Xiaomi was founded in 2010 in Beijing, China by CEO Lei Jun.

It started off as a
smartphone company but quickly evolved into a company that sells hardware, software, and
internet services over the course of four years after its successful smartphone business (Wong).
The company is now the third largest smartphone vendor in the world, after Samsung and Apple,
and the largest in China in terms of shipments, displacing Samsung in the process. It currently
possesses a user base of over 500 million in the world (Osawa et al).
Xiaomis Competitive Landscape and Strategy:
Xiaomis greatest strength is its strong marketing and user base in China. It also boasts a
talented workforce with a stable distribution and sales network. In addition, Xiaomi has been
making substantial profits, earning $56 million in net profit in 2013, on sales of $4.3 billion
(Olson). However, Xiaomis weaknesses lie in its low research and development relative to its
industry. Due to the importance of R&D in the tech industry, this may lead it to fall behind their
competitors in the future due to lack of innovation. Also, the company has a low inventory
compared to the high demand for its phones that makes it sell limited quantities every week,
effectively restraining some of their growth (Kan).
As a domestically focused company, Xiaomis greatest opportunity for growth is by
entering global markets. However, this is not its only option. It could also choose to cater to the
increasing demand for smartphones and electronics in China and produce more products by
diversification. Meanwhile, its biggest threat to global expansion is government regulations by
foreign governments, such as India, due to its inability to abide to stricter laws and policies
compared to that of Chinas. In addition, it will face high competition with other cost-leadership
strategy companies in other emerging markets that it is trying to enter. At the same time, it will

have to continuously deal with the competition of more established manufacturers of low cost
phones such as Samsung and Huawei, both domestically and abroad (Osawa et al.).
Based on Porters competitive strategies model, Xiaomis smartphone business is using a
cost leadership strategy to gain a competitive advantage against its competiton. This is a very
different approach compared to many big smartphone companies such as Apple and Samsung
which are using differentiation strategies, where their main focus is on attracting customers to
stay loyal to their brand of products and lose interest in those of its competitors. Xiaomi chose a
cost-leadership strategy rather than a differentiation strategy because their domestic market in
China has a much higher demand for cheaper smartphones than for unique ones. As a developing
country, China has a high population of first time smartphone users and therefore, most users
would not care much about how unique the product may be. Instead, they are searching for a
good product that is affordable.
One of the methods Xiaomi is using to keep their operating cost low is by focusing less
on research and development (Osawa et al.). Another method they used to cut costs was to sell
their smartphones online as a B2C business. Rather than using third-party retailers, Xiaomi
chooses to sell directly to consumers online, giving them the opportunity to use pre-orders to
market their new models by creating a sense of scarcity (Ren).
Xiaomis smartphones mainly attract Chinas young professionals between the ages of 18
and 34. The younger generation is more tech-savvy and by focusing on this niche group, Xiaomi
can now boast that their smartphone users spend more time in apps than the average Apple user.
This is the first time an Android smartphone has caught up to the iPhone in app usage, which is
one of Apples main differentiation factors (Khalaf).
Possible Growth and Expansion Strategies and Recommendations:

A growth strategy involves the expansion of a companys size and scope of operations
using various strategies (Schermerhorn, 161). Xiaomi can consider one or more of the three
strategies for growth and development that are growth through concentration, growth through
vertical integration and growth through diversification (Schermerhorn, 162).
Growth through concentration is when a company focuses on one market and is mostly
used by small businesses. The risk is that the company can fail if the market already has too
many competitors or if there is a lack of demand (Schermerhorn, 162). Xiaomi used this strategy
in its early days with its Mi series smartphones. However, it quickly developed into a large
company with huge presence in the Asian market (Osawa et al.). This will negatively impact the
growth of the company, as this is a step backward from the strategies it is currently employing.
Growth through vertical integration is when a company acquires either its suppliers
(backward) or its distributors (forward). This results in reducing external costs for those stages of
production or distribution (Schermerhorn, 162). However there are several weaknesses that
include the risk of failure at any one stage of production or distribution, higher coordination costs
and higher costs of switching to other buyers and/or suppliers in the event of failure
(Schermerhorn, 162). Xiaomi is already using forward vertical integration by selling its products
online exclusively (Osawa et al.). However backward vertical integration may not be beneficial
to Xiaomi as it is capital intensive, and the suppliers are already market leaders with
technological expertise and other reasons mentioned above.
Growth through diversification is where a company expands into a new market outside its
niche. Diversification can be related or unrelated (Schermerhorn, 162). Related diversification is
expanding into similar or complementary markets whereas unrelated diversification is expanding
into entirely new markets. Unrelated diversification possesses high risk especially if the

