Xiaomi Case Study

Xiaomi The “Apple of China” or something more?

Abhishek Sharma

Devaansh Samant

Shalin Doshi

Business Model Manufacturing Online Retail Cut

LOW margins LOW revenue Before Sales After Sales

LOW costs

Distribution Services

HIGH revenue Accessories

Cost Drivers

• Low hardware margins • No retailer cuts • Flash Sales leading to low inventory costs • Low marketing costs • Longer production periods – Moore’s Law driving costs down

• Xiaomi users spend ~2 times the time an Android/iOS user spends on their respective play stores – higher paid service consumption

Revenue Drivers

REVENUE ANALYSIS

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Business Model • Service based revenue system • Strong customer ties • Crowdsourced development • Brand loyalty • Eliminating intermediary costs • Direct distribution system • Agile Supply Chain • Zero inventory costs • Ability to react to trends in consumer demands • Minimal marketing expenditure

• Absence of brick and mortar stores • Alienation of non-internet using consumers • Weak after-sales presence • Un-scalable logistics system • Poor delivery times • No patentable technology • Intellectual Property Rights issues • Cultural dependence • MIUI is heavily specific to Chinese demands

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

• Price sensitive emerging markets in developing countries • Culturally similar markets • South East Asian countries with significant Chinese population • Diverse platforms part of the Xiaomi ecosystem • Seamless integration of the services and devices • MiTVs + Mi phones + MiCloud etc • Working towards high quality perception • Untargeted yet attainable premium segment

• Piracy • Cheap rip-offs of the Mi phone. • Disruptive competitors • Price wars • Data privacy • IPR wars • Lawsuits over IP theft.

SWOT ANALYSIS

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The Virtuous Cycle Software • Weekly development cycles • Integration of services through apps (MiCloud)

Strong Customer

Hardware

• Crowdsourced development • Active user forum

• High build quality • Low margins

COMPARATIVE ADVANTAGE

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China Mapping the Success Story

The Chinese Smartphone Market

Booming Smartphone Market Government subsidies enhanced smartphone penetration

Sales volumes of smartphones in China – 2011 - 2016

SETTING THE STAGE

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Xiaomi and China Capitalizing on nationalist sentiment

Strategic partnerships - China Mobile Tailor-made for the Chinese user Low upfront payment in a price sensitive country Open honest relationships with users

Marketed for the youth, the right target audience Strong leadership by Lei ‘Jobs’ Jun THE CHINESE STORY

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Expansion and Challenges EXPANSION STRATEGIES

Logistics Change in operations process required as the company expands and incorporates new products in its range

Expanding to new segments Catering to business segment by launching a robust “black-box” like hardware & software package

Brand Equity Elaborate marketing campaign to appeal to non tech-savvy consumers

Withdrawal of government subsidies is imminent in China CHALLENGES

Apple likely to be most heavily hit, as price-sensitive users shift to cheaper brands

Threat from disruptive competitors Vivo, another Chinese manufacturer, has beaten Apple’s market share in Q3 ‘14

Piracy Cheap rip-offs defaming Xiaomi’s user experience

ESTABLISHING DOMINANCE

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Emerging Markets Repeating the Success Story

Smartphone Battleground Markets like India already have a wide variety of low-cost options

Willingness to pay for smartphones in emerging markets Market Driven Price Wars

Intensely Competitive Budget Smartphone Market

50% of the Indonesian market is for phones costing less than $100 – a market even Xiaomi doesn’t cater to

Multitude of Low-Cost Manufacturers

CALL FOR LOW-COST

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Challenges Low internet connectivity and e-commerce penetration

Higher trust for retail store products; lesser use of e-payment systems Saturated low-cost phone segment

Absence of inventories causing problems in meeting demand and delays in transportation Lack of localized content and low customizability

Quality control and after-sales services difficult in e-tail Security sanctions owing to data centres being located in China

THE DEVELOPING WORLD

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Strategies Traditional modes of advertising Flagship stores to experience product Aggressive PR and media campaigns (big-name brand ambassadors, event sponsorship – IPL, ISL, Shaastra etc)

Reorganization of distribution network Set up inventories in the countries to ensure timely delivery of products Tie-ups with suppliers for production in the country itself

Make localized content available on MiStore Make local languages, apps, themes available

Diversification of devices Foray into cheaper tablets, wearables, laptops etc.

Tie-ups with carriers to gain easy access into the market Build on success of flash sales

TAKING ON THE COMPETITION

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USA Turning to Premium Consumers

Snapshot of a Luxury Market Premium goods consumers

Quality Driven Market

North American markets are the only markets with an upward trend in average smartphone price

iDominate

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Challenges IP lawsuits due to lack of patents

Poor perception of Chinese products Low brand equity - Heavy dependence on localized Mi Fans Price-insensitive users Restriction on use of servers in China due to data security concerns.

Un-scalable logistics system incurring high shipping costs and import duties Limited capability of MIUI OS applications to cater to the non-Chinese consumer TACKLING THE EAGLE

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A Note on Innovation “

Many of the companies that were once great are now gone or on their way out largely because they stopped innovating. In fact, according to Forbes, the average lifespan of a successful S&P 500 Company was 67 years in the 1920’s. Today it is 15 years. More companies need to innovate to improve these declining numbers.

”

Companies can choose to compete on the technology front. Xiaomi chose to compete on the business front They revolutionized the smartphone market by avoiding the competitive hardware market and generating revenue through services To avoid meeting the same fate as their competitors, they must keep innovating

THE NEED FOR INNOVATION

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Thank You Abhishek Sharma – MM11B035 Devaansh Samant – EE11B110 Shalin Doshi – BT11B064 The Sicilian