Export Strategy for Xiaomi Inc - Case Study Example

EXPORT STRATEGY FOR XIAOMI INC. due: Table of Contents Table of Contents 2 Export Strategy for Xiaomi Inc. 3 Brief Synopsis of the Issue 3 Recommendations 3 Background 4 Arguments against the Recommendations 5 Arguments in Support of the Recommendations 6 Research on the Assessment Topic 7 Implementation of Recommendations 8 Bibliography 10 Export Strategy for Xiaomi Inc. Brief Synopsis of the Issue Exporting refers to a function of international trade where goods produced in a given country are transported to another country for trade or sale. An export strategy is an essential component of a business plan. A company should ensure engagement of all its employees in achieving desired export results. Focusing resources helps a company to be able to deliver quality goods and services to customers. A well-developed export strategy helps in dealing with a wide range of service providers (Australia, 2015, para 1). This is an export strategy for Xiaomi Inc. producing Xiaomi mobile phones in Asia and wishes to export the gadgets to the UK market for sale. A mobile phone is easy to pack, store and dispatch making it beneficial to Xiaomi Company to have an e-commerce site (Westwood, 2012, p.90). For the maximum success of the company, it should, therefore, embrace a proper export model as discussed below. This will help boost the company’s profits and also its market coverage in the UK. Recommendations The products that will be exported to the UK from China include smartphones and their accessories such as earphones, chargers and spare parts. These products will be factory-made in China and sold in the UK with the help of the company’s UK partners. Xiaomi Inc. will adopt three main strategies in the marketing of these products. These include subsidisation, partnerships and diversity. Subsidisation will help to capture a larger market segment by making the products easily affordable to the target market. Formation of partnerships with UK distributors and service providers will help the company to access a larger customer base, thus increase its chances of acquiring a sizeable market segment. Through diversification of its products, Xiaomi Inc. can also capture a wide market range including customers with different preferences. These strategies will be instrumental in increasing the chances of success of the company. Background China has a history of making good trade relations with different countries. For instance, China has already made free trade agreements with several countries such as Pakistan, Jordan, Chile, and other ASEAN countries (Li, 2012, p.30). These agreements are expected to be fully effective by 2015. Other countries that have expressed interest in forming a partnership with China include Australia, New Zealand and India. In 2002, China had introduced lower tariff rates for over 700 items imported from members of the Bangkok Agreement including Sri Lanka and Bangladesh and Republic of Korea (Poon, 2007, para 16). China has also formed trade arrangements with the European Union in the past, especially with regards to the textile industry where liberalization of trade involving textiles was expected to be achieved by 2008. Also, between 2006 and 2008, China was a beneficiary of the European Union Generalized Preference Scheme. The arrangement allowed sensitive products from China to benefit from reduced tariff rates while non-sensitive products enjoyed a zero tariff rate (Poon, 2007, para 35). Although consumer electronics were not included in the agreement, they can also benefit from the reduced tariffs if the two countries can come to an efficient trade agreement. Investing in the UK should not be difficult for Xiaomi Inc. Several Chinese companies have successfully expanded into the UK telecommunications market and are currently dominating this industry. For instance, the mobile service provider Three was founded in Hong Kong in 2000 and has since expanded to include almost every country in Europe, including the UK. However, the company had the advantage of dominating the market since it was among the pioneers of the mobile network industry. Xiaomi Inc. may not have such an advantage, but it still has the potential to dominate the UK market due to several reasons. First, manufacturing in China puts it ahead of other mobile phone companies because operations are more cost-effective as compared to the UK. Aspects including the availability of cheap labour, conducive environmental regulations and government subsidies create conducive business environments (Wadhwa, 2012, para 2; Blanchard, 2007, para 5; Ferris, 2015, para 1). As a result, the retail prices for mobile phones manufactured in China are likely to be lower, thus capture a larger segment of the mobile phone market. Furthermore, the largest mobile phone market in the UK provides potential for massive revenue generation for both countries. Partnerships between Chinese and UK firms are also being created on a constant basis (Terrelongez, 2014, para 1). The UK government has partnered with the private sector to create as many jobs as possible through the Great Festival of Creativity. Several partnerships between Chinese and UK companies were announced early this year in various industries such as tourism, health, film and television and financial services (Business Reporter, 2015, para 2-5). The festival fosters great opportunities to deepen the partnerships and collaboration between the two governments across a wide range of industries. Xiaomi Inc. can take advantage of these recent business developments between the two countries to introduce their products to the UK market. The company can use this platform to create partnerships with UK phone distributors and mobile network providers. Arguments against the Recommendations There are some challenges that the company needs to be familiar with before implementing the export strategy. One of the main challenges is presented through the stiff competition in the mobile phone industry. Although