International Business Strategy – Xiaomi Internationalization

Introduction

The purpose of this report is to develop an international strategy for the Xiaomi Inc. in order to enter the European market. Moreover, this report enclosed advice on country selection, entry model selection; technique to manage cultural and institutional risk as well as it encloses advice on organization structure and control of the company operation in the international market.

Wall, Minocha and Rees (2015) stated that the international business strategy involves selling the products and services of the company outside the home market. The purpose behind the entry to international markets is to take advantage from new opportunities, increase product demand, new markets and better access to resources. However, international markets environment is unpredictable, uncertain as well as have socio-economic and cultural differences (Rugman, Collinson and Hodgetts, 2016).

Therefore, it is important that companies choose an effective strategy to tackle a range of problems when entry an international market.

Description of the Company – Xiaomi Inc

Xiaomi Inc. is fourth largest Smartphone Company in the world with sales of 61 million handset and revenues of 12.1 billion in 2013. The company is classified as most valuable Smartphone technology startup and Xiaomi is classified as Apple of china. The company was formed in April 2010 with the home market in china and operating in India, Indonesia and Singapore.

The company follows the policy of market penetration to get as many handsets in as much hand and this is achieved through offering lower prices. Xiaomi business model is based on selling its product online and effective use of social media to market its products (Xiaomi, 2015).

Industry background

According to report published by CC insight (2015), global Smartphone market had sales of 1.83 billion handsets globally with year on year increase of 6% from 1.73 billion handsets in 2013. For the Smartphone, western markets and North American are considered as mature market and growth in these markets are relied on the replacement sales. The Smartphone market is based on the duopoly in which apple and Samsung capture two-third of the market share.

The competition in the Industry is intense and profit margins are tightened. Nevertheless, china is a growing market with enormous size and scale of market. The three element of the industry have three major implications which are; 1) low barrier to entry in the industry; 2) Google operating system android; 3) turnkey chipset procedure such as QUALCOMM and mediate (CCS Insight, 2015).

industry life cycle

North American market and western European are mature markets whereas, china and emerging markets are in their growth stage which represent learning opportunity and development of new products. The innovation and new products introduction can effectively replace the gap as mature markets customer replace their handsets quickly (Rugman, Collinson and Hodgetts, 2016).

Internationalization

According to Chandra, Styles and Wilkinson (2015) internationalization is defined as process in which company develop its operations across borders. In the process, company operations adapt to conditions and environment of the international market. According to ‘Dunning Eclectic Paradigm’ (OLI model), companies decided for an international business based on ownership advantage (O) through offering licensing.

Moreover, it could be based on the localization advantage (L) in which firms decided to export based on local manufacturing. At last, not least, in case of the internationalization advantage (I) based on the unique business proposition in which company make the foreign direct investment (Forsgren, 2016).

Rational for Xiaomi entry to Europe

Company has operation limited to few country, i.e. expansion to European market will increase the market share of the company, achieve better return on investment, will have comparative advantages as well as economies of scope and learning. Xiaomi entry to the European market will help to develop its capabilities in R&D and product development and further enhance its technological outreach.

It will get benefit from the technical knowledge gained as a result of investment in Europe and develop product and processes in the home base to export to the European market (Jonsson and Foss, 2016).

Level of Strategy and strategic development

According to Leiblein (2014) the strategy is defined as course of action to a specific outcome. There are three level of strategy which corporate strategy, business strategy, and function strategy. Corporate strategy is concerned with addressing the problems in the industry or expanded into new areas of business. Moreover, business strategy is concerned with achieving success in the chosen field.

In the light of business strategy, company goals, as well as performance targets, are set. The porter generic strategies come under light at this stage. Nevertheless, the business strategy must align with overall corporate strategy. At last, not least, function strategy is a concern with the achievement of success in daily operations of the company (Hill, Jones and Schilling, 2014).

According to Dess, Peng and Lei (2014) strategic decisions are concerned with direction and scope of the organization to achieve long-term success. The process of strategy development could be either rational planning method. In which positioning approach is deployment and strategy are developed based on the step-by-step approach. The market-based strategy (outside-in) helps the organization to identify risk and control the resources.

