international marketing research paper
TRANSCRIPT
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MKT3IMK
International Marketing Research
Student Name: Kai Zhu
Student ID: 17261302
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Table of Contents
1.0 Introduction ................................................................................................... 3 2.0 Company and Product Background .............................................................. 4 3.0 Comparative Country and Product Market Attractiveness ........................... 7
3.0.1 Politic ..................................................................................................... 7 3.0.2 Economy ................................................................................................. 7 3.0.3 Social and Culture .................................................................................. 9 3.0.4 Technology ........................................................................................... 10 3.0.5 Population ............................................................................................ 11 3.0.6 Geography and History ........................................................................ 11
3.1 Product Market Analysis ............................................................................. 13 3.1.1 Product life cycle of smartphone .......................................................... 13 3.1.2 US and Vietnam mobile market data .................................................... 14
3.2 Competitive Analysis .................................................................................. 15 3.3 Buyer Analysis ............................................................................................ 16 4.0 Market Selection with Justification and Opportunity Statement ................ 20 5.0 Marketing Objectives .................................................................................. 24 6.0 SWOT Analysis .......................................................................................... 26
6.0.1 SWOT Summary .................................................................................. 31 7.0 Entry Strategy ............................................................................................. 32 8.0 Conclusion .................................................................................................. 37 9.0 Appendix ..................................................................................................... 38 10.0 Reference .................................................................................................. 40
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1.0 Introduction:
In the circumstance of today’s business and economic globalization, how to enter the
international market has become a hot topic in the Chinese business community. This
purpose of this project is a comparative international market assessment with
selection of a market and development of appropriate entry strategy. Moreover,
combined with the development of the Xiaomi Company’s current situation, Xiaomi
needs to explore and research how the Xiaomi Company’s main products will be the
market leader. Furthermore, Xiaomi smartphones, MIUI, MI-chat is Xiaomi
company's three core businesses.
Firstly, the company and product background have been introduced and it introduces
the three core businesses and corporate strategies of Xiaomi Company. Besides,
United States and Vietnam should be the target market for Xiaomi Company.
Secondly, the comparative country and product market will be analyzed in second
section, which is focus on political, cultural, economic, social and technological
environments, and product market, competitive, buyer analysis. Thirdly, the market
selection with justification and opportunity statement will be explained. Finally, it will
be the entry strategy and marketing objectives. Meanwhile, this project analyses the
Xiaomi Company in the global competitive environment for the opportunities and
threats, pointing out that the advantages of international development, and will suffer
international intense competition, and other unfavorable factors.
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2.0 Company and Product Background：
Xiaomi Company，a mobile-internet company with independent research on high-tech
smartphones, was formally established in April 2010. Xiaomi Company is mainly
composed of senior staff from Microsoft, Google, Jinshan, MOTO and other domestic
or foreign IT companies. Xiaomi smartphones, MIUI and MI-chat are the three core
businesses of Xiao Company. Xiaomi Company was the pioneer, which initiated the
operating system with the Internet in 2010(Introduction of Xiaomi, 2010). Moreover,
600,000 fans attended the smartphone’s mode of development and improvement.
According to the domestic perspective, it is known that China has a large population
and high demand. Compared with other products, high performance with lower prices
is its main superiority. Moreover, Xiaomi has humanistic and fashionable designs.
Therefore, it’s popular among Chinese people and beneficial to the development of
Xiaomi Company.
The aims and corporate strategies of Xiaomi Company are consumer loyalty, profit,
the market leader and maturity.
Consumer loyalty: Xiaomi Company is committed to providing the highest quality
products, complimentary support service, as well as more value which obtain
customer’s trust.
Profit: The marketing strategy of Xiaomi is that Xiaomi smartphones are sold at cost.
However, it also needs to maintain enough profits in the later period to support the
company's growth and provide essential resources to achieve other goals of the
company.
The market leader: Xiaomi is committed to improving, developing and manufacturing
better products, which is the reason why it has become the leader of the domestic
smartphone and it has advantages to compete with other brands. Furthermore, it has
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become so popular in China, and it leads the domestic smartphone forward the world
market.
Maturity: Xiaomi forecasts market changes, making the appropriate change depend on
the environment and further achieving the new needs of customers.
Xiaomi Company is an emerging enterprise since it was established in April 2010,
and aimed at the high-tech smartphones. However, its productivity is not always
efficient, because of inexperience. Therefore, there is an insufficient of market share.
However, according to its high performance with low-cost marketing strategies and
high-tech operating system with the Internet, Xiaomi establishes greater momentum
for Xiaomi’s smartphones, and maintains a positive growth rate in the market.
While sales of Chinese smartphone phone brands in the domestic market are
increasing. However, it has not formed the status of internationally famous brands;
Xiaomi should actively promote Chinese products abroad, and the Chinese brand
enter the American market is a critical step.
Besides, Vietnam can be the target market as well. With the booming of the
Vietnamese economy and the remarkable improvement of Vietnamese living standard,
Vietnamese have much more ability to purchase smartphones and the Xiaomi
smartphone add much flavor to Vietnamese daily life. Moreover, Vietnam is close to
China on geographic location, which is convenient to transport, and Vietnamese
culture is similar to Chinese culture, which is beneficial to Xiaomi’s marketing
strategy. Alternatively, American is the most developed country in the world.
