Analyse Xiaomi in China's smartphone industry using Porters five forces and BCG matrix 2018 

• See Xiaomi Pestle and Swot 2017.
• See Huawei Porters five forces 2018.

2.0 Xiaomi Porters Five Forces

2.1 Bargaining power of buyers

The bargaining power of the buyer is very high due to the stiff competition in China’s smart phone market. With the all major players including competing in the Chinese smartphone market, the smartphone market of China is so saturated that buyers have got lots of choice both from the low end and high end of the market which has resulted in sluggish growth in the Chinese smartphone market. While Xiaomi has managed to increase sales in 2018 because of its affordable prices putting it ahead of Apple which is now in fifth, its focus on low end low margin phones means its profits are extremely lower than Apple which still controls 80% of the premium end of the smartphone market in China (Dunn 2017).

2.2 Bargaining power of suppliers

The bargaining power of Xiaomi’s suppliers is high due to the technical nature of the components that go into smartphone making. The company has created partnerships with suppliers like Qualcomm which has given further credibility to its supply chain guaranteeing a continued supply of high quality products but this only makes such suppliers powerful (Elementum News 2018).

2.3 Threat of substitutes

Substitutes are referred to as products that offer similar benefits to the industry’s product. In this case, threats of substitutes can include landlines, satellite phones, pay phones and fax machines which are of late considered old fashioned in comparison to smart phones. The threat of substitutes for smart phones is very low which is an advantage for companies like Xiaomi as more people are relying on smart phones abandoning the use of old technology.

2.4 Competitive rivalry

China’s smartphone market is highly concentrated among the top five companies; Huawei, Oppo & Vivo, Xiaomi, Apple and Samsung dominating the market and accounting for at least three in every four handsets sold in China (Tao 2017). Huawei commands 19.4% market share, Oppo 18.8%, Vivo 16.4%, Xiaomi 13.7% , Apple 7.7% with the rest sharing 24% of the market as of 2017 (Tao 2017). This has resulted in very high competition giving buyers more power to choose among the different offers, resulting in sluggish growth of the smartphone market in China.

However, Xiaomi has a competitive advantage against some of these competitors due to its leadership position in key markets such as India where it commands approximately 31% of the Indian market share, making it number one seller which has helped boost its profit margins (Khan 2018).

2.5 Threat of entry

In China’s smartphone industry, barriers to entry are very high considering the fact that there are already established companies ahead of Xiaomi including, Huawei BBK (which offers the Oppo and Vivo brands) as well as Apple and Samsung (Dunn 2017) and all have high economies of scale and production which makes it very expensive for new entrants to compete unless highly capitalized. It is not a surprise that as a start-up company growing at a high rate, Xiaomi couldn’t scale up its production capacity to meet the demand of its smartphone devices which contributed to pushing it from first to fifth position in China’s smartphone industry makers (Kline 2017).The investments required for a start-up are very expensive not forgetting the fact that incumbents have gained experience with time and already know how to operate efficiently which gives them an added advantage.

3.0 Xiaomi BCG/growth share Matrix Analysis 2018

3.1 Xiaomi Stars

Xiaomi wearables such as fitness trackers and smart watches are the company’s major stars with a market share of 17.7% globally, making them the number one global seller ahead of Apple and Fit Bits as of 2017. The wearable business is growing at a high rate with an increase in market shares from 15% in 2016 to 17.1%, while the shipping volume also grew from 3million units to 3.7 units (Bindi 2017). Xiaomi should thus invest more in this segment in order to grow further market shares so that when the market growth rate declines, wearables can become cash cows.

Xiaomi’s life style business has also turned out to be a star generating revenue of 23.5 billion Yuan contributing 20.5% of the company’s income (Choudhury 2018; Prashant 2018).

The Internet service business from apps and games has also been growing at a very high rate even if it’s consuming a lot of Xiaomi’s revenue. With approximately 190 million users on its operating system for smartphones and tablets, the business’s income has grown by 51.4% from 2016 to 9.9 billion in 2017 (Choudhury 2018). As of 2017, the internet service business contributes 8.6% to the company’s income (Prashant 2018).