Another approach involves strategy as experience in which strategy is the emergent approach. It is developed out of the pattern of behavior and it more creative and bottom up but it lacks co-ordination. In market-based strategy, competitors can make similar offering which could erode the competitive advantage. Resource-based strategy involves exploiting own resources and competencies to achieve competitively. These competencies are the core for the business which is difficult for competitors to imitate (Foss and Knudsen, 2015).

International Business strategy

The international corporate-level strategy is based on the products and services and international dimension. The first strategy is ‘international scope’ which is based on the decision of Company whether it decided to compete in the particular market to satisfy the need of the particular regions (Buckley and Ghauri, 2015).

Organization pursuing regionalization is able to better understand the cultures and social values and effectively meet the need of local customers. ‘Multi-domestic strategy’ involves decentralization of the decision and offering products according to the need of the local market. In multi-domestic strategy, products and services are offered based on the need of local customers and the business unit in various countries makes an independent decision (Hill, Jones and Schilling, 2014).

Moreover, ‘global strategy’ involves offering standardized products and services in the different international markets. The global strategy is controlled through the home market and organization focus on the economies of scale.  At last, not least, corporate level ‘transitional strategy’ in which firm achieves the local responsiveness while focusing on the global efficiency (Peng, 2016).

Types of International Strategies

Xiaomi and international strategy

Xiaomi should pursue the market strategy which is based on scanning the external environment and develop capabilities and process based on the need of the market. The company deploys outside-in approach which able to increase its R&D and deliver product based on the need of the local market (Henry, 2016).

Xiaomi has advantage based on the localization and internationalization experience. The first stage involves analysis of company resources such as availability of resources, financial resources as well as the competitiveness of the company. The company has enriched experience in the home market of china as well as internationalization experience of India and Singapore (Cavusgil et al., 2014).

The expansion in the European market offers company opportunities to increase sales and develop based on market benefits. Xiaomi needs to deploy systematic approach to planning based on the environment analysis of the target market (Govindarajan and Ramamurti, 2016).

SWOT analysis

SWOT is acronyms for the strength, weakness, opportunities and threats in the market. The company has location advantage because of the low cost of production and offering its products to customer lower pricing which has helped the Xiaomi in market penetration. The strong networking and support industries has helped the company to deliver the product in efficient manner and have international standards (Paul, 2015).

In addition, Dlabay and Scott (2014) discussed that the company has experience of internationalization in the similar markets such as India and Singapore. Moreover, the company sell it product on internet and have experience of collaboration to develop a strong market presence. The weakness of the company involves poor management of internationalization of experience.

The company has faced legal and political issue in the India as customers have risen concerned for international storage of data and court has banned the company sales due to infringement of copyrights. In addition, company revenue is dependent on the china market and the company does not have operations in the developed markets (Chandra, Styles and Wilkinson, 2016).

The over-concentration of operations in the Chinese market and low barrier to industry represent sustainability issues for the company. The expansion to developed market represent opportunities for the increase in revenues, get benefited from the experienced of mature markets.

Company business offers unique proposition as it renews its products on the weekly basis. This will help the company to deliver products based on the requirement of the customer. The new product and new market helps the diversification and minimize the risk.

Furthermore, the competitiveness in the domestic market, low barrier to entry, emerging technological trends as well as lack of international presence has resulted in long-term sustainability of the company (Pynnonen, Ritala and Hallikas, 2014).

Competitors analysis

Competitor analysis is a useful technique in order to examine the strategy; product lines, as well as strength and weakness, are analyzed. Competitors operating internationally can help the company to gather information on the entry strategy of companies (Henry, 2014).

The competitor analysis is useful to identify trend and reactions of the competitors based on the goals and assumptions. The forms of competitors are either brand competitors or industry competitors. Xiaomi has strong competition in the industry such as ‘Apple’ and ‘Samsung’ where brand competitors are Lenovo which represent strong market competition for the company (Upson et al., 2014).

