case study of XIAOMI

Case Study of Xiaomi Inc.1.Introduction1.1Background of mobile phones’ development trendWith the development of information technology and the widely use of the Internet, the development patterns of every person and every industry have been changed, especially it promoted the development of mobile phones, which is one of the fastest-growing industries in the world. According to the smartphone development trend report of China (2011), in 2011, the smartphone users in China has been exceed 930 million, and annual growth rate is 8%. Smartphone presents the fierce growth trend that the penetration rate of urban residents has reached 35%. Due to the major manufactures and operators promote and popularise smartphones, the domestic smartphone scale has expanded. Since the launch of iPhone by Apple in 2007, the pattern of smartphone market began to innovate. By the first quarter of 2011, with the four generation iPhone products, Apple’s market share has reached 16.8%, becoming the third major operating system in the world. (Growns News, 2011) China has rapidly increased to the second largest market of Apple. Apple Inc. has made such a great success that the manufactures see the unlimited business opportunities of smartphone market to publish a verities of different types of smartphone with diverse performance. Alibaba, the e-commerce giant, has just launched the ‘cloud mobile phone’, while Tencent, Baidu and other Internet giants are actively promoting a mobile Internet development plan for the smartphone. And the major mobile phone manufactures in China have introduced a variety of middle-range smartphone. At the same time, Lei Jun also grasped the opportunity to research and invent smartphones by establishing a ‘mobile Internet’ company, Xiaomi Inc. in 2010.1.2Xiaomi Inc.Xiaomi Inc., one of China's largest technology companies, was established in 2010 byentrepreneur Lei Jun and his partners, and had been the third best-selling smartphone maker in the world. Lei Jun had gathered talented people from Google, Kingsoft, Microsoft, Motorola, Yahoo, and other Internet and tech companies from around the world to invent and develop new products. (Mi Global, 2015). The registered capital is 5000 million RMB, and the type of Xiaomi Inc. is limited liability company. ‘Only for fans’ slogan is business philosophy. ‘Xiaomi Inc. creates remarkable hardware, software, and Internet services for – and with the help of – our Mi fans’ (Mi Global, 2015). Xiaomi Inc. pioneered a new model that develop the mobile phone operating system by the Internet with improving by fans. The design of smartphone is all done by Xiaomi team, which includes many senior professional designers. Xiaomi mobile phone is China’s first dual core and high performance smartphone that is independently developed by Xiaomi Inc. And the official network is the only official sales channel. Xiaomi smartphones not only sold well in the mainland of China, but also launched in Taiwan, Hong Kong, Singapore, Malaysia, India and Indonesia. They have sold 61.12 million smartphones in 2014. (Mundy, 2015)1.3Lei JunLei Jun founded Xiaomi Inc. that company size and the speed of development let people unexpected. He is not only the chairman and CEO of Xiaomi Inc., but also the president of soft maker Kingsoft from 2011, and the chairman of UCWeb, a leading Chinese browser maker. Lei Jun is also known as the famous angel investor in China. In 2012 he became the top 10 business leaders by China central television. In 2014, Lei Jun became Forbes Asia’s businessman, and first came into the Hurun rich list, global ranking 339th by 280 billion RMB. Table 1 shows that as an angel investor, he is committed to invest for four companies from 2010 to 2015.Table 1: Investments by Lei JunSource: Crunchbase1.4The logo introductionThe logo ‘MI’, is the abbreviation for ‘Mobile Internet’, representing Xiaomi Inc. as a mobile Interment company. And its second meaning is ‘mission impossible’, which indicates that Xiaomi Inc. needs to complete the impossible missions. In addition, it shows the Chinese character ‘heart’ when we see the logo from the opposite side, which means that they made the products heartily and want their customers worry less. (Cheon-Fong Liew, 2014 )1.5Xiaomi productsSmartphone is the core product of Xiaomi Inc., especially Mi 3 and Redmi. At the same time, Xiaomi Inc. launched Xiaomi TV, Internet Android TV set top box, Xiaomi bracelet, earphone, portable, action sport camera, night vision mini security webcam etc.‘In addition to hardware products, at the core of Xiaomi's products lies MIUI, a ROM skin based on Android that powers the company's smartphones and tablets’ (Low, 2014). MIUI is an exclusive platform, which has the best user interaction experience in China cell phone market. According to the Chinese users’ habits, Xiaomi Inc. created the user experience design system, which makes the operation more sample. The excellent software team updates the operating system on every Friday. MiTalk is a free instant messaging tool which could be used on different mobile operating systems and operators. Through the mobile network, such as WiFi, 2G, 3G, 4G and GPRS, we cando real-time voice conversation, message communication, receiving and sending photos with our contacts.2.SWOT analysis of Xiaomi smartphoneSWOT analysis was based on the internal and external competition environments and conditions that raised by Weihrich. It is a matrix for identifying the strengths and weaknesses, opportunities and threats.