Strategies for International Development and Market Entry for Xiaomi - Example

Market Entry Strategy- Xiaomi Contents Brief Synopsis of the Issue 3 2.Recommendations 3 3.Introduction/Background 4 4.Analysis of Market Opportunities in Country (National-level Analysis) 5 4.1 Porters Diamond Analysis 5 4.2 Country attractiveness 6 5.Company Situation Analysis/Situation Analysis of Xiaomi 6 5.1 VRIN Analysis 6 5.2 Expansion of Xiaomi overseas 7 5.3 Global sourcing and production 7 6.Market Entry Strategy 7 6.1 Market Entry Strategies for Xiaomi 7 6.2 Recommended choice - Joint Venture 8 6.3 Strengths and weakness of joint venture 8 7.Implementation of Market Entry Strategy 9 8.Conclusion 10 Reference List 11 1. Brief Synopsis of the Issue Xiaomi brand has been planning to enter the Indonesian market with the launch of its smartphone brand. The demand for Smartphone has been very buoyant in the past few years in Indonesia. However, national surveys have indicated that consumers prefer cheaper Smartphone as well as those with discounts and offers over those with none. This is mainly because of the dominant demographic profile consisting of middle class as well as upper middle class customers. As a result, marketers of Xiaomi will have to choose an appropriate entry strategy for its Smartphone brand. Consumer perception is generally positive towards their national brand as buyers can associate themselves with these brands. As a result, joint venture will be the appropriate entry strategy for the Smartphone brand. At present, Samsung and Sony are the two major brands selling smartphones in Indonesia. Others brands such as, Apple and HTC, are also present, but their level of penetration is extremely low (Rabasa and Chalk, 2001). 2. Recommendations 1. Xiaomi should make sure that the joint venture partner has similar strategic logic as well as drivers (Harvard Business Review, 2014). Similar market approaches will minimise friction between two companies and ensure that the joint venture strategy is properly implemented. 2. Even though joint venture is the most appropriate entry strategy in given conditions, yet there are certain risks associated. In order to minimise the risks, Xiaomi can opt for contract based joint venture partnership with Sony, which can be further extended if the relationship between two companies flourish in future. 3. Once the joint venture has been properly established and successful, Xiaomi can expand its product base in Indonesia by launching other models as well as mobile categories such as, Tablets and Androids. 4. In order to establish a long-term base in Indonesia, the Chinese handset maker can also collaborate with supporting industries such as, telecom firms, android and smartphone apps makers as well as various retail firms for increasing its sales and penetration in this market. 3. Introduction/Background The present global economy is characterized with fierce competition as well as high environmental volatility. As a result of this, forecasts and expansion plans have become extremely difficult procedures. With increase in purchase power of consumers and that of interest in technologically advanced communicating devices, more and more consumers are opting for Smartphone. Companies are now regularly including strategies such as, new product development, product or service enhancement and new market entries, in order to survive and grow in this competitive environment. While entering into a new market, it is essential to evaluate opportunities as well as risks associated with it. (Source: Livemint, 2013) In the present executive report, a proposal for market entry has been planned for Xiaomi. The market chosen for the expansion is Indonesia as the country reflects fast economic and social growth, dominating youth demographics as well as increasing popularity of Smartphone and other related communication devises (Global Edge, 2013). 4. Analysis of Market Opportunities in Country (National-level Analysis) Market opportunities in Indonesia can be identified with the help of Porter’s Diamond Analysis and this will allow to judge attractiveness of the firm. 4.1 Porters Diamond Analysis Factor conditions: Factor conditions include capital as well as knowledge resources of the nation, such as, physical assets, infrastructure and human capital. World Bank and Indonesia has entered into a strategic partnership, which helped the nation in developing itself in terms of knowledge, implementation support, service industries as well as lending capacities. The GDP (Gross Domestic Product) of Indonesia is increasing at 6.2 percent annually. In order to enhance its economic portfolio, Indonesia has been extensively promoting foreign investments (Asian Development Bank, 2013). With foreign investors entering Indonesia, the local market in increasingly being filled with foreign and international brands. As a result, consumers have also started to avail foreign brands on a regular basis. These factors are favourable for Xiaomi to enter Indonesia through joint venture. Firm strategy, structure and rivalry: Indonesia is one of the emerging economies across the globe. At present, the biggest rivals for Xiaomi in Indonesia are Samsung, Sony and Apple. Sony has been able to establish its market due to low prices and more features on the offering. Other smartphone brands that are gaining momentum in Indonesia are HTC and Motorola. However, overall penetration of smartphones in Indonesia is only 23 percent, providing huge opportunities for Xiaomi to opt for joint venture with Samsung (Asian Development Bank, 2013). Demand conditions: Majority of the mobile devices sold in the market constitute smartphones. Competition in the smartphone market has intensified due to factors such as, launch of local smartphone brands, import of cheaper foreign brands as well as increasing price war among established brands. Companies are now trying to differentiate and sell their brands by providing better features and services at lower prices compared to competitors. The aforementioned factors have resulted in high demand among consumers (Porter, 1998; RSIS, 2013). Supporting and related industries: Supporting sectors of the smartphone market includes that of operating systems, software, apps and gadgets. 