Target market selection

Taaffea, Geunesb and Romeijn (2014) evaluates that the selection involves screening of the European market based on the demand factors, demographic data as well as macro-economic factors such capita per income. The screening has highlight number of possible countries in the Western Europe. The detail market research will highlight the potential and feasible country to enter.

The estimation of the perspective target market and further screening to examine the high potential countries will help to identify the profitable and potential. The in-depth market screen will highlight the total market.

The International Market Entry Evaluation Process

Market research

The market helps to identify number of factors such as culture, competitors and life-cycle of the product. The European culture is distinct compared to Chinese’s culture as well as competition is strong in the European market. The purchasing pattern of the western market is customers are more likely to buy middle-high range product which offer superior quality. Moreover, market research helps to identify the physiological and geographical analysis of the market (Gofton and Ness, 2016).

The market data can be obtained from the company offering services to conduct market research. Xiaomi can conduct detail market research in the western market to identify the segment of the market to determine the requirement of the customer.

Moreover, it will help to analyze the geographical and demographic analysis to select the target market for the company products. The most fundamental factor is to examine the potential cost associated with target country and the benefit received from the country (Nargundkar, 2015).

Market selection – Germany

The selected market for Xiaomi is Germany because of technological and economic conditions of the market. Geographical location, advance infrastructure, high per capita income as well as related and support industries will help the company to benefit from the European market. The geographical location will help to sale in another European market.

The social-economic factors will help the company to develop better research and development facilities and companies can benefit from learning in the western market (Baldissin et al., 2014).

PEST analysis

The political factors involve government policies and legislation in the country. The western market has strong political system compare to the home country of Xiaomi. The advantage of the free market economies, political stability, protection for the business, better operates environment. The political environment in the Germany will offer more flexibility and less intervention by the government (Kachru, 2016).

The economic situation in Germany is far more stable and company can achieve better sales as well as can get financing to start operation in the market. The social factors involve the value and attitude of the people in the society. In the light of Hofstede model, in Germany, company will have low power distance, high individualism, as well as low uncertainty avoidance, compare to home markets.

The technological factor involves the availability of the support for the new state of art technology. In Germany, the technology availability is high and company can capitalize and develop new products based on the requirement of the market (Rugman, Collinson and Hodgetts, 2014).

Transnational corporate level strategy – Xiaomi

Xiaomi has strong presence in the home market, but the product offered by the company does not have sustainable competitive advantage. The company does offer low-cost product and face strong competition due to low entry to the barrier as well as the availability of similar chipset and resources for other companies (Hitt, Ireland and Hoskisson, 2014).

The company can get benefit from the resources available and expand it horizon to Europe. This will enable the company to deliver according to the need of customer based on customer needs.

According to Eden and Ackermann (2013) the transnational strategy will help the company to achieve the global efficiency and deliver with local responsiveness. The company will able to achieve global coordination (localization advantage) which involve manufacturer in china and sold in the European which gives company cost advantage.

Moreover, internationalization advantage will help the company to improve its research and development capabilities. The transnational strategy will help the company to keep the cost control through the better flow of information as well as provide specialized and customized products to compete in the global markets (Frynas and Mellahi, 2015).

Porter Diamond – business level strategy

The international business strategy is based on the requirement of the corporate level strategy in order to response to the competitive dynamic of the international market. The international competitive strategy is based on the porter diamond based on a factor of production, demand condition, related and support industry as firm structure and rivalry (Chettya, Johansonb and Martin, 2014).

Factor of production involve natural input such as infrastructure and resources, demand condition mean the buyer needs and size of the market in the home country, related and support industry defined the availability of the facility and network support and structure and strategy defined as competitive system to respond to customer need (Tallman, 2015).

Porter Diamond Model

Model of Entry

There are different modes of entry in the international market which are exporting, licensing, strategic alliance, merger and acquisition as well as a wholly owned subsidiary. Exporting involves the low-cost establishment of the operation in the international market based on the localization advantage.

Moreover, the company can start the international operations through offering licensing and franchise. This helps to minimize the cost and time to enter the international market. A franchise allows the international party to engage in the legal business on behave of the company (Brush, 2012).