Currently, there are almost no Chinese brand smartphones selling in the US market.
Therefore, Xiaomi can act as the international pioneer due to it is possible that Xiaomi
wound be successful in the future. To sum up, United States and Vietnam can be the
target market for Xiaomi Company.
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Xiaomi has acquired a huge success in the domestic market; the relative price
advantage is one of the main reasons for the success. Nevertheless, Xiaomi suffer the
competition in the market in the future. Therefore, Xiaomi needs to consider how to
provide other unique advantages to consumers, mainly including the advantages of
technical services. Xiaomi smartphones, MI-chat and MIUI are closely connected,
which cannot only provide efficient service, but also the advantage of
self-customizable is the important advantage to access the developed markets.
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3.0 Comparative Country and Product Market
Attractiveness
3.0.1 Politic
The United States has a four-year term executive president, elected by universal
suffrage, and then the president selects and directs his own cabinet. US Congress
comprises a 435-member House of Representatives, half of them are elected every
two years, and a 100-member Senate, which serves for six years but one third of them
is re-elected every two years.
The communist party remains dominant American politic. The country has a vice
president who has until recently been elected from single-candidate lists, and a
496-member National Assembly which is formally vested with all legislative power.
Political Stability and Risks
Vietnam is involved in an ongoing territorial dispute over the potentially natural
resource rich Spratly Islands. Vietnam, China, the Philippines, Brunei, Taiwan, and
Malaysia all make claims to the Spratlys.
3.0.2 Economy
According to the economic report, agriculture accounts for only a tiny portion of GDP
(1.4% of the work force). The United States is a major exporter of foodstuffs and
processed foods. The country's manufacturing sector contributes 10.3% of GDP (9.9%
of the work force). However, manufacturing output fell by 2.6% in 2010 and declined
by another 2.5% in 2011. Services account for 74.8% of GDP. The most important
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activities in the sector include real estate, transport, finance, healthcare and business
services. Tourist receipts is expected to rise by 8.6%. (International Economic
Performance and Cooperation, 2012). Due to the recession, retail sales have been
falling for several months.
The American public debt amounted to US$15,537 billion in 2011, which was
equivalent to 102.9% of GDP. Public debt rose by 5.2% in 2011. In 2011, spending on
health occupied 21.2% of government expenditure.
Agriculture accounts for 44% the work force. Major exports include coffee, cashew,
pepper and rubber. Manufacturing accounts for 14.5% of GDP and employs 14.8% of
the workforce (Light Manufacturing in Africa: Focused Policies to Enhance Private
Investment and Create Millions Jobs, 2011). Although small businesses account for
40 percent of GDP, they still have to face the problem when they do business with
foreign companies due to limited credit (Light Manufacturing in Africa: Focused
Policies to Enhance Private Investment and Create Millions Jobs, 2011).
Manufacturing output rose by 2.9% in 2010 and 4.7% in 2011. Services represent
28.1% of GDP. Retailing and financial services are the main drivers of the sector. The
real value of tourist receipts declined by 5.7% in 2011.
Economic progress is uneven in Vietnam. Exports accounted for 77.0% of GDP in
2011, up from 68.8% in 2008. Exports grew by 32.3% in 2011. Exports of mineral
fuels accounted for 17.9% of the exports in 2011, while exports of miscellaneous
manufactures made up 32.8%. Meanwhile, Vietnam's export markets are rather
diverse with the United States taking 18.2% while the EU and Japan accounted for
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17.8% and 11.6% respectively.
3.0.3 Social and Culture
The United States is a multi-cultural country, mainly influenced by Western culture,
but also by Native American, Asian, Polynesian, African, and Latin American cultures
(One Nation, Many Cultures, 2009). In more recent years, new waves of immigrants
have come to the US to establish the model of the ‘salad bowl’ by highlighting their
unique cultural traditions and beliefs instead of old waves. Modern American culture
was on display, transformed the city into arguably the global capital of culture. Many
others follow American style that have made significant success, such as American
visual arts, music and dance, architecture, literature, film and theatre. Americans also
have invented several uniquely American art forms, such as jazz and Broadway
musical theatre.
The culture of Vietnam is one of the oldest in East Asia, which is based on the
cultivation of wet rice.
During colonial period, Vietnamese culture received merchant influences from the
Europeans, including the spread of Catholicism and the adoption of Latin alphabet.
Vietnam is the only nation of Indochina, which uses the Latin alphabet to write the
national language.
In the socialist era, the cultural life of Vietnam has been deeply influenced by
government-controlled media and the cultural influences of socialist programs. Since
the 1990s, Vietnam has seen a greater exposure to Asian, European and American
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culture and media.
Some elements generally considered to be characteristic of Vietnamese culture
include ancestor veneration, respect for community and family values, handicrafts,
manual labour, and devotion to study. Important symbols present in Vietnamese
culture include dragons, turtles, lotuses and bamboo.
3.0.4 Technology
American government announced stimulus plans to develop the domestic network,
which contained an initial investment in 183 million dollar in order to connect
low-income and rural areas of the United States. Meanwhile, some funding would be
planed to improve healthcare and educational facilities (Technology, Communications
and Media: USA, 2010). The environment in technology aspect is growing fast in the
United States, and it is still the most advanced country in the world.
