Economic Environment of Business - Project Report: Industry - Electronics Company - Xiaomi
Economic Environment of Business - Project Report: Industry - Electronics Company - Xiaomi
Economic Environment of Business - Project Report: Industry - Electronics Company - Xiaomi
INDUSTRY – ELECTRONICS
COMPANY – XIAOMI
SEMESTER – 3RD
ACADEMIC YEAR - 2019-21
SUBMITTED BY - SUBMITTED TO -
GROUP - 3
SECTION – E
ACKNOWLEDGEMENT
It gives us immense pleasure to express our sincere gratitude to all the helping hands that have
guided us in the completion of this project successfully. It was a great learning experience for each
one of us. As students of IMT - Nagpur ,we were blessed with an opportunity to learn and explore
our domains in the field of economics with best guidance from our respected professor of the
course, Dr. Gajavelli V S (Faculty in-charge – Economic Environment of Business).
Because of the flipped classroom approach, case study methodologies and relating our concepts of
economics to real life economical issues, we were able to put in our best efforts to prepare this
report.The project on analysing and understanding the “Indian Electronics Industry- XIAOMI”
based on various economic forces that is both market and non market ,would not have been
completed without the support of each group member, our peers and the most crucial person, Prof.
Dr. Gajavelli V S ,whose constant support and encouragement have been our guiding light for the
success of this report.
INDEX
COMPANY – XIAOMI
OBJECTIVE -
To analyse the new market and new economy in which Xiaomi is investing.
To analyse the company’s market and non-market environment and other developments.
To find a workable fit between Xiaomi’s business model and the given opportunity.
To analyse the Economy or Country considering all business & policy indicators, including
various budgetary proposals.
To analyse the prospects of the electronic industry it’s non-market environment.
Future out-look going by the current and past trends.
MISSION -
VISION -
Xiaomi is committed to continuous innovation, with an unwavering focus on quality and efficiency.
The company relentlessly builds amazing products with honest prices to let everyone in the world
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enjoy a better life through innovative technology.
The Indian Electronics industry is being driven by macro factors such as growing middle-class
population and rising disposable income. In addition, declining electronics prices and adoption of
high-end technology devices is leading to an uptick in consumption of electronics devices.
Xiaomi Corporation is a Chinese electronics company founded by Lei Jun in 2010 and
headquartered in Beijing. Xiaomi makes and invests in smartphones, mobile apps, laptops, bags,
trimmers, earphones, MI Television, shoes, fitness bands, and many other products. Ranked 468th,
Xiaomi is the youngest company on Fortune Global 500 List for 2019.
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MARKET ENVIRONMENT
The bargaining power of the buyer is very high due to the stiff competition in China’s
smart phone market. With all the 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.
● Bargaining power of suppliers
The bargaining power of Xiaomi’s suppliers is high due to the technical nature of the
components. 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.
● Threat of substitutes
Substitutes are referred to as products that offer similar benefits to the industry’s
product. The threat of substitutes for smartphones is very low which is an advantage
for companies like Xiaomi as more people are relying on smartphones abandoning
the use of old technology.
● Competitive rivalry
China’s smartphone market is highly concentrated among the top five companies -
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. 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.
● Threat of entrants
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SWOT ANALYSIS
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.
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.
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
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increased global sales and market share.
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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 over reliance 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.
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.
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.
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.
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.
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
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Xiaomi and gain its market share.
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NON MARKET ENVIRONMENT
POLITICAL -
Xiaomi is exposed to all of the deeply-political trade and import laws between China and
other parts of the world. There are only growing amounts of tension between the US and
China, especially following the election of US president Donald Trump resulting in rising
import tariffs.
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.
The trade barriers that the host country has would protect Xiaomi; however, trade barriers
that countries with potential trade partners would harm companies by preventing potential
exports. A high level of taxation would demotivate companies like Xiaomi from maximizing
their profits.
Xiaomi tried to gain back its strong position in their mainland that is China. With the launch
of Mi 8 and Mi MIX 3 which enjoyed a very significant amount of popularity.
Increased demand led to an year on year growth of 9.7% in the international markets. For
particularly the international markets, Xiaomi achieved very large amount of growth in
revenue. The smartphones achieved of Xiaomi successfully gained the largest market share
in India for sixth consecutive quarter.
ECONOMICAL -
In 2019, the Xiaomi company interfaced with an increase in total share of revenue by 52.6
%. The revenue particularly for the smartphone segment increased by 41.3 %.
The company witnessed an increase due to strong sales of their mid to high end segment
models in Chinese market, that was in line with the shifts in consumer demand in the
company’s mainland i.e. China’s smartphone market.
Cost of sales in the smartphones segment increased by 45.3%. The reason was due to
increase in the sales of smartphones along with the appreciation of dollar value of United
States against the RMB and Indian Rupees.
