Analyse the internal and external environment of Xiaomi and the Chinese smartphone industry using Pestel and Swot.

• See XIAOMI Porters Five Forces and BCG Matrix Analysis 2018

• See  Huawei Porters five forces 2018.

1.0 Introduction 

Xiaomi is a Chinese privately owned electronics technology multinational currently engaged in the design, manufacture and retailing of smartphones, tablets, mobile apps, smart electronics as related software, accessories and third party applications. Key products include the Mi, Redmi and Mi Note series smartphones as well as Mi Pad series tablets. Launched in 2010, Xiaomi expanded exponentially in such a short period of time to become one of the fastest growing technology firms in the world, at one point overtaking both Samsung and Apple as number one in the Chinese smartphone market in 2014, less than 5 years after it was founded (Gilbert 2016).

This exponential rise led many to label it the “Apple of the East” a tag matched by its valuation which by 2016 was estimated at US$45bn (Gilbert 2016). But fast forward to 2017, Xiamo had fallen from 1st all the way to 5th rank in the Chinese smartphone market alone, behind Chinese rivals Huawei, BBK (which offers the Oppo and Vivo brands) as well as Apple and Samsung (Dunn 2017). Its valuation has fallen drastically to just $4bn in 2017, $41bn less in just one year. Just two years ago, Xiaomi was the bestselling smartphone brand in China as well being third largest in the world. What happened to Xiaomi? 

2.0 Xiaomi PESTLE analysis 2017-2018 (Opportunities and threats)

As will be looked at shortly, many factors both macro and micro have contributed to Xiaomi’s fall from grace. While some are internal weaknesses due to poor strategic decisions, certain macro threats haven’t favoured the Chinese smartphone maker.

Using PESTLE and SWOT framework, we will examine all these factors in the Chinese external macro environment that have contributed to Xiaomi’s demise. One of these is the rather competitive smartphone environment especially at the lower end of the smartphone spectrum (where most Chinese smartphone companies operate). The global smartphone market is now a mature market characterised by a scrap for market share (Mintel 2016).  We end the analysis with examining how Xiaomi can reverse the decline and recover some ground on rivals.

All isn’t lost for Xiaomi, in fact some macro trends actually may favour if it can expand internationally in markets where the smartphone market isn’t slowing such as Africa or enter the hybrid tablet market which is growing the fastest in European markets (Mintel 2017). We will also look at how it can put all its focus on its premium Mi Note series and ways of building brand loyalty to insulate it from fickle Chinese consumer tastes driving the lower end of the smartphone spectrum, in the same way Apple and Samsung (to a degree) have done in the premium market. Apple enjoys a unique and exclusive positioning, particularly among 16-24s and women, and Samsung shows a well-rounded trustworthy image. As smartphones become commoditized, Xiaomi needs to cultivate a unique brand image that goes beyond offering the cheapest smartphones to cultivate its own niche market (Mintel 2016). After all, there is a willingness by many Chinese consumers to pay more for premium smartphones (Gilbert 2016).

2.1 Chinese Political environment

The Chinese government’s reduction of export tariffs on most of its products to increase exports, has enabled Xiaomi to export more electronics including smart phones, head phones, power banks etc to other countries like India, Spain at reduced costs resulting in low product prices and increase in sales. In addition, China plans to completely do away with export taxes on its steel products to increase exportation (Hornby 2017).  

2.2 Economic environment

China’s high economic growth has favored increase in smartphone and general electronic sales (Bradsher 2018). This is because china’s high population and unemployment rate have resulted in low labor costs leading to low production costs and low prices of smartphones and general electronics hence attracting more customers. This has enabled Xiaomi to become one of the major companies dominating China’s smartphone market in just 10 years of its existence (Savov 2017).

2.3 Social environment

With evolving technology, young consumers especially millenials in major markets are reluctant to go to stores and purchase electronics, rather preferring to shop online due to its advantages like ability to compare prices of similar products and lack of associated transportation costs which has forced Xiaomi to conduct over 80% of its sales online. However, with the increasing ageing population in China, online sales are expected to drop and offline sales expected to increase (Si 2017).

2.4 Technological environment

The evolution of technology has enabled Xiaomi to develop 5G smartphones which are to be launched in 2019. 5G wireless technology is projected to offer benefits such as faster speeds for devices/smartphones connected to the internet, reduced latency when watching high-speed virtual reality videos and increased connectivity whereby more people and devices will be able to communicate at the same time. This will enable Xiaomi to develop and market new phones (Valiyathara 2018).

2.5 Legal environment

China and Indian governments have set up strict laws over the years to reduce air, water and soil pollution, for example in China, polluters like energy firms, manufacturing firms, face a levy of 18 US cents for every 0.95 kilograms of nitrogen oxide or Sulphur dioxide they release, and levies could be increased up to four times (Zhang 2017).

2.6 Environmental factors

Xiaomi has set up new recycling programs especially in India where various non-operational electronic products such as smartphones, power banks, headphones, among others are collected from consumers and recycled regardless of their brand to reduce e-waste from the environment (Rutnik 2017).

