Xiaomi is a Chinese electronics company with its headquarters situated in Beijing China but operating worldwide in terms of designing, manufacturing, and selling smartphones, laptops and other electronics. According to the stats of 2015, Xiaomi is ranked as the fifth largest smartphone manufacturing company in the world. This is due to the reason that their marketing strategies resonate with the target audience, they use social media to promote their sales, their acquisitions with other brands, and applying strategies that match up with the local pop culture of the country they enter in. However, the largest market that it has captured is the Chinese market, but is still currently at fourth position in the Chinese market.
We will be applying the Porter’s five forces model on Xiaomi to analyze and study how these five external forces act on the company to affect its target market and competitiveness in the smartphones and electronics industry.
Industry Rivalry
Smartphone and electronics industry is very competitive as there are many major players in this industry who have worked for years to build up on their brand image and they are competing on different factors including price, quality, consumer needs, and brand loyalty. Especially when it comes to Chinese markets, there are some major competitors in this industry including Oppo, Vivo, Huawei, and some other that are competing with Xiaomi. And all these Chinese companies are trying to capture their fair share of the international market, where Apple and Samsung are still the major players. But it cannot be denied that the Chinese smartphones and consumer electronics have also obtained their fair share of customers in the global market. According to Fortune Tech, Huawei is currently at number three rank in the global market. Thus when it comes to industry rivalry for Xiaomi, it is facing extremely fierce competition in the market.
Source: Fortune Tech
Threat of New Entrants
The smartphone as well as other consumer electronics industry is very saturated with very strong, intense competition existing in the market and this kind of industry has very strong brand images of well established companies whose customers are now very loyal towards their brands. Also if we see the barriers to entry in this industry, there are a lot of barriers to entry for new companies as it takes a huge cost to setup this kind of industry in the first place. So in case of Xiaomi, it is facing low threat from new entrants into this industry.
Threat of Substitutes
There are a lot of substitutes for smartphones present in the market but this fact cannot be denied that nothing can replace a smartphone, be it a laptop or a tablet because all of these devices have their own features and purposes and they can never be an absolute substitute for smartphones. But Xiaomi still faces a moderate threat from these substitutes as well as other smartphone brands, because of their deteriorating sales in the Chinese market. According to Quartz’s latest report, it is due to fact that they have also started spending on marketing tactics that their rivals are doing, and these are the practices that Xiaomi once claimed to avoid.
Bargaining Power of Suppliers
Major suppliers for Xiaomi are located in Taiwan and over the years Xiaomi has gained loyal supplier and build up a strong supply chain that is one of the backbone to Xiaomi’s success. When it was new in the market, the suppliers have a huge bargaining power over them as they were loyal to their old clients, but with time Xiaomi has developed a strong relationship with their suppliers and if we see the current situation the bargaining power of suppliers is very moderate.
Bargaining Power of Buyers
The smartphone industry is very competitive and saturated with so many options available to consumers to choose from when it comes to buying a smartphone. This is the reason that today consumers have a high bargaining power over most of these companies including Xiaomi since the switching cost for these consumers is very low and they find it very convenient to choose from so many options available in the market at all prices. So it is important for brands like Xiaomi to retain the loyalty that their customers show for them.
References
Horwitz, J. (2016, August 15). Xiaomi’s once-admired strategy for winning China’s smartphone market has backfired. Retrieved July 16, 2017, from https://qz.com/758955/xiaomis-once-admired-strategy-for-winning-chinas-smartphone-market-has-backfired/
Cendrowski, S. (2017, January 24). How China’s Smartphone ‘Big Four’ Are Fighting for Global Customers. Retrieved July 16, 2017, from http://fortune.com/2017/01/24/china-smartphones-oppo-vivo-huawei-xiaomi/
Sun, L. (1970, January 1). Xiaomi Should Fear These 3 Chinese Competitors. Retrieved July 16, 2017, from https://www.fool.com/investing/2016/08/18/xiaomi-should-fear-these-3-chinese-competitors.aspx