Originally, some foreign companies were not willing to establish their factories or
invest its local industry, because some restrictions released by Vietnam government.
After entering WTO, a growing number of foreign investors are allowed to explore
this new market. As a result, there are two outcomes that influence Vietnam
(Communications and Media: Vietnam, 2009). First, modern technology will import
to Vietnam with free market; this will enforce the local companies to enhance their
services in order to gain the market share. Second, local companies may shut down
due to the high cost and low efficiency compared with advanced technology. On the
other hand, Vietnam government also enacts some laws and preferential policies to
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support local companies to compete with foreign companies. Therefore, the marketing
environment in Vietnam will be positive in the future.
3.0.5 Population
The population has reached 314.5 million in January 2012. The median age was 37.3
years in 2012. Currently, the United States is the world's fifth largest
Spanish-speaking country. More than 38 million foreign-born immigrants are
currently living in the country. Asian immigrants live mainly along the west coast,
Hawaii and major cities such as New York, Boston, Chicago and Houston.
Vietnam has a large population, was at 87.6 million in 2009, and is expected to reach
99.8 million people in 2020. The Vietnamese population is young, with a median age
of 26.4 in 2009. The proportion of males to females is nearly balanced.
3.0.6 Geography and History
The United States is a federation of 50 states, which spans the landmass between the
Pacific Ocean and the northern Atlantic. Therefore, it occupies most of the North
American continent, extending from the Alaskan enclave in the west to Maine in the
extreme northeast. In the north it borders on Canada, and in the south with Mexico.
The west and southwest consist mainly of mountain ranges. The United States
includes a variety of climate types because of its large geographic features. The
climate is humid continental in the north and humid subtropical in the south. In
Southern tip of Florida and Hawaii, the climate is tropical, and semi-arid in the Great
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Plains west.
The United States began as an independent nation with the Declaration of
Independence on July 4, 1776. After the independent war, it became the basis for the
United States federal government; George Washington was the first president.
Vietnam is located on the South China Sea coast of the Indo-Chinese peninsula. The
country follows the coast for more than 2,000km from the Chinese border in the north
to the south where it joins Cambodia on the Gulf of Thailand. There is also a western
border with Laos. The climate in Vietnam is tropical and extremely humid.
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3.1 Product Market Analysis
3.1.1 Product Life Cycle of Smartphone
Dowling argues that there are three main phases in the Product Life Cycle Theory:
First, Product produced and consumed in the advanced inventing country, other
advanced countries import it. Second, production spreads to other advanced countries.
Finally, production re-locates out of advanced countries into a low-wage nation,
meanwhile, advanced countries import it, and next generation product appears
(International Business: Asia- Pacific Edition, 2009).
It is difficult to identify a specific phase of American smartphone life cycle, while
United States stays on both first and second phase. Apple Company designs iPhone in
United States and sell its products in local market, and then it export to other
advanced countries, such as UK and Australia. However, some companies (Samsung
and LG), they manufacture their products in Korea, later, sell products in United
States. In advanced countries (like United States), companies can sell their products
through many distribution channels; the most popular way is online selling.
Consumers can reserve products or purchase items online and wait for delivering, it is
much more convenient to purchase some items what they want. However, retail store
selling is also popular, which has been proved by Apple.
Many Vietnamese buy phones in the stores and shopping centers, and with the
growing GDP of Vietnam, a growing number of Vietnamese have ability to afford 2 or
3 phones currently. While Vietnam has amounts of lower-cost labors, most of
companies prefer to establish their factories there to save the manufacturing cost.
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Furthermore, there is no local mobile brand in Vietnam. On the contrary, there is a
serious problem in Vietnam, market was growing rapidly during past few years, but
some small private companies manufactured counterfeit products. Vietnamese
government should enact some law to protect foreign companies’ patents and profits.
3.1.2 US and Vietnam mobile market data (ComScore Reports
February 2012 U.S. Mobile Subscriber Market Share, 2012)
OEM Market Share
There are 234 million Americans age 13 and older using mobile devices. Samsung
ranked as the top OEM with 25.6 percent of U.S. mobile subscribers, then followed
by LG with 19.4 percent share. Apple was the third ranking with 13.5 percent of
mobile subscribers in February 2012.
Smartphone Platform Market Share
More than half American mobile users owned smartphones from November to
February. Google Android’s share of the smartphone market eclipsed 50 percent in
February, an increase of 17 percentage points since February 2011. Apple ranked
second with 30.2 percent of the smartphone market.
Mobile Content Usage
In February, 74.8 percent of American mobile subscribers used text messaging on
their mobile device. Downloading applications and browsers were 49.5 percent and
49,2 percent respectively. 36.1 percent of mobile subscribers use smartphones to
access social networking sites and blogs. Also, there are 32.3 percent of mobile
subscribers playing games while 24.8 percent listening to music on smartphones.
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According to IDC, Android devices market share grew to 62% from 57% in 2Q. The
Vietnam smartphone market continued to be dominated by four mainly platforms:
Android, iOS, Symbian, and Linux in 2Q 2011. According to the research, Android is
the most favorite platform. Meanwhile, Android is an open source platform so that it
is important to the OEMs to reduce the cost of patent fees. That is important to sell
devices under cheaper price compared with other platforms’ devices. There are 7
Cellular in Vietnam, therefore the market share there is quite competitive.