3.0 Xiaomi SWOT analysis 2017-2018

A SWOT provides a reality check on Xiaomi's internal and external situations and performance;

3.1 Strengths

• Xiaomi has fully utilized online shopping to market its products and increase its sales with online sales contributing over 80% of its total sales. However, with the expected decrease in online sales up to 70% in India, Xiaomi has established offline stores to boost its sales (Financial Express 2017).

• Xiaomi’s ability to sell high quality electronics including smartphones, laptops, power banks, among others at low prices compared to its competitors like Apple and Samsung, has enabled it to grab a bigger market share since customers like high quality products associated with low prices. This has led to competitor products like Apple's iPhone to lose market share to cheaper phone brands like Xiaomi (Purnell 2018).

• In addition, Xiaomi has established itself in two big markets China and India and has out competed Huawei and Samsung to be the top-selling smartphone brand in India leading to increased global sales and market share (Choudhury 2018).

3.2 Weaknesses

• A major weakness of Xiaomi has been extreme diversification into non-core products such as Internet of Things devices and other peripheral gadgets (e.g. Xiaomi Drone) which have not been well received in the market have been unnecessary forays into non-core markets.

• Another major weakness is overreliance on the Chinese market rather than international expansion. Xiaomi’s delayed effort to enter the US market like its competitors Samsung and Huawei has set back its sales because its competitors have already established themselves providing a wide range of products to US consumers. Currently Xiaomi doesn’t offer its products in the US except a portable charger (Kharpal 2018). 

• Xiaomi’s reluctance to advertise its products compared to its competitors, Apple, Samsung and Huawei who intensely advertise, has paved way for rivals to steal its market share. For example, Xiaomi’s sales plunged in 2016 pushing the company from first to fifth place among China’s smartphone markers due to (among other factors) lack of proper advertising and supply-chain problems (Kline 2017).

3.3 Opportunities

• Xiaomi can expand its smartphone market by establishing itself in other countries like US, UK, Brazil and other emerging markets like South Africa and Nigeria. This will help increase its sales and market share because customers like high quality smartphones associated with low prices. For example, Xiaomi’s plans to launch its smartphones in the US will provide a potentially wide market hence increasing its sales (Stolyar 2018).

• Also, Xiaomi has an opportunity to reach a wider market and attract more customers through opening more stores in countries where it is already established, a strategy called market penetration (Yan 2017).

• In addition, Xiaomi can manufacture 5G smartphones based on 5G wireless technologies which are more efficient than 4G smart phones to provide faster devices to consumers and increase on its sales (Perez 2018).

3.4 Threats

• A key issue that has already engulfed Chinese mobile phone firms such as ZTE and Huawei is China's trade war with Trump's administration, which has already seen ZTE and Huawei banned from the US. Xiaomi may face similar pressures in the future if the situation between the two countries continues to worsen.

• Xiaomi faces a major threat of competitors from companies like Samsung, Apple, Huawei, Oppo-Vivo, among others which are constantly developing new or similar products to oust Xiaomi and gain its market share (Cendrowski 2017).

Conclusion 

Despite all the issues Xiaomi faces at the moment, all isn’t lost. The Chinese smartphone maker simply needs to refocus on what made it great. It needs to focus on core products rather than keep diversifying into non-core devices that simply take resources away from its main product- smartphones. It can for instance focus on its premium Mi Note series and especially find ways of building brand loyalty to insulate it from fickle Chinese consumer tastes that drive the lower end of the smartphone spectrum, in the same way Apple and Samsung (to a degree) did in the premium market. Xiaomi has stagnated because its lost its identity trying to be many things. Apple enjoys a unique and exclusive positioning, particularly among 16-24s and women, and Samsung shows a well-rounded trustworthy image. As smartphones become commoditized, Xiaomi needs to cultivate a unique brand image that goes beyond offering the cheapest smartphones to cultivate its own niche market. After all, there is a willingness by many Chinese consumers to pay more for premium smartphones.

It also needs to expand internationally in markets where the smartphone market isn’t slowing such as Africa or enter the hybrid tablet market which is growing the fastest in European markets.

References 

Bradsher Keith (2018) “China’s Economic Growth Looks Strong; Maybe Too Strong” New York Times [Online] at https://www.nytimes.com/2018/01/18/business/china-gdp-economy-growth.html [Accessed on 15 May 2018]

Cendrowski Scott (2017) “How China’s Smartphone ‘Big Four’ Are Fighting for Global Customers” Fortune [Online] at http://fortune.com/2017/01/24/china-smartphones-oppo-vivo-huawei-xiaomi/ [Accessed on15 May 2018]

Choudhury Roy Saheli (2018) “The top-selling smartphone brand in India isn’t Samsung anymore, and it isn’t Apple either” CNBC [Online] at https://www.cnbc.com/2018/01/25/xiaomi-beats-samsung-to-be-indias-top-fourth-quarter- smartphone-seller.html [Accessed on 15 May 2018]

Clover Charles and Ju Fei Sherry (2017) “China’s Xiaomi hints it is looking to build cars” Financial Times [Online] at https://www.ft.com/content/2606bc74-df20-11e7-a8a4-0a1e63a52f9c [Accessed on15 May 2018]

Financial Express (2017) “Xiaomi makes big revelation, says expects online sales to fall, here is why” Financial Express [Online] at https://www.financialexpress.com/industry/technology/xiaomi-makes-big-revelation-says-expects- online-sales-to-fall-here-is-why/980340/ [Accessed on 16 May 2018].

