Foreign Market Entry Proposal of Xiaomi - Case Study Example

Foreign Market Entry Proposal of Xiaomi AFFILIATION: Table of Contents Table of Contents 2 Recommendations 3 Introduction Background 5 Nation Level Analysis 5 Porter Diamond Analysis 6 Country Attractiveness 7 Firm Level Analysis 7 VRIN analysis, Readiness and global sourcing 7 Porter’s five forces 8 Market Entry Strategy 9 Recommendation for Xiaomi 9 Strengths 10 Weaknesses 10 Implementation of Market Entry Strategy 10 Conclusion 11 References 12 Xiaomi is a firm operating in China which is carrying out business operations related to the development, designing and online selling of smartphones, their applications and consumer electronic items. As the smartphone of Xiaomi was launched in 2011, it started to attract a wide range of Apple users and successfully gained a huge market share in mainland China (Xiaomi, 2013). Since the company wants to expand its business in international markets, it is considering the option of undertaking foreign market entry strategy for Thailand. Almost all the leading organisations are taking into consideration the possibilities of diversifying into global markets by incorporating the foreign market entry plan with the corporate business strategy (Peng, 2013). Furthermore, the companies are provided a range of choices for entering in the international markets and the globally accepted ones as depicted by Twarowska and Kakol (2013) are exporting, licensing, joint ventures, wholly owned subsidiaries, strategic alliances and franchising. Xiaomi has decided to enter in Thailand by incorporating the joint venture strategy. The primary reason for entering in this region is to strengthen its presence in the Asian continent and there is a possibility of gaining huge market share in country due to accelerating demand of smartphones. Recommendations Xiaomi is growing at a fast pace as leading smartphone brand in China and it has recently taken Hugo Barr on management board who will look after its international business division (Kelleher, 2013). As the company has been able to cultivate good reputation in China, it is assessing the prospect of entering in overseas markets so that it can enhance its brand image and reap the additional profit margins opportunities (Osman et al., 2011). In order to make sure that Xiaomi is able to penetrate appropriately in Thailand, it is imperative to undertake the following set of steps: 1. The foremost requirement is carry out market study so that there is sufficient information about the market demands and the firm’s strategy in the region is aligned with its corporate business strategy. 2. Later, it will have to do extensive research about market entry options so that it supports Xiaomi’s corporate values and objectives. 3. In order to obtain the cost effectiveness and profitability benefits, the company will have to look for efficient framework for logistics. It will even have to assess the worthiness of its strategic verdict. 4. A detailed review of the nation-level and firm-level analysis shows that Xiaomi should implement the joint venture strategy as it will be able to gain market acceptance. 5. Equally important is the resource accessibility element; the firm will have to make sure that it has easy access to the sources required for functioning productively in Thailand so that it can perform its operations with distinction. Introduction Background After successful implementation of international market expansion in Asian countries, Xiaomi is reviewing the option of augmenting its venture in Thailand. The main issues which can be encountered in Thailand are that language is a barrier for communicating in the region, businesses follow a risk-averse and conservative approach, less innovative culture, ranked as fifth corrupt country, and bribery is common in corporations and low brand awareness (The World Bank, 2013c). On the other hand, the country is ranked as the top 20 nations for doing businesses (The World Bank, 2013a) as it has a growing population along with GDP growth of about 6.5% (The World Bank, 2013b). Moreover, in this paper, nation-level analysis and firm-level analysis is presented along with recommended course of actions so that the company can strengthen its presence in the region. In order to make sure that the company is able to attain desired outcomes, Barr has recommended that it will recruit local people along with expatriates so that there is adequate grasping about the country’s business culture. As Xiaomi is planning to shift its logistics in Thailand to avail the benefits of producing smartphones on economical scale, it will have to identify the strategic locations for embarking its operations effectively. Thus, it is imperative to collect knowledge about the region so that victory probability is higher. Nation Level Analysis The political, legal, social, environmental and economic aspects of a country are crucial factors when endeavouring in the foreign market entry strategy (Ferrira, Li & Suk, 2009). These elements will allow Xiaomi to evaluate its decision of starting operations in Thailand from every aspect. Porter Diamond Analysis One of the most effective techniques employed by international firms is the Porter Diamond Model as it assesses the relative worthiness of the foreign market. This instrument also provides valuable data about the respective industry, market and competitors so that the new entrant can manage its actions deliberately (Luthans & Doh, 2011). A detailed examination of the basic elements of the framework with respect to Thailand are given below: 1. Demand conditions: As the target market is the vital aspect of every business, Xiaomi will make sure that it designs the smartphones in accordance to the customer’s demands. The online platform will be utilised for reaching the right customers. 