In Vietnam, more than 89.8% youngers (15 and older) prefer to use mobile network to
explore the Internet. This is a good opportunity for OEMs and Cellular to provide
attractive data package with high quality network connection(Technology,
Communications and Media: Vietnam，2009).
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3.2 Competitive Analysis
There are amounts of competitors in both countries like Samsung, Motorola, LG,
Apple, Blackberry, HTC and Nokia (Appendix: Table 1). All of them are high
technical companies; the strategies of them are to design some electronic devices,
especially smartphones, tablets and other mobile entertainment devices. Obviously,
those companies occupy their own fans with high brand loyalty. Those consumers
would not prefer to elect other brands when they try to buy new phones.
In United States, most of companies are from foreign countries (exclude Apple).
However, only Apple operates its smartphone at Apple retail stores, others just
corporate with local retail stores (BestBuy, Kmart and etc.). Therefore, Apple has its
unique strength with it own retail store, it can provide special services like One to
One, Genius Bar, and Reserve Products. It is easier to establish brand loyalty when
new consumers shop in the retail stores. Apple has gained huge amounts of profits
from its retail stores. According to the data from Apple website, more than 5000
consumers shopped at Apple retail stores per day and 3 billion consumers in 2012
financial year. In early 2013, Samsung will operate its first retail store in the United
States in order to compete with Apple.
Nokia dominated mobile phone market from 2006 to 2010 in Vietnam (Appendix:
Table 2). Although the requirement of smartphone is growing rapidly during the past
few years, some Vietnamese still prefer to choose cheaper phones (here, we focus on
the brand), and in the next part, we will argues a fact that there is a proportion of
Vietnamese using counterfeit phones. Therefore, it is difficult for foreign companies
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to enter Vietnam mobile market. If their products are counterfeited, the margin profit
will drop down eventually. Regarding to this situation, companies are not willing to
operate their own retail stores with high risk.
It is obviously that the strength of our company is the product we sell being cheaper
with high performance. Up to now, we released our new phones with Quad-core
processor and 4 GB Ram. Samsung announced its latest Galaxy S 3 with similar
collection half year ago. However, the price of GS 3 is more than 650 dollar, it is
obviously much more expensive than the price we sell in China (around 2000 RMB=
318 Dollar). The reason is that our company can control the cost of distribution chain
and the manufacture fees. Also, the OS on our smartphone is based on Android;
moreover, we redesign the OS so that the style is different from smartphones sold in
the market. Our smartphone can provide unique experience and services to our
consumers under lower price! Those are the strengths in comparison to the
competitors.
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3.3 Buyer Analysis
In United States, people prefer to replace their smartphones every 18 months; this
means it brings consumers back into the new market with 18-month replacement
cycle of smartphones. In 2010, 63million units of smartphones were sold and
consumers bought smartphones instead of feature phones gradually. A growing
number of Consumers use their phones to access high-speed Internet, send mails, and
play amazing games. Therefore, smartphones should have high performance in order
to correspond consumers’ requirement, and this will enhance the cost of manufacture
as well. Unlike Vietnam, United States does not allow counterfeit products being sold
in market, because the patent law in United States is consummate and awareness of
patent protection is highly acceptable. In the long-term, if our company has a strategy
in US mobile market, it will be more reasonable compared with market in Vietnam
(detail will be discussed in later section).
In Vietnam, more than 62%of consumers purchase counterfeit products without being
aware of it. Seriously, these kinds of products are not only sold in the small markets,
but also in the shopping centers and large department stores. More foreign companies
are worried to this situation, because the fake ones of their products are available at
half price of real things. Therefore, more Vietnamese would prefer to purchase
cheaper products as similar design they like.
A growing number of Vietnamese are using smart phones, as Cellular and OEMs
provide to lower charges and the price of products. For instance, the demand of
iPhone was higher than expected on the launch day; even some consumer came to the
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grey market with paying much higher prices. According to the research, Vietnamese
consumers do not change phones, and numbers of Vietnamese who buy a new phone
or own more than two phones are increasing steadily. Moreover, the numbers of
mobile users enhance from 23.7 million to 89.3 million during last three years.
Although high-end models are favorite in Vietnam, the long-term market is not a
reasonable strategic target. According to the research, there are amounts of private
companies producing counterfeit products, foreign companies have to face the serious
situation that market would appear some similar products (the patent law in Vietnam
cannot protect the profit from patent conflict) to occupy local market share.
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4.0 Market Selection with Justification and Opportunity
Statement:
USA
Major opportunities of US Culture which it has large scales of immigration from
many different counties are integrating to unique American culture. As a result, that
nationals accept and adopt the foreign brands are more easily than only one nation of
countries. In addition, iPhone is the most famous brand of smartphone that created by
US Company, and it symbolize part of modern culture of US; iPhone is a successful
product, which drives a positive attitude to use smartphone.