4.2 Country attractiveness The joint venture will take place between Sony and Xiaomi so as to form a new venture for smartphones, named Sony-Xiaomi Pvt. Limited. The major challenge that Xiaomi might face in Indonesia is that of changing the consumer perception towards Chinese products. Apart from that, the brand might also face stiff competition from local players who are increasingly penetrating the smartphone market. Another challenge will be maintaining cordial relationship with Sony as both are competitors selling smartphone in the same market. 5. Company Situation Analysis/Situation Analysis of Xiaomi The situation analysis of Xiaomi is elaborated through VRIN analysis, which determines ability of the firm to expand overseas and undertake global sourcing and production. 5.1 VRIN Analysis Valuable: Xiaomi has become the most popular substitute for Apple in China. The company offers high-end software technology at less than half prices. As a result, aggressive pricing strategy as well as offerings of the smartphone brand can be considered as valuable (Wheelwright and Clark, 1992). Rare: The aggressive pricing strategy of Xiaomi can also be considered as rare. Most of the established and big brands, such as, Samsung and Apple, are limited by their high expenditure and huge production costs. Hence, it is extremely difficult for them to lower price, which renders low pricing strategy of Xiaomi rare in the smartphone market. In-Imitable: A combination of low pricing and high-end software and applications is in-imitable among competitors. While bigger brands cannot survive with low pricing, small local brands are unable to provide high-end technologies. So, the strategic approach adopted by Xiaomi is inimitable (Prahalad and Hamel, 1990). Non-substitutable: Even though other local companies are offering smartphones at cheaper prices, yet Xiaomi can achieve competitive advantage by keeping the prices low as well as continuously offering unique features and services. This will make the product non-substitutable. 5.2 Expansion of Xiaomi overseas Xiaomi is one of the rapidly growing smartphone markets across Asian peninsula. In China, the company’s popularity and reputation is quite similar to Apple. The brand has been differentiating itself through its knowledgeable, powerful and experienced managers as well as by offering unique features and services. The company is also known for its aggressive pricing strategy, which has hugely popularized them among the middle and upper middle class customers. At present, the handset maker is planning to expand overseas with the objective of penetrating new and potential markets. For securing its expansion plans, Xiaomi has also partnered with a mobile career firm named Three. This partnership will enable Xiaomi to spread across 14 different nations, which are currently served by the mobile carrier, Three. This will provide an easy access to markets such as, Indonesia (Financial times, 2014). 5.3 Global sourcing and production Smartphone is a rapidly penetrating consumer product. The huge benefits associated with global sourcing have persuaded government of Indonesia to allow more foreign brands in the Indonesian market. Currently, Indonesian government aims to expand as well as accelerate the process of economic development in the country. For this, the government has established a long-term growth and development plan that has already taken off in 2011 and plans to reach completion by 2025. One of the objectives of this plan is to attract greater foreign investment in the nation (Asian Development Bank, 2006). 6. Market Entry Strategy Strategies for market entry can be described as processes implemented with the objective of distributing services or goods in a pre-planned manner. The various market entry options for Xiaomi and recommended entry strategy are mentioned in detail below. 6.1 Market Entry Strategies for Xiaomi Xiaomi can enter the new market through various entry strategies. Some of the popular strategies implemented while entering into developing nations like, Indonesia, are licensing, franchising, Greenfield project, joint ventures, direct exporting or establishing wholly owned subsidiaries (Barkema, Bell and Pennings, 1996). Nonetheless, considering the current market conditions as well as future opportunities, establishing a joint venture will be ideal for the smartphone brand. 6.2 Recommended choice - Joint Venture A joint venture can be defined as “an enterprise owned and operated by two or more businesses or individuals as a separate entity (not a subsidiary) for the mutual benefit of the members of the group” (Ford and Lundsten, 2011, p. 61). In a joint venture, participation is more extensive and strong compared to that in partnership. Though Xiaomi has been implementing partnership strategy for providing various offerings to target customers, yet a joint venture will be more fruitful in a foreign market. Joint ventures are the best entry strategy when a firm lacks skills or resources in some manner (Anderson, 1990). In the current situation, Xiaomi lacks market knowledge about Indonesia. If the company decides to enter though direct exporting, it will take a longer time to understand the local market and prepare strategies accordingly. However, partnering with Sony will enable faster access to market knowledge as well as huge data that can be subsequently used by the Chinese handset maker. Even though Samsung is the top seller among smartphones in Indonesia, the preferred company for joint venture will be Sony. The major reason is that Samsung has been facing consumer outbreaks as well as negative publicity because of various drawbacks and problems in its smartphone and android brands. At the same time, Sony has been concentrating on young consumers and launching smartphones in order to meet their growing needs. A joint venture partnership between Xiaomi and Sony will also provide both the firms with various other benefits such as, access to greater or new distribution networks, purchasing capacity, intellectual property, technology and finance as well as market resource. In the present case, while Xiaomi will provide its technology and unique offers, Sony will allow Xiaomi access to its huge distribution and market network. 