2. Factor conditions: Since Xiaomi wants to use input resources in Thailand, it will have to gather information about the labour and resources availability. Moreover, there should be sufficient evidence about accessibility to utilities so that the production is carried out on continuous basis. 3. Related and supporting industries: Thailand is recognised globally for having abundant supply of input resources such as raw materials, Xiaomi will have a range of choices for the suppliers. Moreover, there are other supporting industries present required for efficient distribution and sales. 4. Government: According to The World Bank (2013d), Thailand has become an attractive nation for FDIs as the government has relaxed various policies for boosting the business development sector. 5. Firm structure, strategy and rivalry: Presently, the main competitors in the region are Nokia, Apple and Samsung and they are leading because of innovativeness in their offerings. Xiaomi will have to make sure that it presents the customers with value added option so that it can attract good market share. 6. Chances: As the smartphone industry is growing worldwide and it is being used by most of the young people globally (SKMM MCMC, 2013), there are high chances that Xiaomi will be able to make its position in Thailand. Moreover, it can attain the position of providing superior quality smartphone at affordable price. Country Attractiveness Since entering a new country presents both benefits and risks, it is believed that a company compares the costs and benefits and go ahead with the decision on the basis of real analysis (Peng, 2013). Considering Thailand, the country has a developing economy, surging demand for smartphones, rapid technological developments and favourable legal environment. However, the political instability, corruption at all levels and language barriers are the main hindrances in the region. Despite all these facts, Xiaomi can overcome the dilemmas by gradually moving ahead with the expansion plan in Thailand because there are solutions for all the issues. Firm Level Analysis VRIN analysis, Readiness and global sourcing Xiaomi is well-known in the market for offering the competent, compatible and innovative products to the customers. The best features of the company’s products are that they are highly durable and give value for money to the users (Peng, 2013). Barney (1991) developed the VRIN (Valuable, Rare, Inimitable, Non-substitutable) framework for assisting the company to develop one of its resources in accordance to the model (Luthans & Doh, 2011). A comprehensive analysis of the company reveals that its human capital is the source of its competitive advantage. It has the most proficient pool of staff which is always looking for avenues unexplored by the rivals. Recently, the company recruited Hugo Barr which is an indication of the clear vision possessed by the management. Furthermore, it will have to embed readiness concept in its operations so that it can promptly respond to the demands of market in Thailand. Since the firm is planning to shift its production facility in the region, it will allow it to drive benefits from global sourcing option. The decision of commencing business in Thailand will prove to be beneficial for Xiaomi in the long-run when it will be capitalising on the economies of scale. Porter’s five forces Simultaneously, it is vital for the firm to assess the forces driving the industry by implementing Porter’s Five Forces Model as it highlights the strength each constituent has in the country. In Thailand, the evaluation of smartphone industry depicts following points: 1. Bargaining power of suppliers: As there is a wide range of suppliers available in the country for smartphone companies, the bargaining power of suppliers is low. The companies can easily locate a compatible supplier in case the existing one increases the price of its supplies or compels to enter into unfavourable terms of agreement. 2. Bargaining power of buyers: Buyers tend to have moderate bargaining power because they are provided the offerings in accordance to their demands. Majority of the buyers are contended with the smartphone prices and features and they put less pressure on the companies regarding the prices. 3. Threat of new entrants: Due to relaxation of the government policies related to FDIs in Thailand, the threat of new entrants is high. There are various attractive offerings for the entrants which is increasing the foreign competition in the country. 4. Threat of substitutes: There is low threat of substitutes because the product users don’t easily switch to other choices available in the market. 5. Rivalry among competitors: Likewise, the competition within the industry is intense as there are few dominant players i.e. Nokia, Samsung and Apple. Hence, there is strong rivalry among competitors. Market Entry Strategy The range of market entry strategy modes are as follows: 1. Exporting: It implies the process of selling the offerings manufactured in one country to another. This strategy is preferred by those companies which are risk averse and want to keep the expansion cost to minimum level. 