Opportunities of US Economic include that US has maintained a stable overall GDP
growth rate, a moderate unemployment rate, and high levels of research and capital
investment. Moreover, US is one of the world's wealthiest nations with per capita
GDP of $48,450. Xiaomi needs a country to develop its business where has a growing
economy. Furthermore, China and United States are members of the World Trade
Organization (WTO), The General Agreement on Tariffs and Trade (GATT), the
Organization for Economic Cooperation and Development (OECD) and Asia-Pacific
Economic Cooperation (APEC)(Youth Voices, 2012). Members of Organizations
would increase business cooperation and reduce some barriers between two countries.
Opportunity of services and exchange controls of main cities, which are two major
financial centers are in New York City and Los Angeles, and there are no exchange
controls. Information returns are sometimes required on the transfer of large sums of
cash or cash equivalents (PKF NA, 2012, pp12). One of two cities is best choice for
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Xiaomi where it wants to operate business in US.
U.S law extends legal protection for certain intangible assets, or intellectual property.
Xiaomi does not concern much for lack of patents can be an issue for it when leaving
its home market (PKF NA, 2012, pp15).
Advanced communications technology is most important aspect for Xiaomi. Because
Xiaomi is a unique mobile phone vendor that has establishes its reputation through the
Internet, it needs to select markets with a good e-commerce environment and a
well-established social network. US has a comprehensive network of internal and
external communications systems, which includes all forms of wired connections,
almost 100 percent universal coverage for cellular technologies and a quickly growing
implementation of wireless networks. (PKF NA, 2012, pp18)
Transportation system is important for product to market and people to work most
efficiently. The US transportation system carries over 4.7 trillion miles of travel and
3.7 trillion ton miles of domestic freight generated by about 270 million people, 6.7
million business establishments, and 88,000 units of government. Rail and maritime
transportation each account for over 11 percent of the tonnage carried (national
atlas.gov, 2012)
The potential handset market of USA is huge which there are 234 million Americans
age 13 and older using mobile devices. As a result that Xiaomi has an opportunity to
obtain the huge potential handset market. More than half American mobile users
owned smartphones and Google Android’s share of the smart phone market eclipsed
50 percent in February, an increase of 17 percentage points since February 2011. The
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MIUI, Xiaomi’s mobile operating system based on Android, which laid the foundation
for Xiaomi’s stand in U.S market.
Vietnamese
In the long term Chinese culture influence on Vietnamese culture such as Confucian
social and moral ethics. Vietnam and China are considered to be part of the East Asian
Cultural Sphere which Xiaomi has an opportunity for it just speed a little time or
effort into the Vietnamese market.
In 2011, the nominal GDP reached $ 121.6 billion, with nominal GDP per capita of
1328.60(U.S commercial service, 2012). Currently, Xiaomi phone offers
high-capability smartphone with low selling price to meet person who income is the
low and middle class of Vietnamese.
China and Vietnam are neighbors, which mean two countries have many opportunities
on economic cooperation. In 2004, Vietnam imported more products from china than
other country. Vietnam and China joined in The ASEAN-China free Trade Area
(ACFTA) in 2010. Furthermore, it is known as China- Asian Free Trade Area, which
is a free trade area among the ten member states of the Association of Southeast Asian
Nation (ASEAN) and the People’s Republic of China. The role of ACFTA is to reduce
tariffs on 7,881 product categories, or 90 percent of imported goods, among Members.
As members of ACFTA of two countries, when Xiaomi prefers to export its
smartphone to Vietnam, there is an opportunity to cut costs down. (Singapore
Government, 2012).
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A young population (in 2010, 52.4% of the 87 million population was under the age
of 30) with growing disposable incomes, a large supply of cheap labour and the
gradual liberalization of the economy are attracting investors to enter Vietnam
(EUROMONITOR INTERNATIONAL, 2012).
Low labor cost has been considered one of the best advantages, and Vietnam has
attracted foreign direct investment (FDI). Euro Cham ranks Vietnam’s labor costs the
second lowest in Asia at US$49 a month (THANHNIEM NEWS, 2012).
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5.0 Marketing Objectives
USA
In USA marketing Objectives of Xiaomi should be accomplished the goals within 3
years in order to reach the 30% market share of 234 million US smartphone users, and
achieve $ 21.762 billion based on the $310 of MI2 (CHINADAILY, 2012), it also has
a positive cash flow and liquidity, and it has ability to provide 10% profit return to
shareholders each year. Moreover, Xiaomi would adopt promotion mix to create
above 80% awareness in US handset market that includes interactive/ Internet
marketing, sales promotion. In addition, Xiaomi should still offer high-capability
smartphone with low selling price. It should become 4th most popular band of handset
and it would challenge major mobile brands such as Samsung, Sony Ericsson and
HTC. Final, Xiaomi Phones can be extended to North America market.
Vietnam
In Vietnam, Xiaomi should achieve the goals within 3years which are reach the 40
percent market share of 30 million of Vietnam’s handset users and sales volume is
achieved to $930 million based on the $310 of MI2, it should has a positive cash flow
and liquidity, every end of year Xiaomi provides 10% of the profits return to
shareholder. Meanwhile, Xiaomi should enhance public awareness through a
comprehensive marketing plan of promotion mix that will result in increasing
potential consumers and nonusers. Promotion mix of Xiaomi includes
interactive/internet marketing, public relationship and sales promotion to notice
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potential consumers to recognize and accept a Chinese brand in Vietnamese handset
market. In addition, Xiaomi is continuing to emphasizes that low price with high-tech
of technology, and it adopts this strategy to challenge Nokia and Samsung’ dominance
in mobile phone market. Moreover, It becomes one of top three mobile phone brands
in Vietnamese handset market, and extends its market to Southeast Asian. Final,
intellectual property rights are the company’s essential assets, which Xiaomi has a
right to protect those for copyright infringement.