(Mind Tool, 2015)Using SWOT method could be objectively and accurately to analyse the overall aspects of Xiaomi smartphones.2.1StrengthThe five essential factors for the strengths of Xiaomi Inc. are excellent technical and management team, abundant prior experiences and comprehensive social interpersonal relationship of Lei Jun, clear market position, sustained and effective innovation capability, fast and effective way of selling strategy and high performance-price ratio.2.1.1Excellent management teamXiaomi Inc. was established by previous top managers from Google, Microsoft, Yahoo and Kingsoft, and the design completed by the internal hardware team from Motorola. (Wenku, 2013) Many of the excellent technical experts and managers make Xiaomi Inc. cooperate better with other manufactures and get more complete and excellent technical support. It provide a good foundation for the products. Under Lei Jun’s direction, Xiaomi team keeps the passion, patient and creative spirits as the company culture.2.1.2Abundant prior experiences and comprehensive social interpersonalrelationship of Lei JunBefore Lei Jun established Xiaomi Inc., he worked in Kingsoft, whether as a software engineering, marketer or business manager, the abundant prior management experiences make him have a comprehensive social interpersonal relationship now. And he has invested nearly 20 companies in the Internet, social network and e-commerce that give him a wide interpersonal relationship. These are the important aspects forsuccessful.2.1.3Clear market positionOn the one side, before Xiaomi smartphone, there was no suitable phone for a huge number of people who keeping on rooting the operating system. Xiaomi Inc. seized the market demand of these people to innovate a suitable smartphone. (Botai) And on the other side, Xiaomi Inc. expand the market to India. On the basis of the correct assessment of the market demand in India, Xiaomi Inc. determine India is the target and get successes. (Cendrowski, 2015) An unprecedented pressure of competition in the domestic mobile phone market, such as Huawei, Lenovo and other competitors are not to be underestimated. Xiaomi Inc. expanded overseas markets in the right time which is one of the factors of their success.2.1.4Sustained and effective innovation capability‘Only for fans’ is the business philosophy for Xiaomi’s products. Xiaomi Inc. pioneered a new model that develops the mobile phone operating system by the Internet with improving for 60 million fans.Any mobile phone is not perfect. It is necessary to identify the inadequacies of hardware and continue to update the operating system. For example, Xiaomi smartphone would be released a routine update on every Friday, not only to fix bugs, but also add some practical functions. Moreover, MIUI is the exclusive platform, which has the best user interaction experience. And Xiaomi Inc. create a lot of new products by their own team. Xiaomi Inc. complies with software, hardware and Internet service integration, and pursuit of a comprehensive experience. (Xu, 2012)2.1.5Fast and effective way of selling strategy and high performance-price ratio Xiaomi Inc. uses e-commerce strategy to sell smartphones only online that takes full advantages of the Internet fast, effective and convenience, and greatly reduces the cost. Xiaomi Inc. chooses e-commerce sales, and rely on the aid of V ANCL platform andlogistics. Compared with the traditional mobile phone industry, it virtually saves a lot of stores, employees and other expenses because of its Internet marketing pattern. It could make the high configuration smartphones controls in 1999 RMB, and provide the high performance-price ratio smartphones to consumers.2.2WeaknessFirstly, the after-service ability is weak. The main customer services are by telephone, microblogging and official website online. However, according to consumers reflect the phone calls customer service is too busy, and the results are not ideal by microblogging and online customer service. Secondly, Xiaomi smartphone relative lack credibility. With the smartphone off paint, light leak and after-service problem, it affects to establish and maintain the reputation. Consumers’ satisfaction decline because of the hardware problems.2.3OpportunityFigure 1 China smartphone market (annual number of units shipped)Source: Fortune SubscribeIn the last twenty five years, the Chinese mobile communication market had huge growth, according to the 2011 Chinese Ministry of Industry and Information Technology's 3rd quarter Report, in globe mobile market the Chinese market is the number one meanwhile, there are over 920 million mobile phone users in China. (Chen and Hu, 2013) Figure 1 showed that the number of smartphone users was increasing from 2011 to 2014 in China that reached 419.5 million. Xiaomi Inc. had a keen insightto find the trend to innovate the affordance price domestic smartphones for the customers who have relatively low purchasing power.As more and more people shopping online, selling smartphone online is a new trend in the developing mobile phone industry that lay a technical foundation for the network marketing. It provides an opportunity to promote the development of Xiaomi smartphones, which attract a set of hardcore fans. (Deng, 2013) It is also reflected in the value of the development of domestic smartphone industry.It would undermine the competitiveness of Apple because of Job’s death. Traditional marketing patterns have a certain gap with Xiaomi. It is an opportunity to expand the overseas market.2.4ThreatThe competition is quite fierce in the Chinese mobile phone market. Apple and Samsung occupy the high-end market which has huge market share; HUAWEI, Lenovo, ZTE and other domestic manufactures and operators jointly launched lower price smartphone. In this situation, Xiaomi’s market share is not large although it is a successes brand. It is still in a weak position in the fierce competition of the smartphone industry. And Jones (2014) considered that Xiaomi’s margins appear to be razor thin. And he showed the