company has less experience, if any, and it must be very careful to avoid significant loss in the
event of failure of the unknown markets or products (Schermerhorn, 162).
Though it was a relatively late entrant in the market, Xiaomi quickly took away market
share away from several competitors, mainly Samsung and Apple (Wong). It then started to
diversify its product range entering into the tablet market and other electronic markets such as
televisions and portable chargers to quickly dominate sales in China (Wong). Diversifying its
products and offering them at low prices has helped the company grow and spread its risk.
The best strategy for the company is that it should continue to diversify its product line to
other products markets that are related to its smartphone business, including laptops, computers,
and Bluetooth devices where it can use its existing goodwill and brand name to sway potential
customers to buy its products. This has already worked for the companys tablet, software and
Internet services divisions because of its existing and large user base (Osawa et al.). Therefore,
this is the recommended growth and expansion strategy for Xiaomi.
Possible Global Expansion Strategies and Recommendations:
Xiaomi has been expanding at a rapid rate lately. Following the cost-leadership model,
Xiaomi soon took over Chinas market (Kan). Now it is focusing on expanding into other
countries. By entering the global market, the company would increase its profits and sales. A
company that expands globally, also spreads its risk, thus making the company less vulnerable to
potential crises and economic fluctuations in the companys home economy (Schermerhorn).
With regards to global strategy, the company has three ways in which it could expand; by
using a globalizalization, multi-domestic, or transnational strategy. A globalization strategy
adopts standardized products and advertising for use worldwide, a multi-domestic strategy
customize[s] multi domestic products and advertising to fit local cultures and needs, and a
transnational strategy seeks a balance between efficiencies in global operations and

responsiveness to local markets (Schermerhorn). In Xiaomis case it would be ideal to follow a

transnational strategy. A globalization strategy would not be effective, because it sells products
(phones, tablets, etc.) that would need customization to fit the needs of its target markets.
However, a multi-domestic strategy would be effective but not efficient. Making different and
completely customized products for each target market would be very costly. A transnational
strategy is the ideal balance between a globalization and multi-domestic strategy. It tries to keep
the products general characteristics but adjusting minimally to different markets, such as
changing the default language of the device. The low product prices are likely to lead to
increasing sales even with little customization.
The company has already taken steps towards international expansion using a
transnational strategy. For example, it changed the domain name from xiaomi.com to
mi.com in the spring of 2014 to appeal to a larger market and embrace a global identity instead
of a Chinese one (Lomas). The company made the domain name easier to pronounce, spell, and
remember, which can lead to an increase in sales due to an increase in web traffic. The company
is also willing to make some adjustments and customizations to the products, as needed. For
example, it created Redmi, which is customized for the Indian market as a lower-end product
with a cheaper price but have been sold elsewhere as well (Ren).
Xiaomi is planning to expand in several countries. Some of its target countries are Brazil,
Russia, India, and some Southeast Asian countries (Dou). These are countries where most are not
able to afford smartphones and other electronic devices sold by companies like Apple or
Samsung. Currently, Western Europe and the US are not part of the expansion. Xiaomi has
several reasons for not expanding in those areas yet. Companies like Apple and Samsung have a

strong presence in those markets since those populations can afford their products. At its current
stage, it would be really difficult for Xiaomi to compete against these giants.
Current and Potential Expansion Issues and Roadblocks:
Xiaomis greatest challenge is sustaining its current growth rate within China and
aforementioned markets. While the company is exploding in China with great success, it has
already hit a few roadblocks in India and other countries it has began to expand into.
One of the greatest challenges for the company is to shake the stigma currently associated
with Chinese brands and battle against piracy. Before Xiaomi launched the sale of its phones this
year in India, the Indian Air Force expressed concern over Xiaomis handling and storage of the
end users data (Dutta). India has also previously banned the sale of Xiaomi phones due to a
pending patent infringement case with Ericsson. While the ban on Xiaomis smart phones has
been partially lifted, the company awaits a ruling from the Delhi High Court. This may be the
first of many legal battles Xiaomi may face in the future as it expands globally (R, Rahul).
Xiaomi needs to consider its intellectual property rights through each nation it looks to
expand to. Xiaomi based its business and marketing model after Apple and Samsung and their
products are strikingly similar to the handsets produced by these two companies. One doubt
many investors have about Xiaomi is its lack of intellectual property in the smartphone area. As
a newcomer to the smartphone world, Xiaomi research and development teams will need time to
create new and novel features and software that sets the company apart from their competitors.
While there may be a bright future for Xiaomi, it is currently copying its competitors
innovations, and may have to pay licensing fees for use and access for these features.
The final challenge for Xiaomi breaking into the global market is the acceptance of each
of the new markets. There are cultural, political and economical factors involved in breaking
into the following countries: Brazil, Mexico, Russia, Turkey, and India. For instance, Xiaomis

current mascot wears a hat with the Communist red star. While the mascot is cute and accepted
in the Chinese market, it may be hard to expand this mascot and brand globally. Xiaomi will
have to create a robust team of leaders with the cultural knowledge to break into each of these
markets with the proper price point and marketing strategy for each country (Stone). For
instance, in India, Xiaomi used a local e-commerce service called Flipkart to launch the Mi 3
model and over 100,000 people rushed to sign up and overloaded the website (Dutta).
While Xiaomi may sell low cost high quality phones, other countries also have their own
low price phone producers that are barriers to entry. Currently in India Xiaomi only holds 1.5%
of the Indian market, whereas Samsung dominates with a 24% share (Dutta). Xiaomi will have
to overcome at local level and it will need to hire the right people that know the local culture and
market to successfully break into these new markets.
Conclusion:
The areas that Xiaomi needs to focus on are: to maintain its cost leadership, continue to
diversify its products, adopt a transnational identity, expand into new markets and negotiate and
acquire intellectual property rights. If Xiaomi follows these recommendations, it may one day
become the top electronics company in the world.

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