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6.0 SWOT Analysis
Strength
Xiaomi technology co. ltd is a mobile phone manufacture, which has newly
established in China. The strength for its products is the price, based on lower labor
cost in developing country. The latest model has a dual core 1.5G processor, 4G
memory and a price of $318 US dollar compare to most popular smart phone iPhone,
there is a significant price attraction. (Huang & Gu, 2011) These years it has a fairly
good sales result in Chinese domestic market. Now the manufacture is ready to open
foreign markets two countries has been chosen Vietnam and USA. The product
targeted the consumers who have relatively lower income. So the analyze is based on
these two countries, Vietnam which is also a developing country peoples’ income
there is fairly low at this stage, lower price products will obviously have competitive
advantages, moreover product distributor are willing to accept these mobile phones if
it really has a large market share. Now USA it seems hard to enter its market because
in this country, there are already some strong brands occupied a certain market share
like Apple, Motorola and other International electronic device manufacture, mostly
come from developed countries, especially iPhone now becomes world most popular
model. But on the other hand, price of the Xiaomi is its most important advantage,
and Xiaomi technology company CEO Lei Jun is an experienced investor. Lei Jun’s
design team is made up of several experienced technician some even has a working
experience in world famous company including Google and Microsoft (China branch).
Therefore, if a good distributor or agent (especially online sell) is chosen, Xiaomi is
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able to obtain success in USA market.
Weakness
Xiaomi Technology Company a new comer of mobile phone producer. The product of
Xiaomi is positioned to lower income consumers. Based on international mobile
phone institution (ThinkBank) research, mobile phone priced below $200 weighs 70%
of whole market share, but products which priced above $400 weighs less than 10%
but has a greater product differentiation space that leads to a high profit and less
competition from counterparts, therefore more market opportunities.(IT time
weekly,2012) Based on above facts, Xiaomi Technology Company does not have
skills and experience to produce hi-tech products like iPhone, Blackberry. To setup
customers’ brand loyalty is not that easy it requires both high quality and creative
design, so the company lacks knowledge in this area. As a new comer of mobile
manufacture problem of product quality is exposed frequently. First, fake data for the
phone sales revenue that could misguide the customers, (IT time weekly, 2012)
furthermore, services after product sold still need to be improved, according to the
complaints on the official forum Xiaomi’s products encountered following quality
problems serious delay on goods delivery, easily lose paint on mobile phone surface,
system crashed frequently, sometimes unable to switch phones on and sound break
when communicating, remedies are not been taken after consumers complaints.
(China consumer complaint report, 2012) Some experts point out that compare to
other electronic devices manufacture Xiaomi does not have a professional product
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line neither an accurate quality control system and after sales-services is also
Xiaomi’s weak point. (Huang & Gu, 2012) So, Xiaomi still has a lot of work to do on
product quality before open Vietnam and USA markets.
Opportunities
Mobile phone communication market has grown fast both in developing and
developed countries, this provide Xiaomi some opportunities to enter the foreign
markets. Vietnam as a developing country has a fairly good economic growth means
people there will have an increasing purchasing power. Furthermore, Vietnam has
only 33 telephones per 100 people, (Foster, 2007) today mobile phone is primary
form of telecommunication in the country research shows that great cell phone use
can drive economic growth in emerging economics. Based on the facts Xiaomi may
obtain some market in Vietnam if Xiaomi do sufficient market research and select an
effective distribution channel. Moreover some global well-known electronic device
manufactures have not entered Vietnamese market so far. So there is an opportunity
for Xiaomi to form an early entering and set up a significant initial advantage. Now
Xiaomi’s alternative choice US market, cell phone has contributed a large amount in
US society since 2000, (Link & Battaglia et.al, 2007) compare to traditional
landline communication, wireless communication allow people to communicate more
effectively and a higher responsible rates than landline communication. But US has a
significantly lower mobile phone penetration rate than much of the developed world.
With the increasing technology mobile phones’ function has a great change compared
29
to them decades ago, voice communication, satellite radio broadband networking,
data messaging, geodesy and navigation remote sensing these functions has
introduced to mobile phone technology,(Kumar, 2004) that American people are
interested in hi-tech products. Xiaomi Company could put product development costs
to focus on these functions to gain competitive advantage in US communication
device market. In addition, cell phone technology has developed to 3rd generation
increased data capacity and high speed data transmission,(Kumar, 2004) so Xiaomi
may able to conduct some existing technologies based on the world famous electronic
devices manufactures experience to reduce the product development cost and improve
its’ own product quality.