company had 265.8 million revenues in 2013, but the net profit is only 34 million, which net profit margin is 1.3%. Howere, Apple’s net profit margin attained to 21.6%. The lower net profit is not conducive to the development and growth of Xiaomi Inc.3.Five force model analysis of Xiaomi Inc.Five force model was proposed by Michael Porter in the early 1980s. He believed that there were five forces determining the scale and extent of competitions in every industry. This five forces comprehensively impact on the industries’ appeal. Five force model is not only used to analyse the competition strategy, but also effectively analyse thecompetitive conditions of industry interior. (Entrepreneurial insights, 2014) Threat of substitutes, threat of new entrants, rivalry among existing firms, bargaining power of supplier and bargaining power of buyers are the five forces in this model.3.1Threat of substitutes—LowFigure 2 Screen size of smartphone, phablet, and tablet from 2010 to 2013.Source: GoogleThe current technology of mobile phone is the development direction of computerized, and a direction of the development of the PC technology is miniaturised and more portable. (Wenku, 2012) From figure 2, the substitutes of smartphone in the future may be microcomputer, such as tablet computer. Threat of substitutes of smartphone is low due to the tablet computers would not have voice call function now. And the portability of the device limits tablet computers to replace the smartphones. The function of Xiaomi smartphones are the same as tablet computers, through adding more multi functionality and apps, so the substitutes could not threat Xiaomi smartphone in a short term. (MI, 2014)3.2Threat of new entrants—LowThere are several factors for the threat of new entrants in the smartphone market in China, such as huge capital investments, fast technology updates, high requirements forcustomers and fierce competitions. So the barriers for entering smartphone industry are high. It is difficult to get the economic scales and market shares in this industry for the new entrants company, and establish their own brands by themselves. Accordingly, the threat of new entrants for Xiaomi smartphone is low.3.3Rivalry among existing firms—HighFigure 3 IOS and Android Chinese Installed BaseSource: Flurry Anaytics, random sample of 18300 Chinese owned iOS and Android devices.In recent years, the rapid development of technology has intensified competition in the mobile phone. For a few large manufactures which have entered the mobile phone market, they have strong strengths to compete with Xiaomi smartphone. According to Figure 3, Xiaomi smartphone has different competitors from domestic and foreign brands, such as Apple, Samsung, HUAWEI, Lenovo, ZTE, OPPO and etc. The speed of updating is very fast, so the major companies are trying to reduce the cost, incresing the service to expand the differences with other brands. In the case of hardware tends to homogenization recently, the operating system has become a battlefield between every competitor. The current operating systems are IOS, Android, Microsoft WM and Linux. Each brand of mobile phones are hoping to upgrade the software and developnew apps to attract more users. Therefore, the threat from rivalry among existsing firms are high.3.4Bargaining power of supplier—lowThe bargaining power of supplier is low in the Chinese smartphone industry. Firstly, there are a large number of suppliers in the China mobile phone market, so that they compete by reducing prices, which reduce their bargaining power. Secondly, the manufacturing process of the mobile phones are based on industry standard. This means that if Xiaomi Inc. replace the hardware suppliers, the conversion costs are low irrespective of the contract limitations(ChinaAbout, 2013). Thirdly, due to the promotion of original equipment manufacturer, so there is no big difference in the hardware manufactures. So the main upstream cost is from software operating system. Xiaomi smartphones have their own MIUI operating system that get more favour from manufactures. Good sales by better operating systems could help manufactures get more benefits. The manufactures want to get sustained cooperation with Xiaomi Inc. So the bargaining power of supplier is low.3.5Bargaining power of buyers—LowFirst of all, Xiaomi Inc. takes the network direct way to sell smartphones, which removing all intermediated links. It can reduce the cost to get lower price by this marketing pattern. Second, Xiaomi Inc. uses a batch way and a limited number of sales that make demand excess supply. The condition of voracious demand make the bargaining power of buyers be low. Although there are a lot of competitive brands of the price is as low as Xiaomi smartphone, buyers are mostly loyal fans. Therefore, buyers bargaining ability is low.4.ConclusionThis paper introduces the development of Xiaomi Inc. during the trend which usage rate of smartphones generally improved in recent years. As the chairman and CEO of Xiaomi Inc., Lei Jun has the entrepreneurship of passion, innovation and tenacity, andhas a vision to grasp the development trend of smartphone industry to innovate new products, which could promote the progress of Xiaomi. Through the SWOT analysis, Xiaomi Inc. should continue to perform their own strengths and maintain innovation, while overcoming the weakness to compete with other companies. For the increasingly fierce market competition in the mobile phone industry, Xiaomi Inc. needs to be united in wedlock the development trends and different competitive conditions of industrial interior to make of corresponding strategies in the future.ReferenceBotai (2012) SWOT Analysis Report on Xiaomi Company. Available from:Cendrowski S. 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