2. Licensing: An international firm gives license to the licensee present in other country regarding the copyrights, patent rights, expertise on products and procedures or trademark rights. 3. Wholly owned subsidiaries: Under this framework, the company enters the market in the form of an organisation while keeping all the rights with itself. 4. Strategic Alliances: It is a term used to describe the range of cooperative agreements which are taken between various firms such as formal joint ventures, advanced research or participation at minor level. 5. Joint Ventures: In this strategy, a partnership agreement is signed between the home- and host-country companies which results in the formation of a new entity. The international company has the managerial rights along with adequate equity position. 6. Franchising: It is same as licensing except that the franchisor gets directly involved in the designing, development and implementation of marketing programs. Recommendation for Xiaomi Xiaomi should follow the joint venture strategy in Thailand as it will be able to develop the business plan in accordance to the market. As the local firm will have sufficient knowledge about the respective region, Xiaomi will be able to modify the products and its strategy in compliance with the domestic market. With the help of this approach, the company will exploit further expansion opportunities present in Middle Eastern regions. Strengths By embarking on the joint venture approach, Xiaomi will have access to local market knowledge, adequate control on its business operations, better probability of successful entrance and minimisation of misalignment of offerings with the customer needs. Weaknesses Whereas, the company will have to share the profits with the partner, management will comprise of local people, conflict in the objectives of two firms, different business cultures and language barrier. Implementation of Market Entry Strategy The recommended implementation plan for Xiaomi to excel its operations in Thailand is as follows: 1. In August 2014, the company will enter into joint venture agreement with a well-reputed smartphone firm of Thailand. 2. By the end of September 2014, a new entity will be developed which will make sure that it has all resources required for running the enterprise. 3. The first range of smartphone will be launched in November 2014. It will even start online sales in the region so that it can reach a wide market. 4. In January 2014, the China based corporation will review the performance of Thailand market and will develop the objectives which have to be achieved by the year end. 5. The new production facility will be started in March 2014. Before the commencement of this facility, the company will finalise the deals with the relevant distributors and retail outlets so that the distribution network is properly developed. 6. Finally, the company will review the performance on monthly basis to assess the success of brand in the region and modify the plans in accordance to the market requirements. Conclusion Xiaomi is becoming popular as a global smartphone brand which is offering its customers an attractive range of products. On international level, the company has undertaken all mandatory steps required for strengthening its global presence. It will have to be assured that it carries out proper market study of Thailand market so that its expansion plan enhances its brand image. Moreover, the company should consider the option of implementing joint venture market entry strategy in Thailand so that it can capture significant market share of smartphone in the region. References Ferrira, M.P., Li, D. and Suk, J.Y., 2009. Foreign Entry Strategies: Strategic adaptation to various facets of the institutional environments. Development and Society, 38(1), pp. 27-55. Kelleher, K., 2013. Xiaomi: China’s threat to Apple and Samsung. [Online] Available at: [Accessed 31 March 2014] Luthans, F. and Doh, J., 2011. International Management: Culture, Strategy and Behavior. 8th ed. USA: McGraw-Hill Higher Education. Osman, A.M., Talib, A.Z., Sansui, Z.A., Yen, T.S. and Alwi, A.S., 2011. An exploratory study on the study of smartphone usage in a developing country. International Journal on New Computer Architectures and their applications, 2(1), pp. 275-286. Peng, M.W., 2013. Global Strategy. 3rd ed. USA: South-Western Cengage Learning. SKMM MCMC, 2013. Hand phone users survey 2012. [Online] Available at: [Accessed 31 March 2014] The World Bank, 2013a. Thailand continues to be in the top 20 countries in the ease of doing business. [Online] Available at: [Accessed 31 March 2014] The World Bank, 2013b. Thailand Economic Monitor – February 2014. [Online] Available at: [Accessed 31 March 2014] The World Bank, 2013c. Thailand Overview – Context. [Online] Available at: [Accessed 31 March 2014] The World Bank, 2013d. Thailand Overview – Strategy. [Online] Available at: [Accessed 31 March 2014] Twarowska, K. and Kakol, M., 2013. International Business strategy reasons and forms of expansion into foreign markets. [Online] Available at: [Accessed 31 March 2014] Xiaomi, 2013. Company Overview. [Online] Available at: [Accessed 31 March 2014] Read More