China’s high economic growth has favored increase in smartphone and general electronic
sales . 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
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electronics hence attracting more customers.
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SOCIAL -
From a sociocultural perspective, the desire to own and use mobile devices is also growing.
This is yet another reason for consumer electronics manufacturers like Xiaomi to celebrate.
One of the major challenges that Xiaomi has faced in the market is its belongingness to its
mainland China which acts as a catalyst of negative perception into the minds of the
consumers.
The western consumers believe that anything that belongs to the Chinese markets or was
made in China would be a product of inferior quality. This creates difficulties for a
manufacturer like Xiaomi in terms of market penetration.
Before entering a particular market, the company also needs to which type of product would
work best for the economy. The company would be unable to sell its premium product range
in a market where majority of the consumers are in the lower-class segment.
TECHNOLOGICAL -
Generally speaking, Xiaomi products are considered to be quite technologically advanced.
Many users are impressed at the high technical specifications that the manufacturer can pack
into such a wallet-friendly device. This shows that Xiaomi is relatively competent when it
comes to producing high-quality tech, en masse, at budget prices.
Software areas such as artificial intelligence and machine learning show immediate use
cases for personal assistant technology on mobile phones, while new hardware is also
reaching the market.
The fifth generation of mobile communication technology, 5G, is soon to be implemented in
new devices. Xiaomi may be able to leverage its tech capabilities to use 5G in their own
devices, allowing them to stand a head above the crowd of other consumer electronics
manufacturers.
In 2019, they officially launched the “smartphones + AIoT” dual-engine strategy. One of the
key areas that it focuses upon is continuous investment in innovation, quality control and
supply chain management.
The company has invested a hefty amount of RMB10 billion in order to develop AIoT, to
capture the market share.
Xiaomi would also expand their fast-growing IoT device-based internet services. Such
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services include Tv internet services and overseas internet services.
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LEGAL -
Xiaomi has faced severe legal issues in the past. This has had negative implications on the
brand perception into the minds of the consumers.
The company’s flagship products that is MI 5 and MI 5 Plus had been accused patent
infringement by a firm known as Blue Spike LLC, a company which belongs to the United
States.
The claim was established onto the grounds that Xiaomi designs: develops or manufactures
Address Space Layout Randomization (ASLR) software, systems which they import and
offer service of it into the U.S. market. Although both of the models of Xiaomi were already
approved by US FCC.
The company was halted to sell, advertise or manufacture its products in India, after
Ericsson sued the company infringing upon its Standard Essential Patents. Ericsson had tried
to contact the company several times before for the issue related to violation of eight
patents. Xiaomi although had ignored Ericsson’s request for communication.
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.
ENVIRONMENTAL -
Xiaomi follows the concept of circular economy. Incorporating concepts into product design
that acts as a prerequisite for reducing the impact of the activities of the company on the
environment.
They believe that the product should be developed in alignment with the beliefs and values
of the consumers. While designing the product they use recyclable and renewable materials
which are not hazardous to the environment.
They have also committed themselves towards adopting business practices that are
responsible and ethical in nature. They believe in holding their standards high for achieving
excellence in governing laws.
They have taken a lot of measures to ensure that the hazardous substances are not used in
the production processes. The company however in contrast with other similar players in
market does not publish its CSR report on its website.
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
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environment.
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4 Is
ISSUES :
● Xiaomi operate on India, first is increased competition from other Chinese brands
particularly the BBK group and RealMe.
● Second, lack of patent reserves and Standard Essential Patent which result in patent dispute.
● Third, the quality problems after-sales service problems which will influence the purchase.
INTERESTS :
● While smartphones still remain its core focus, Xiaomi India has strengthened its hold in the
smart TV segment with a leading 39 percent market share. The company also has a ton of
bestselling phone accessories, home devices, and lifestyle products that follow the same
‘high quality at affordable price’ philosophy.
● After Mi Preferred Partners, Mi Homes and Mi Stores, Xiaomi has added Mi Studio as the
fourth pillar to its offline sales strategy.
INSTITUTIONS :
● Indian Cellular & Electronics Association, which has Xiaomi among its members, has
flagged subsidy for machinery & equipment, cost of power, incentive for supporting
industry, labour subsidy, logistics and reduction of and rentals as other disabilities India
faces in comparison to rivals such as Vietnam.
● Xiaomi has its own crowdfunding platform — a starting point for up-and-coming companies
that want to make a difference in the world with their innovative inventions. Naming MIUI
Global and Mi community.