A strategic alliance is a useful tool which allows sharing risk and cost. This allows the company to focus on the core competencies and require fewer resources to enter the market. Merger and acquisition also allow a quick assess the market. However, it requires negotiation and complex transaction to complete the process.

At last, not least, wholly owned subsidiary involves establish of the complete process with 100% control. Nevertheless, it carries greater risk but allows the company to achieve maximum return (Majocchi, Mayrhofer and Camps, 2015).

Wholly-owned subsidiary – Xiaomi

Xiaomi can enter the Germany market through establishing a wholly owned subsidiary. It will help the company to get benefited from learning from the in the Germany market. It will help the company to get benefited from the transfer of knowledge to home country and produce products in cost-effective manner.

This will offer a greater degree of flexibility as well as a company can expand to further market. The political and legal situation in Germany is stable and the company is less like to face legal of political risk. One of the Chinese firms operating in Germany is Wiko which have started its operation with similar intention (Zahra, Ireland and Hitt, 2014).

Cultural and Political Risk

Germany has different culture compared to china. The social structure, as well as organization, is significantly different to that of home market of Xiaomi. The cultural is associated with an operations level strategy of the company and represents major challenges for the company. Hofstede model is a useful tool to analyze the cultural difference in the international markets.

This model explains the cultural variation based on the power distance, individualism vs. collectivism, uncertainty avoidance as well as masculinity and femininity. For example, organizational structure in china has a hierarchy control system. On the other hand, in Germany organization is more likely to have a horizontal structure with a greater degree of autonomy. Moreover, the language and social structure is likely to different in Germany (Vyuptakesh, 2015).

Dess, Peng and Lei (2013) evaluates that the Political risk involves the risk from the regime or social unrest in the country. For example, Arab spring was political unrest in the country. In such case, the company may lose the asset to endanger the life of its expatriate employee. For example, in India, due to political tension, the company has serious consequences based on the data centers in the china.

Nevertheless, Germany political situation is much more stable which offers a greater degree of control and safety of the asset of the company. The chances of political risk to financial or market situation are low as Germany has low geopolitical risk in the region (Ritala and Hallikas, 2015).

Control of risk – Xiaomi

Sinha and Sinha (2015) discussed that the company can eliminate the cultural risk through the effective integration of the employee with the local culture. The employee should be given effective training in order to minimize the cultural risk. The cross-cultural barrier can be easy managed and company should deploy effective human resource (HR) strategy in order to tackle the risk.

In order to tackle the political company should lobby the government as well as buying an insurance to control the risk. Moreover, company should have effective control structure in order to tackle the risk.

Organizational structures

The company could have a centralized structure for better control and resource as well as a decentralized structure which offers staff empowerment and helps in quick decision making. The different form of the structure are functional structure which is defined by activities, holding company, network structure (outsource and alliance) as well as divisional structure. The divisional structure is based on the product or market. In case of the divisional structure, the company has a unit which are independent for their profitability (Sinha and Sinha, 2015).

Mobile phone industry is high competitive where number of activities are performed independent unit in order to maintain the profitability. The company should have started the new company as holding company (wholly owned subsidiary) which allows increasing the research and development and units will be independent to offer degree flexibility. The trend in mobile in that company has a horizontal structure with a greater degree of flexibility for innovation (Hill, 2015).

Conclusion

Xiaomi has strong presence in china have recently have expanded to international markets. However, company revenues are concentrated in china region and company has failed to take advantage from its size and resources in the international market.

The company needs to expand its horizons to the European market to get benefit from the international exposure and get a better return on investment. The expansion to Germany will allow the company to achieve better return on investment as well as transfer the knowledge and learning to china market.

Xiaomi has localization and internationalization advantage which help the company to expand in the Germany. The most suitable strategy for the Xiaomi for internationalization is a transnational strategy. This will help to achieve global efficiency as well as control the cost.

At last, not least, company should open wholly owned subsidiary to get maximum benefit from the European subsidiary.

 

 

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