3.2 Xiaomi Cash cows

Xiaomi’s cash cow is the smartphone segment which has been growing at a high rate contributing the highest income to the company. This segment has grown its global market share to 8.2% as of 2018 and has been ranked number four globally while its shipment units have grown by 86.4% year on year to 27.6 million( Pan Daily 2018) contributing 70.3% to the company’s income (Prashant 2018). Xiaomi’s total revenue from smartphones grew more than 65% in 2017 to 80.56billion Yuan (Choudhury 2018). The segment has grown its market shares in India to 31% making it the best seller in India, beating Samsung to be number one (Khan 2018). With the global smartphone demand on a slowdown, Xiaomi should invest in premium smartphone segments especially its premium Mi Note series which can become a cash cow as well as other question marks such as smart shoes that can be future stars.

3.3 Xiaomi Question Marks (Problem children)

Smart shoes: Launched in March 2017 in partnership with Li Ning, Xiaomi’s smart shoes are growing at a high rate mostly due to the growing market in India and China. Even if this segment’s market shares are very low, with more investments smart shoes business has the potential to become the company’s next star mostly due to the market that is forecast to grow further due to people’s need of internet connected products( WNKY 2018).

3.4  Xiaomi Dogs

Xiaomi has invested in a lot of peripheral products that have nothing to do with its core products- smartphones. The company has invested in segments such as air purifiers, power banks, and drones as well as hover boards. So far, Xiaomi’s power banks have proved to be the company’s dog product segment despite lots of investment from the company.

References

Bindi TAS (2017) “Xiaomi topples Fit Bit and Apple as world’s largest wearable vendor: Strategy analytics” ZDNet [Online] at https://www.zdnet.com/article/xiaomi-topples-fitbit-and-apple-as-worlds-largest-wearables-vendor-strategy-analytics/

Choudhury Saheli Roy (2018) “China smartphone maker xiaomi picks Hong Kong for IPO” CNBC [Online] at https://www.cnbc.com/2018/05/02/xiaomi-picks-hong-kong-for-ipo.html

Dunn, Jeff (2017) “Chinas smartphone market is dominated by companies you’ve probably never heard of” Business Insider [Online] at https://www.businessinsider.in/Chinas-smartphone-market-is-dominated-by-companies-youve-probably-never-heard-of/articleshow/58541760.cms

Elementum News (2018) “Xiaomi and the supply chain behind the world’s highest valued smart phone start up” [Online] at https://news.elementum.com/how-supply-chain-is-building-xiaomis-empire

Khan Danish (2018) “Xiaomi widens smartphone market share gap with Samsung in India: Canalys” ET Telecom [Online] at https://telecom.economictimes.indiatimes.com/news/xiaomi-widens-smartphone-market-share-gap-with-samsung-in-india-canalys/63891082

Kline David (2017) “Behind the fall and rise of China’s xiaomi” Wired.com [Online]at https://www.wired.com/story/behind-the-fall-and-rise-of-china-xiaomi/

Prashant Pravin (2018) “Why xiaomi is successful and its present valuation is $50-60 bn?” Digi Analysis [Online] at http://www.digianalysys.com/why-xiaomi-is-successful-and-its-present-valuation-is-50-60-bn/

Pan Daily (2018) “Global smartphone shipment fell by 2.9% in Q1 China fell below 100 million units” [Online] at https://pandaily.com/global-smartphone-shipments-fell-by-2-9-in-q1-china-fell-below-100-million-units/

Tao Li (2017) “Huawei, Xiaomi lead Chinese brands strangle hold on world’s largest smart phone market” South China Morning Post [Online] at http://www.scmp.com/tech/article/2118660/huawei-xiaomi-lead-chinese-brands-stranglehold-worlds-largest-smartphone-market

WNKY (2018) “Smart shoes market 2018 leading growth drivers, recent trends, emerging audience, segments, industry sales, profits and analysis”WNKY.com [Online] at http://www.wnky.com/story/38239438/smart-shoe-market-2018-leading-growth-drivers-recent-trends-emerging-audience-segments-industry-sales-profits-analysis

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