Internal Executive Memo essay

Company Strategy

Xiaomi’s mission is to make quality technology accessible to everyone (Ma, 2017). Founded in 2010, the company has been operating according to the belief that high-quality technology should not be expensive. Its business strategy since its very inception has been to make top notch quality hardware, software, as well as the Internet services through the incorporation of the customer’s feedback into its products. The company makes profit using a number of approaches (Ma, 2017). First, it offers high quality products at low prices, and as a result of the top notch quality of the produced goods, its global fan base has taken upon them to advertise these products. Second, the company has continued to use innovations and fight against the competition. Third, the company’s advertising strategy implies spending as little as possible on the adverts, and instead channeling the savings towards product quality improvement. The company is active on social media and manages to create and maintain a “buzz” around its goods (Ma, 2017).

 

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The main competitive edge of the company emanates from its capability to offer high quality products in the same range as some of the global leaders in the smartphone market, including Samsung and Apple, but at significantly lower prices compared to the competitors. Therefore, the customers get high quality products with the latest technology available, and at the same time, they only pay less than half of the other available technologies in the market (Ma, 2017). As a result of the high quality and low prices, Xiaomi’s products are hard to compete with in the market. It applies a low cost strategy as it produces the high quality products at the least possible costs, and only adds a less than 5 percent margin to the price (Kellerher, 2016). A low cost strategy is the one that a company uses by offering its products to the market at low prices in order to stimulate demand and expand the customer base (Ishikawa & Saisho, 2013). It is a key strategy for the company as it is utilizing it in all its markets of operation throughout the world, and it is part of its long term strategy.

Historical Entry Strategy

After its success in China, Xiaomi focused its attention on international markets. In order to succeed in this venture, the company hired former Google executive, Hugo Barra, to lead the internationalization strategy. The ultimate goal for this strategy was the same as its goal in China, which was to offer high quality products at low prices and thus, corresponds to its mission statement. The company has ambitions to expand its operations throughout the world, and one of its success stories in the international market is its entry into the Indian market (Ma, 2017). It used the same approach that it uses in China to gain a market share in India. Additionally, increased pressure from competition in China has also been a major reason for the internationalization as part of the company’s overall strategy. The main approach used by the company is making sales through its online platform, which has also been a success in China. The same has worked for India as well, where it has managed to attract a significant market share through its high quality products sold at low prices. Its main markets outside of China include Singapore, Philippines, Malaysia, and Brazil (Ma, 2017).

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In order to successfully make international entry, the company has had to make a few modifications based on the challenges it previously faced. Its operations in China had mainly focused on online sales, and thus did not have outlets that would offer after-sale services. However, this has changed in India as the company has had to ensure that its products are available in the traditional retail outlets in addition to its online platforms (Kellerher, 2016). Second, it has had to make changes in its leadership on the internationalization strategy by replacing its former leader, Hugo Barra with Wang Xiang. A change in the leadership of the global business was seen as a move by the company to appoint the right individual as the leader of its important strategy. Third, the company has expanded its products range so that it now includes other electronics in addition to the smartphones for the international markets (Kellerher, 2016). Fourth, the company has taken time to understand the challenges faced in the internationalization process, and it continues to apply the lessons learned in its other entries in its operations. It has to tailor some of the approaches to meet the demands and address the cultural peculiarities of the local people. The mistake that the company has made before is to think that using the Internet sales alone would work in other markets as it has worked in China. However, understanding this mistake has enabled the company to improve its operations through the increased outlets.

Industry Analysis

South Africa has one of the developed smartphone markets in Africa. As a result, it is an ideal market for Xiaomi’s international entry. However, understanding the competitive nature of the market is essential in deriving a strategy for international entry. The dominant player in this industry is Samsung with a share of approximately 53% of the entire market (Staff, 2016). Other players include Apple, Blackberry, and LG. The market continues to grow, which creates opportunities for new players in terms of making entry. In order to ensure the ease of entry, it is essential to analyze the industry based on Porter’s five forces model.

Power of Buyers

The main buyers in the industry are the big stores and mobile network operators. Initially, they had a lot of power, but it subsided as new phones appeared in the market so that they had to buy them to get more sales.

Power of Suppliers

The majority of players in the industry rely on a number of suppliers, but they may also be focused on supplying their own products. Consistency in quality is essential in this industry. The power of the suppliers is moderate. Some of the players in the industry also act as suppliers of their competitors, for example, LG and Samsung supply Apple with some of the iPhone components.

Ease of Entry

Ease of entry into the industry is moderate. There is high potential of entry as the market is unsaturated with only 51% of the mobile phones in the market being smartphones (Azfal, 2016).

Threat of Substitutes

The power of substitutes is relatively low with some of them including laptops and telephones. The ease of carrying a smartphone around makes its substitution by these products difficult.

Rivalry

Rivalry among the players in the industry is high due to the demand for smartphones. As such, most of the players are investing significantly to attract the changing and new clients. If the company acquires clients early, they establish their foothold and set possible future entry barriers.

Government Risk

The main risks are related to the compliance with the set regulations. The tax regime is rigorous but once a company adheres to it, there would be ease of conducting business without interference from the government.

Competitive Risks

Players in the South African market are the same players that Xiaomi is competing against in other parts of the world. Therefore, its entry is expected to face challenges from the dominant player, Samsung, which has already set their foot in South Africa as it has an operating plant there. Samsung’s presence in Africa has long been a point of strength that they can use to threaten the entry of Xiaomi. In order to deal with this challenge, Xiaomi has to set up an intensive marketing strategy to convince the clients in the quality of its products. There is also the common belief that some categories of Chinese products are of poor quality, and when they are sold at the low price levels that Xiaomi strives to achieve, this may prove to be a challenge convincing clients in the opposite. The company should also expect other players like Samsung to release low quality products at similar price levels and try to get into the target market of Xiaomi. However, the company should focus on an offensive approach in order to acquire a share of the market. In case it uses similar strategies as it has done in India, Xiaomi is expected to succeed in the South African market.