Hornby Lucy (2017) “China to do away with export tax on steel products” Financial Times [Online] at https://www.ft.com/content/55dc4b1b-0ae7-3d64-b4e5-c33a38a9dc8e [Accessed on 15 May 2018].

Jennings Ralph (2017) “China’s Xiaomi suddenly surges in worldwide smartphone sales” Forbes [Online] at https://www.forbes.com/sites/ralphjennings/2017/11/21/chinas-iphone-lookalike-the-xiaomi-is- surging-in-world-smartphone-sales/#1acebcb559de [Accessed on 15 May 2018]

Kharpal Arjun (2018) “Xiaomi on US market entry: We’ll be there” CBNC [Online] at https://www.cnbc.com/2018/02/26/xiaomi-on-us-market-entry-well-be-there.html [Accessed on 16 May 2018].

Kline David (2017) “BEHIND THE FALL AND RISE OF CHINA’S XIAOMI” Wired [Online] at https://www.wired.com/story/behind-the-fall-and-rise-of-china-xiaomi/ [Accessed on 15 May 2018].

Orbis (2017) “Company report of XIAOMI COMMUNICATIONS CO., LTD” Orbis.com [Accessed on 15 May 2018]

Perez Bien (2017) “China’s chance to lead global innovation may lie with 5G mobile technology development” South China Morning Post [Online] at http://www.scmp.com/tech/enterprises/article/2113581/chinas-chance-lead-global-innovation-may- lie-5g-mobile-technology [Accessed on 16 May 2018].

Purnell Newley (2018) “Why the iPhone Is Losing Out to Chinese Devices in Asia” Wall Street Journal [Online] at https://www.wsj.com/articles/why-customers-from-india-to-indonesia-prefer-chinese-devices-to- iphones-1519036203 [Accessed on 16 May 2018]

Renfrow Jacqueline (2017) “80% of shoppers compare prices online before shopping in stores” Fierce Retail [Online] at https://www.fierceretail.com/digital/80-shoppers-do-online-price-comparison-before-store-shopping [Accessed on 16 May 2018].

Rutnik Mitja (2017) “Xiaomi’s new recycling program can get you a discount off your next purchase” Android Authority [Online] at https://www.androidauthority.com/xiaomi-recycling-program-discount-769509/ [Accessed on 15 May 2018].

Savov Vlad (2017) “China’s phone market is now dominated by five companies, none of which is Samsung” The Verge [Online] at https://www.theverge.com/2017/12/6/16741142/china-smartphone-market-stats-android-oem-2017 [Accessed on 15 May 2018]

Si Ma (2017) “Xiaomi bets on offline expansion” China Daily [Online] at http://www.chinadaily.com.cn/business/tech/2017-04/20/content_29006196.htm [Accessed on 15 May 2018].

Stat Counter (2017) “Mobile vendor market share worldwide” Statcounter.com [Online] at http://gs.statcounter.com/vendor-market-share/mobile [Accessed on 15 May 2018].

Stolyar Brenda (2018) “Xiaomi plans to launch its smartphones in the US by the end of 2018” Digital

Trends [online] at https://www.digitaltrends.com/mobile/xiaomi-plans-to-expand-to-us-smartphone-market/ [Accessed on 15 May 2018]

Valiyathara Anvinraj (2018) “Xiaomi, OPPO, Vivo, ZTE, Nokia 5G Smartphones with Snapdragon X50 5G NR Arriving in 2019” Gizmo China [Online] at https://www.gizmochina.com/2018/02/09/xiaomi-oppo-vivo-huawei-zte-nokia-5g-smartphones- snapdragon-x50-5g-nr-arriving-2019/ [Accessed on 16 May 2018].

Yan Sofia (2017) “China’s Xiaomi plans to flood the world with 2000 stores within 3 years” CNBC [Online] at https://www.cnbc.com/2017/07/10/chinas-xiaomi-plans-to-flood-the-world-with-2000-stores-within- three-years.html [Accessed on 15 May 2018].

Zhang Maggie (2017) “New environment tax will hit businesses in China hard, say experts” South China Morning Post [Online] at http://www.scmp.com/business/china-business/article/2113650/new-environment-tax-will-hit- businesses-china-hard-say [Accessed on 15 May 2018].

Copyright © 2007-2018 123 Writing.com. All rights reserved. All forms of copying, distribution or reproduction are strictly prohibited and will be prosecuted to the Full Extent of Law.