Threats
Mobile telecommunication markets tend to be a high technology and massive
competition area. As a newly developed Chinese company Xiaomi’s technology is not
that mature compare to the world big electronic device manufacture like Apple, Nokia,
and Samsung. To open the market in Vietnam, though Vietnam has a lower cell phone
penetration rate, but to open a business in foreign country needs a full knowledge
about culture economic condition legislation and customer preference Xiaomi as the
infant industry in Vietnam may invest a large sum of money to do an excellent
research, and Xiaomi currently do not have any international marketing expertise, this
could result a hard journey for Xiaomi in overseas market. In America, a highly
developed country and strong international trading, lots of mobile phone brand
30
competing in US market, while US has a relative low mobile penetration rate to other
developed country, (Link & Battaglia et.al, 2007) business could be even harder in US
than in Vietnam market. Moreover, Xiaomi have to compete with local strong brand
Apple, the firm’s product iPhone is the most popular multi-functional phone in the
world. To choose a proper distribution channel is another challenge for Xiaomi, based
on the fact that mentioned above, Xiaomi’s product has a relative low quality and it’s
after sell services is fairly poor, if this happens to the customers it may dramatically
downgrade customer satisfaction. Another important thing, if Xiaomi intend to
success in US market mobile devices has to realize the facts and adjust the strategies
to encompass market into the desired direction, (Kurma, 2004) but Xiaomi may lacks
experts and relevant information to form the optimal strategy. So there is still a long
way for Xiaomi to go before entering foreign markets.
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6.0.1 SWOT Summary
Strength:
1. Lower price
2. Almost same functions as leading
smartphone brands
3. Experienced product develop team
Weakness:
1. Unable to target high income
consumers
2. Cannot provide accurate product
information
3. Frequent complaints on product
quality
Opportunities:
1. Lower smartphone penetration in
developing country
2. A high probability to early enter
3. Chances to gain experiences and
technology for high-level product
manufacturing
Threats:
1. Face leading brands competition in
foreign markets
2. Infant industry are not easy to
handle in early time
3. Lack funds and skills to perform
correct research
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7.0 Entry Strategy
As a newly established mobile phone company, Xiaomi did quite well in the highly
competitive domestic market, China. To enter the large global market, Xiaomi must
choose an entry strategy base on the environment analysis above. There is four
different foreign market entry modes can chose from: exporting, contractual
agreements, strategic alliances and direct foreign investment. "The different modes of
entry can be further classified on the basis of the equity or non-equity requirements of
each mode. The amount of equity required by the company to use different modes
affects the risk, return and control that it will have" (Cateora, et. al., 2012). Vietnam
and US are appeared as two attractive foreign mobile phone markets for Xiaomi as we
analyzed before. These two different foreign environments should be given different
considerations towards each market entry strategy. The following part will evaluate
some possible entry modes for Xiaomi within Vietnam and US mobile phone market.
The magnitude of the advantages and disadvantages associated with each entry mode
is determined by a number of factors, including transportation costs, trade barriers,
political risks, economic risks, business risks, costs and firm strategy. The optimal
entry mode varies by situation, depending on these factors, and also can be switched
from one to another as time goes situation changes.
Xiaomi is a small to medium size company with limited capital and other resources,
therefore, direct foreign investment is not recommended for the first attempt of
entering the globe market. For another entry mode, "contractual agreements are
long-term, non-equity associations between one company and another in a foreign
33
market. Contractual agreements generally involve the transfer of technology,
processed, trademarks or human skills" (Cateora, et. al., 2012). Product price is
Xiaomi's competitive weapon that involved innovative assembling process. Either
choosing licensing or franchising would risk in exposure of its valuable know-how to
third parties. While other entry mode available to Xiaomi, contractual agreements
wont be the first choice either.
Generally, companies often begin with modest export involvement because exporting
is a way to increase the revenue and profit base of a company with least risks of
financial loss, compare to other entry modes. Exporting to Vietnam is definitely a
good way to expand Xiaomi's market size overseas. While medium to low-price
mobile phone market in China is becoming saturated in recent years, Vietnam still has
lower than average mobile phone usage. Also, as a developing country, Vietnam has
similar environment as China, medium to low-price mobile phone seems to be more
popular and has more demand than those high-end smart phones. With the increasing
economic growth as well as the demand in Vietnam, exporting to Vietnam enable
Xiaomi to achieve economies of scale, thereby lowering its unit costs. Furthermore,
Vietnam and China and geographically close to each other; both countries have joined
in The ASEAN-China Free Trade Area (ACFTA), therefore, transportation and trading
cost will be less concerned when large number of exporting taking place. In fact,
many firms start their international expansion into markets that are similar to the
home country or markets with which the managers within the firm are familiar. An
obvious example is that many Australian companies firstly export their goods to New
34
Zealand because it is geographically and culturally close.
In US mobile phone market, there is a significant potion of customer take product
after-sell services seriously into account when they choosing from variable mobile
brands. Also, many customers admire product design, performance, and convenience
etc. Price is a less important factor than other product and service features in
developed countries, such as US. Take this difference into account. Xiaomi has no
longer held the powerful competitive advantage in US market. In order to maintain
profitable in such situation, Xiaomi needs to seek strategic alliances. Bartling (1998)
indicates that strategic alliances are a "cooperative arrangement among two or more
entities that combine their respective strengths to achieve compatible objectives while
they retain their individual identities and share in the risks and rewards." For Xiaomi,
we suggest that enter US market by joint ventures with local partner providing the
marketing expertise or the local knowledge necessary for competing in local mobile
phone market. By combining their skills, Xiaomi then could able to offer the US
market an innovative or better quality of mobile phones at a competitive price.