it is currently ranked as the third largest smartphone manufacturer globally (Bloomberg, 2014, para 1), the largest market segment is in China, with a minimal customer base in other countries. Competition is especially stiff in the smartphone industry where new models with many features are constantly manufactured, making the market very dynamic. Arguments in Support of the Recommendations To successfully penetrate the market, Xiaomi Inc. can partner with two companies: Three and Carphone Warehouse. Three is a mobile service provider that has a very large customer base in the UK. Partnering with the company gives Xiaomi the opportunity to market its products to these customers, preferably through advertisements and product discounts. Carphone, on the other hand, is a phone distributor also with a large customer base and market dominance. Marketing Xiaomi’s products via Carphone is another opportunity to reach the wide customer base. An example of such a partnership is Huawei which has successfully introduced several smartphones in Kenya by partnering with the leading mobile network provider in the country (Mbuvi, 2012, para 1) The company can also consider subsidising the cost of its handsets, at least in the initial stages. A company that has successfully utilised this marketing method is Huawei, which launched the Huawei Ideos smartphone at a retail price of $100. The phone instantly took over the market and acquired a market share of 45% within the first quarter of 2011 (Jidenma, 2011, para 3). The company should also develop products suited for a specific market category. For instance, products can be designed for a certain age group or optimised for business or gaming. Such strategies ensure that the company explores a wide range of customers, increasing chances of success. Finally, the company should consider facilitating trade relations between the two countries. Business strategies should be formulated to ensure that there is a mutual benefit in trade activities between China and the UK. The company can do this by arranging fairs and conferences to discuss such matters. Research on the Assessment Topic China has had several trade agreements with the European Union (EU), regardless of the many issues on trade regulations (European Commission, 2015, para 1; UK Government, 2014, para 1). One of the areas that has received much attention is in the textile industry where the two countries had disagreed over trade regulations affecting the local companies in the UK. Other hurdles to trade are also being addressed by the two countries to simplify trade between them because they constitute a third of the world’s economy. As a result, these countries have a high potential for successful business relations (Donnan & Byrne, 2014, para 5; Watt & Mason, 2013, para 1). The move by China to join the World Trade Organisation has also improved trade relations between the two countries significantly. As a result, foreign investment by Chinese companies is likely to produce positive results, beneficial for both parties. Companies such as Xiaomi Inc. should ensure that they facilitate these relations to increase their chances of successfully penetrating the European mobile phone market. Apart from pushing for trade relations between China and UK, Xiaomi Inc. should also explore other factors affecting the exportation of goods into the UK. First, they will have to consider the most effective way of transporting the goods from to the UK. In most cases, manufacturers hire logistics companies such as Deutsche Post DHL to transport their products to various parts of the world. However, to cut on costs and to minimise the risk of product damage along the way, it would be wise for Xiaomi Inc. to acquire their means of transportation. Since mobile phones are small units and easily packaged, they can be transported in large numbers effectively. Partners may also prefer to transport these products using their means, which may also increase the profit margin of the company. The company also needs to stay up-to-date with the import tariffs of mobile phones. Currently, import duties for countries outside the EU are at a zero rate, indicating that importing into the UK is not expensive. However, the products have to attain the safety standards set by the UK government. These include the Electrical Equipment Safety Regulations 1994 and the waste electrical and electronic equipment (WEEE) regulations (UK Government, 2014, para 33). The financial transactions will be handled by international banks that have branches in both countries. Examples of such banks include Barclays Bank or the Industrial & Commercial Bank of China. However, the company should compare the transaction rates offered by the different banks, and select the most appropriate. Implementation of Recommendations The company will be required to sign contracts with the UK companies who will distribute the products. These companies include Carphone Warehouse and Three. The contract will be signed by the company’s executives including the Chief Executive Officer and the Chief Financial Officer and other relevant authorities. The contract should reflect the main issues of the partnership such as the payment details and the duties and responsibilities of each party. All payments will be handled by the banks. All transactions will undergo the stipulated procedure and authentication process to facilitate book keeping and prevent instances of fraud or financial mismanagement. The accepted modes of payment will be cheques and wired transfers only. The company products will be transported through several options. The company can transport the goods to the partners in the UK and charge them or the partners can arrange their means of transport from the company premises to their warehouses. Alternatively, third-party transport companies can be hired by Xiaomi or its partners in the UK to transport the goods from China. Bibliography A.T. C. (2015, January 11). 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