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Xiaomi Inc In 2018 An Update Case Solution
Xiaomi Inc. is a smartphone and smart hardware company that was founded in 2010. It has grown to become the 4th largest smartphone brand in terms of global market share. It also has the largest Internet of Things (IoT) platform. It has expanded into more than 90 countries. The vision of the company is become friends with the users of its products, who perceive the company as one of the coolest in their hearts. Its mission involves focusing on innovation, quality and efficiency.
Following questions are answered in this case study solution
Background on Xiaomi and Its Success
Five Forces Model
Case Analysis for Xiaomi Inc In 2018 An Update
One of the reasons for success of Xiaomi has been its strategic partnerships. Some of its major partnerships include its partnership with Google, Nokia, Qualcomm, and it has numerous other partners for distribution and the MI ecosystem. Its partnership with VST ECS Co. Ltd. in Thailand gave it access to 35,000 distribution channels across the Asia Pacific region. Xiaomi has also been able to grow as a result of its international marketing strategy. Xiaomi was successful in India with about $1 billion in revenue in 2016 and it reached the highest market share in India in 2018. Lastly, Xiaomi has been successful due to its diversified approach, where it developed other consumer electronics and didn’t just rely on smartphones to fuel its growth. It spent on research and development, which resulted in patents and numerous other successful technologies.
2. Generic Strategies
An organization can have three types of generic strategies, which are cost-leadership, differentiation and focus. Xiaomi has a cost-leadership strategy as it focuses on selling low and affordable prices as mentioned in the case. It sells its products to younger consumers, which usually have a lower budget than more financially established older consumers. Xiaomi further improved its costs by manufacturing its own chips rather than purchasing these from third-party manufacturers like MediaTek and Qualcomm. However, Xiaomi later started having a differentiation as well with its decision to set up its own chip manufacturing business and improve user experience. It has also been spending on research and development to improve in terms of differentiation and challenge competitors like Samsung, Apple and Huawei. Its current mission statement is also more towards differentiation rather than cost-leadership as it talks about innovation, quality and efficiency.
3. PESTEL Analysis
The biggest political issue that concerns Xiaomi is the trade war between China and USA. This has resulted in these countries increasing the costs of goods exported to USA as tariffs have been increased up to 25%. This will make it tough for China to sell its phones in USA as it will lose its competitive advantage of being low priced (Kharpal).
The economic challenge for Xiaomi currently is the decline in economies around the world due to the recent global pandemic. Consumers are expected to spend less, and this will have an impact on Xiaomi’s sales (McKinsey & Company).
In terms of population trends, this will decline in Europe and is expected to grow in other regions. The highest growth rate of the population is expected in Africa and the Asia-pacific region (PWC).
The use of internet in countries around the world is increasing and this is followed by an increase in online shopping. The online shopping channel will play an important role in driving sales of smartphone brands in the future.
As global warming and plastic pollution increases around the world, so has the consumers’ awareness about these issues and willingness to take steps to improve the environment. Consumers are more aware now and look for making more sustainable purchases (Nielsen).
The legal trends globally involve laws regarding use of data. This is important for smartphone manufacturers who collect data on customers to help improve their products. These need to vary of data laws in the different jurisdictions they have operations in.
4. Five Forces Model
i. Threat of New Entrants
The threat of new entrants is low in this smartphone market and this can be seen in exhibit 1 of the case. The market share for other small brands worldwide was 44.48% in 2017 and this declined to 39.3% in 2018. The established players are growing in terms of market share and new entrants find it difficult to compete with them. Xiaomi itself is a new entrant that was founded in 2010 and rapidly rose to become one of the largest selling smartphones. This is a threat for Samsung and Apple who are losing market share to Xiaomi and Huawei.
ii. Threat of Substitute Products
The threat of substitute products is low in this market. The substitutes are tablets and smartwatches. However, the growth of smartphone usage is far more than the growth in usage of these products worldwide.
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