INFORMATION :
● Interest groups appreciate MI’s product philosophy which is based on three fundamental
principles - best specification, highest quality and honest pricing.8
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4 As
A1:
● Under the initial approach strategy, Xiaomi, which has so far focussed mainly on the
affordable segment to become India’s top smartphone brand, will launch a number of
premium phones under the Mi brand. Besides, it will expand the smart TV range with
big-screen premium products.This is to solve the technological non market issues.
A2:
● Xiaomi, the country’s top smartphone maker, has called on the government to provide
better incentives for exports than those being offered by the likes of China and Vietnam,
such that India can become an export hub for the Chinese smartphone maker's global
operations. This will limit the extent of damage on the political and economical non market
environment.
A3:
● India intends to promote local production for exports for which it has allowed 100% foreign
direct investment (FDI) in contract manufacturing. This helped it to anticipate and take the
advantage of the opportunity and address non market issues before they become problems.
A4:
● The Beijing-headquartered company aims to more than double its number of exclusive
stores to 5,000 by 2020, which will include ones owned by franchisees, which will make the
brand the largest retail network by a single brand retail entity.
● It will also make the company one with the largest rural retail network with over 2,000 Mi
stores in villages and talukas across the country. The offline presence will get expanded to
400 cities by the year end, from 200 at present. 9
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DISTRIBUTIVE POLITICS
● With the likes of market leader Xiaomi expecting component prices to rise as supplies have
started getting hit due to the CORONA VIRUS breakdown.
● The extended shutdown in China is likely to have an impact on Xiaomi’s supply chain and,
there is a risk of impact on the overall quantum of component supplies
● While Xiaomi is working to explore alternative supply channels for components and raw
materials, the immediate impact is that the short supply might cause some negative pressure
on the prices of these components.
● All this may cause certain component prices to go up in the future , much to bring changes
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in the demand and supply chain network.
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WILSON LOWI MATRIX
● Xiaomi, the country’s top smartphone maker, has called on the government to provide better
incentives for exports than those being offered by the likes of China and Vietnam, such that
India can become an export hub for the Chinese smartphone maker's global operations.
● India intends to promote local production for exports for which it has allowed 100% foreign
direct investment (FDI) in contract manufacturing allowing them to include exports, aimed
at expanding local manufacturing and weaning away manufacturers from countries like
China and Vietnam, amid growing Sino-US tensions.
ENTREPRENEURIAL POLITICS :
● Xiaomi now plans to foray into consumer finance and business-to-business lending by
floating a non-banking financial company (NBFC).
● Xiaomi has made investments in 10 startups in India, several of which align with its strategy
of building internet services, such as social networking app Sharechat, digital content
platform Hungama, and lending startup Krazybee.
CLIENT POLITICS :
● Chinese phone maker Xiaomi has become India’s number one handset brand for the first
time, including smartphones and feature phones, replacing Korea’s Samsung which had
been holding the position for several years, as per October-December data of IDC.
● Xiaomi with a growth of 9.2% on year. Samsung, on the other hand fell 2.8% on-year,
leaving it with a market share of 20.3% versus Xiaomi’s 28.6%, for 2019.
MAJORITARIAN POLITICS :
● Xiaomi is now largely focussing on offline retail as the company opened its 1,000th Mi
Store in the country .
● Offline contributes to 40 per cent of the company’s business currently and Xiaomi plans to
take this to 50 per cent by this year. With a lean distribution model, Xiaomi keeps offline
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running costs low.It will thus cater to all the segments in terms of pricing and distribution.
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CIE FRAMEWORK
CEO Lei Jun considers the mobile phone to be a converged system of “software + hardware +
internet”, instead of a simple device for communication .Xiaomi’s aggressive entry into the phone
market with competitive pricing and its quick expansion into other product categories are not by
accident, but rather, as part of the well-thought-out plan.
* Source – Winston Ma; Book China’s Mobile Economy: Opportunities in the Largest and Fastest Information
Consumption Boom.
At its core, are its well-established products of smartphones, smart TV, TV set-top boxes
(HRD streamer), and routers. Despite Xiaomi’s strong market positions in smart TV, and
TV set-up box, the profitability is low given the immaturity of the market segment and the
regulatory uncertainties.
The next level up is the Internet services based on Xiaomi’s MIUI system that supports the
hardware products. Xiaomi makes Internet services such as smartphone games and mobile
finance an increasing part of its business, and expected the revenue from Internet services to
increase.
The third layer c of Xiaomi — to become an important player in the “internet of things” and
the “smart home”. A family of smart home devices will be seamlessly connected under the
Xiaomi ecosystem.
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MI’s MONETIZATION MODEL
*Source – LUNA YUE YUAN : Deep Dive into Xiaomi’s Strategy to Dominate the Connected Home
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*Source – LUNA YUE YUAN : Deep Dive into Xiaomi’s Strategy to Dominate the Connected Home
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ANALYSIS OF ECONOMY/ COUNTRY :
BUSINESS & POLICY INDICATORS ; BUDGETARY PROPOSALS
Under the new strategy, Xiaomi, which has so far focussed mainly on the affordable
segment to become India’s top smartphone brand, will launch a number of premium phones
under the Mi brand.