6.3 Strengths and weakness of joint venture A joint venture between Xiaomi and Sony will establish long-term partnership between them, facilitating better investment opportunities as well as greater resources combined for growth and development of both companies. While Sony will gain access to the advanced technology and expertise of Xiaomi, the brand itself will be exposed to Sony’s vast market and enjoy its huge base of customers. This will provide an enormous opportunity for Xiaomi to endorse its brand in the Indonesian market. Similarly, increased financial assistance from its partner will help in developing and implementing bigger campaigns for smartphone promotion. The joint venture will also facilitate technology sharing between the two mobile phone makers, thereby enabling better research as well as development of software and applications. Even so, this joint venture has some weaknesses associated with it. During the initial phases of joint venture, both companies will undergo restructuring process; so, there might be resistance among employees (Anderson, 1990). There might be internal conflict regarding leadership, positions as well as responsibilities among managers of both companies. Besides the abovementioned, the market is already full of local and international smartphone brands, which ensures tough competition for any new brand entering the market (Desai, Foley and Hines, 2004). 7. Implementation of Market Entry Strategy Joint venture strategy will be appropriate for entering into the Indonesian market. The implementation of joint venture between Sony and Xiaomi will require both parties to establish a strategic fit (Harvard Business Review, 2014). Apart from that, Xiaomi should undertake various steps while implementing joint venture strategy with Sony. 1. Extensive market research partnered with Sony with the objective of evaluating current trends and patterns among consumers. 2. Evaluate the demographics or consumer groups who are the largest user of smartphones and prepare appropriate strategies. 3. Assess major competitors of Xiaomi as well as Sony’s competitor strategies against these competitors. 4. Ensure that all marketing, branding and promotional strategies are in consent with Sony. 5. Prepare all necessary documents and proposals as well as make sure that every step in the implementation plan is properly documented. 6. Ensure that all employees and managers involved in the implementation process are aware of all agreements and do comply with them. 8. Conclusion After establishing itself in China and dominating neighbouring nations such as, Hong Kong, with its smartphone brands, Xiaomi is now planning to expand into other developing and emerging nations. The Chinese handset maker can establish its brand in Indonesia owing to a burgeoning demand for cheaper smartphones, which is the USP (Unique Selling Proposition) of Xiaomi. Furthermore, the Indonesia populace is dominated by young individuals aged between 21 to 28 years, who favour smartphones over other categories. Therefore, in order to enter the Indonesian market, the successful strategy for Xiaomi will be joint venturing with Sony. Reference List Anderson, E., 1990. Two firms, one frontier: On assessing joint venture performance. Sloan Management Review, 31(2), pp. 19–30. Asian Development Bank, 2006. Country Strategy and Program: Indonesia 2006-2009. Philippines: Asian Development Bank. Asian Development Bank, 2013. Indonesia: Economy. [online] Available at: [Accessed April 5, 2014]. Barkema, H. G., Bell, J. H. J. and Pennings, J. M., 1996. Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17 (2), pp. 151–166 Desai, M. A., Foley, C.F. and Hines, J.R., 2004. The Costs of Shared Ownership: Evidence from International Joint Ventures. Journal of Financial Economics, 73, pp. 323-374. Financial times, 2014. Chinese smartphone maker Xiaomi expands abroad. [online] Available at: < http://www.ft.com/cms/s/0/1b09ff66-9a14-11e3-8232-00144feab7de.html#axzz2xvK6nSob> [Accessed April 4, 2014]. Ford, J. and Lundsten, D., 2011. Understanding the Treatment of Joint Ventures between Contractors. [pdf] Contract Management, Available at: < http://www.ncmahq.org/files/articles/cm1211%20-%2060-67.pdf> [Accessed April 5, 2014]. Global Edge, 2013. Indonesia: Economy. [online] Available at: [Accessed April 5, 2014]. Harvard Business Review, 2014. Making Joint Ventures A Strategic Success. [online] Available at: [Accessed April 5, 2014]. Livemint, 2013. Samrtphone market nears saturation in parts of Asia. [online] Available at: [Accessed April 5, 2014].  Porter, M.E., 1998. Clusters and the new economics of competition. Harvard Business Review, 76 (6), pp. 77-90.   Prahalad, C.K. and Hamel, G., 1990. The core competence of the corporation. Harvard Business Review, 68 (3), pp. 79-91.   Rabasa, A. and Chalk, P., 2001. Indonesia’s Transformation and the Stability of Southeast Asia. Santa Monica: RAND. RSIS, 2013. The future of Indonesia beyond 2014: Challenges and opportunities. [pdf] Nanyang Technological University, Available at: [Accessed April 5, 2014].  Wheelwright, S. and Clark, K., 1992. Revolutionizing Product Development. New York: Free Press. Read More