Same as contractual agreements, join venture also risks giving control of its
technological know-how to its partner. However, join-venture agreements can be
constructed to minimize this risk. One option is to hold majority ownership in the
venture. This allows Xiaomi to exercise greater control over its innovative assembling
technology. Another option is to 'wall off' from a partner technology that is central to
the core competence of Xiaomi, while sharing other technology. By comparing the
facts includes risk, return and control of entry mode, we would like to advice Xiaomi
35
exporting mobile phones to Vietnam at the moment.
First trying to do business abroad itself is considered a risky move because Xiaomi
mobile company has only established for a few years. Their mobile phone products
are not mutual yet to compete in a global market environment. In addition, lack of
some foreign content awareness and international business experience, Xiaomi should
consider carefully for every entering decision made. Thus, we recommend Xiaomi
take several steps into global market.
For choosing the first foreign market, exporting mobile phone to Vietnam would be
more suitable. Comparing to join venture in US, exporting is much less risky and
much probably success. Through exporting, company's technologies are well
protected and the potential profitability can be predicted so that benefits company
capital control. Hill (2011) explains that by manufacturing the product in a centralized
location and exporting it to other national markets, the firm may realize substantial
scale economies from its global sales volume. This is how South Korean firms such as
Samsung gained market share in computer memory chips and the Australian company
Cochlear in bionic ears.
There are three forms of exporting available to firms: indirect exporting, the Internet
and direct sales, depending on their experience, company size and market reach.
According to a UN report on trade and development, international trade transaction
that the time involved in preparing documentation, along with the costs of common
errors in paperwork, often amounts to 10 per cent of the final value of goods exported.
In this case, for the novice small exporter such as Xiaomi, indirect exporting using an
36
agent located within China may be the best option. This will avoid or minimize the
need to manage export documentation and procedures. Another option is using
Internet and electronic business to provide an avenue to target a global market. The
on-line pre-ordering system creates a hunger-desire psychology; deliver a message to
consumers that their products are popular and most wanted. Such powerful exporting
form could also be a successful promotion method in Vietnam. And only after become
more experienced in international market, establishing its own distribution channels in
Vietnam where Xiaomi deal directly with local customers is beneficial.
37
8.0 Conclusion:
Xiaomi Company is an excellent smartphone manufacturing company, which has
attained remarkable achievements. Moreover, the global development strategy of
Xiaomi Company should be based on the domestic market and progressively access
the international market. Xiaomi is an emerging company, whereas it has caused
plenty of controversy. It’s possible that Xiaomi is lacking in sufficient experience.
Internationalization is the necessary approach to enter the international market. Thus,
the primary issue is how to enhance the strength of the Xiao Company and it needs
some innovation. For instance, unique technological skills can defeat competitors.
Moreover, Xiaomi is a typical emerging entrepreneurial technological company in
China. Furthermore, the mode of hardware products sales is the domestic initiative,
which has constructed a solid foundation for cost leadership strategy. In theory, this
business model has enough capital to defeat the fierce competition in the market. To
some extent, Xiaomi provides a fresh example for domestic companies as it moves
into the realm of global competition. Consequently, Xiaomi represents the Chinese
spirit of innovation and inspiration. Similarly, Xiaomi Company would be successful
in the global market as a consequence of the policy of international market and
powerful strength.
38
9.0 Appendix:
Table 1: Mobile phone shares 2007-2010 (United States)
Company 2007 2008 2009 2010
Samsung Samsung America Inc 15.6 18.6 19.6 17.5
Motorola Motorola Inc 29.2 18.6 14.3 14.7
LG LG Electronics USA 13.2 16.3 15.2 12.9
iphone Apple Inc - 4.4 7.8 12.3
Blackberry Research in Motion Ltd 6.4 8.9 10.4 12.0
HTC HTC Corp 0.6 1.0 2.7 8.2
Nokia Nokia United States 10.9 6.2 5.4 4.9
Kyocera Kyocera International Inc 3.4 3.6 3.5 2.8
Sanyo Kyocera International Inc - 3.3 3.1 2.5
Palm Hewlett-Packard Co - - - 1.6
Palm Palm Inc 2.3 2.0 1.9 -
Sanyo Sanyo North America Corp 3.8 - - -
iPhone Apple Computer Inc 2.3 - - -
Others Others 12.5 17.1 16.1 10.8
Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade
interviews, trade sources
39
Table 2: Mobile phone shares 2007-2010 (Vietnam)
Company 2007 2008 2009 2010
Nokia Nokia Corp 39.3 40.5 41.1 41.6
Samsung Samsung Vina Electronics Co Ltd 14.3 16.5 19.1 19.1
LG LG Electronics Vietnam Co Ltd 7.1 8.5 8.4 7.8
HTC HTC Corp 0.0 0.1 0.6 1.8
iphone Apple Inc - - 0.2 0.9
Blackberry Research in Motion Ltd - - 0.1 0.3
Others Others 39.3 34.4 30.5 28.5
Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade
interviews, trade sources
40
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