product in Malaysia. The Malaysians extensively use brands like, Samsung, Apple and LG, which are South Korean and American multinationals and are not acquainted with Chinese products. Hence, this transition in usage is difficult to attain as Samsung smartphones capture most of the market share in Malaysia. Implementation of Joint venture The joint venture between Samsung and Xiaomi will be a fruitful one since both the companies have good reputation in the market. The main product for both of them is the smartphone. In order to carry out a successful venture plan, following steps are undertaken: 1) Survey the Malaysian market thoroughly. 2) Identify the target customers of smartphones. 3) Recognize the strongest competitor of Xiaomi. 4) Review strength and weakness of Samsung, the strongest competitor of Xiaomi. 5) Prepare a venture proposal for Samsung, indicating benefits of the same. 6) Acquire approval from Samsung for executing the venture plan (Pietrzak and Klug, 2007). Conclusion Xiaomi is an established Chinese mobile manufacturing company, which has gained its dominant position in China, Taiwan and Hong Kong by selling smartphones. The company had decided to expand globally; so, they took the first step by establishing business in Singapore. Xiaomi can also expand in Malaysia since demand for smartphones is high there. Therefore, the market entry proposal has indicated that joint venture of Samsung and Xiaomi in Malaysia will be successful. Reference List Cho, D. and Moon, H., 2002. From Adam Smith to Michael Porter: Evolution of competitiveness theory. London: World Scientific Publishing Co. Pte. Ltd. D-8 Secretariat, 2014. Malaysia Facts and Figures. [online] Available at: [Accessed 28 March 2014]. Digital News Asia, 2013. Govt rebate a boost to smartphone demand in Malaysia: IDC. [online] Available at: [Accessed 28 March 2014]. Doole, I. and Lowe, R., 2008. International marketing strategy: Analysis, development and implementation. Connecticut: Cengage Learning. Farooqui, A., 2014. Xiaomi Sets On Its Global Expansion. [online] Available at: [Accessed 28 March 2014]. Kerr, D., 2014. Xiaomi Said To Be Hawking $50 Smartphones In The Near Future. [online] Available at: [Accessed 28 March 2014]. Lymbersky, C., 2008. Market entry strategies: Text, cases and readings in market entry management. Hamburg: Management Laboratory Press. Millward, S., 2013. 13 New Asian Smartphone Makers Hoping To Crush Samsung And Apple. [online] Available at: < http://www.techinasia.com/2013-list-new-asian-homegrown-smartphone-brands/ > [Accessed 28 March 2014]. New Strait Times, 2014. DPM: Highly Skilled, Multicultural Workforce Gives Malaysia Distinctive Edge In Asia. [online] Available at: < http://www.nst.com.my/latest/dpm-highly-skilled-multicultural-workforce-gives-malaysia-distinctive-edge-in-asia-1.405515 > [Accessed 28 March 2014]. Pasick, A., 2013. Xiaomi’s Plan For Expansion Is To Invade The Two Most Saturated Smartphone Markets In The World. [online] Available at: < http://qz.com/155901/xiaomis-plan-for-expansion-is-to-invade-the-two-most-saturated-smartphone-markets-in-the-world/#/h/33702,2/ > [Accessed 28 March 2014]. Peter, K., 2013. Xiaomi Is Ready To Expand Globally, Targets Singapore First. [online] Available at: [Accessed 28 March 2014]. Pietrzak, J. and Klug, M., 2007. Market entry strategies in Eastern Europe in the context of the European Union. Berlin: Springer, Sun Media Corporation Sdn. Bhd., 2014. IDC: Govt Scheme Boosts Smartphone Demand in Malaysia. [online] Available at: [Accessed 28 March 2014]. The Malaysian Times, 2013. Smartphone Sales Jump High After Government Ruling. [online] Available at: [Accessed 28 March 2014]. The World Bank Group, 2014. Malaysia Overview. [online] Available at: [Accessed 28 March 2014]. Yu, E., 2014. Xiaomi Kicks Off Global Expansion With Singapore Launch. [online] Available at: [Accessed 28 March 2014]. Read More