Besides, it will expand the smart TV range with big-screen premium products. The company
may also look at launching its concept phone, Mi Max Alpha, in India and elsewhere.
Under the new strategy, Xiaomi, which has so far focussed mainly on the affordable
segment to become India’s top smartphone brand, will launch a number of premium phones
under the Mi brand. Besides, it will expand the smart TV range with big-screen premium
products.
Xiaomi, the country’s top smartphone maker, has called on the government to provide better
incentives for exports than those being offered by the likes of China and Vietnam, such that
India can become an export hub for the Chinese smartphone maker's global operations.
India intends to promote local production for exports for which it has allowed 100% foreign
direct investment (FDI) in contract manufacturing. The government has also eased local
sourcing rules for single brand retail trade (SBRT) allowing them to include exports, aimed
at expanding local manufacturing and weaning away manufacturers from countries like
China and Vietnam, amid growing Sino-US tensions.
The Beijing-headquartered company aims to more than double its number of exclusive
stores to 5,000 by 2020, which will include ones owned by franchisees, which will make the
brand the largest retail network by a single brand retail entity.
It will also make the company one with the largest rural retail network with over 2,000 Mi
stores in villages and talukas across the country. The offline presence will get expanded to
400 cities by the year end, from 200 at present.14
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ANALYSIS OF PROSPECTS OF ELECTRONIC INDUSTRY -
NON MARKET ENVIRONMENT
The non market forces governing electronic industry’s operations are :
POLITICAL :
Bureaucracy and interference by the government.
Trade regulations & tariffs related to Technology.
Favoured trading partners.
Pricing regulations – Are there any pricing regulatory mechanism for Technology.
ECONOMICAL :
Exchange rates & stability of host country currency.
Efficiency of financial markets .
Labor costs and productivity in the economy.
Economic growth, unemployment, inflation and interest rates.
Discretionary income.
SOCIAL :
Demographics and skill level of the population.
Culture (gender roles, social conventions etc.)
Attitudes (health, environmental consciousness, etc.)
Leisure interests.
TECHNICAL :
Technology's impact on product offering.
Impact on value chain structure in Technology sector.
Rate of technological diffusion.
ENVIRONMENTAL :
Weather and Climate change.
Laws regulating environment pollution.
Waste management in Technology sector.
Attitudes toward “green” or ecological products and renewable techniques.
LEGAL:
Copyright, patents / Intellectual property law.
Consumer protection and e-commerce.
Employment ; health & safety law.15
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FUTURE OUTLOOK & FINANCIALs
Xiaomi has made continuous progress with the encouraging result of an expanded user base since
the adoption of ‘Smartphone + AIoT’ dual-engine strategy. Following making the 2019 Fortune
Global 500 List and Forbes Global 2000 List , Xiaomi also made it’s debut on the 2019 Fortune
Future 50 List and Forbes’ Top 100 Digital Companies List, reflecting the international recognition
that Xiaomi has gained with regards to its strength in digital economy and its business strategy.
With the Company’s healthy and stable cash flow and profitability, it has the ability to capture and
respond to the huge market opportunities that will arise from the widespread adoption of 5G
technology, and plan to launch at least 10 models of 5G smartphone in 2020.
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CONCLUSION
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.
Xiaomi has stagnated because its lost its identity trying to be many things. Xiaomi needs to
cultivate a unique brand image that goes beyond offering the cheapest smartphones to cultivate its
own niche market. .
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.
LEARNING OBJECTIVES
The preliminary research and desk work helped us to develop a base for understanding of how
market and non market environment pays a vital role in the functioninf of any industry. We studied
the importance of political, environmental, economical, social, technical and legal factors that help
in ethical functioning of the business.
We attempt to study and develop and understanding of the following factors:
• Understanding the economical – environmental policy with respect to both market and non market
forces.
• Connection between market and non market forces.
• Analytical frame work and strategies used by the businesses to drive profits and growth keeping in
mind the TBL approach and ethical means.
• Integrated approach to study decision making and its effects on market and non market
environment.17
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DATA SOURCES
https://economictimes.indiatimes.com
http://www.bbc.com
http://www.idc.com/getdoc.jsp
http://fortune.com
http://wallstreetcn.com
https://mobile.mi.com
https://www.wallstreetmojo.com
The data which we have collected is satisfactory in terms of time period and availability. The
data can be easily accessed through website links which we have specified here and the data
is very much relevant for the current time period as it mostly revolves around 2019 - 2020.18
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