Xiaomi’s Globalization Strategy and Challenges
Xiaomi’s Globalization Strategy and Challenges
Although Xiaomi has emerged as a leader in the Chinese technology industry, it faces various risks. The company started an aggressive international expansion in 2016, following increased competition from other technology companies and a decline in the domestic market (Burgelman, 2016). International expansion exposes Xiaomi to different risks and challenges that might jeopardize the company’s growth and progress. Some of the challenges that the company could experience include strategic risk, political, and compliance risks.
Strategic risks involve challenges that affect business strategies and objectives in the organization. According to Deloitte (2013), risk is an uncertainty that needs to be managed in order to realize the organization’s goals and objectives. The occurrence of strategic risks results in failure to achieve strategic goals. Xiaomi’s main objective is to produce and sell high-quality products at an affordable price. However, the low-pricing strategy exposes the company to potential price wars with other industry players. Currently, the average selling price (ASP) of Xiaomi is lower than that of Huawei, Samsung, and Apple. Therefore, continuing the set lower prices might prompt other companies to reduce their prices, causing the company to lose its competitive edge.
A low-pricing strategy might also affect the company’s profitability. According to Johnston (2020), a low-pricing strategy encourages stiff competition, which might force the company to set very low prices, thus reducing profit margins. As such, the company falls into strategic risk by not realizing its objective of making profits by selling high-quality products and affordable prices. Consequently, a low-pricing strategy causes the consumers to perceive company products as low-quality due to low prices. Even so, the strategy can help the company to gain a monopoly and eliminate competition.
Political risk is a critical challenge to Xiaomi’s globalization strategy. Political risks refer to risks that affect business activities and originate from political changes and instabilities in the international marketplace. Political risk can arise due to genuine government policies such as price, output, currency exchange, and interest rates control. For instance, the political differences between the United States and China may affect Xiaomi’s business due to increases in tariffs. According to UNCTAD (2019), in 2019, Chinese firms incurred about 25 percent and $35 billion in export losses due to trade wars with the United States. Such political insinuated risks can impede Xiaomi’s objective of becoming the top smartphone producer in the world.
Similarly, inter-country border disputes, war, and terrorism cause political risks. For instance, the recent border dispute between China and India has affected Xiaomi’s sales in India. The dispute led to anti-China sentiments and boycott of Chinese products. The International Data Corporation (IDC, 2020) indicates that Xiaomi registered 11.8 percent year-over-over (YoY) decline due to India’s anti-China sentiment and lockdowns imposed to control the spread COVID-19 pandemic. Notably, India is the company’s largest market outside of China. As a result, political risk is the greatest risk to Xiaomi’s globalization.
Compliance risks define risks that arise from legal and regulatory compliance. As Xiaomi expands its business operations globally, it faces compliance risks that vary from country to another. They involve legal penalties and financial losses that a company incur for failing to comply with regulations. The occurrence of compliance can also affect the company’s reputation by lowering its customer trust and confidence. For instance, the expansion of Xiaomi to countries such as the United States and Western Europe with strong patent laws and regulations exposes the company to compliance risk. Burgelman et al. (2016) argue that Xiaomi has a thin patent portfolio compared to other leading industry players. Therefore, Xiaomi risk lawsuits and fines in countries where these competitors hold patent rights.
Different obstacles can hamper the implementation of Xiaomi’s globalization strategy. According to Burgelman et al. (2016), the need to build sales channels, output capacity, and cross-culture management are potential obstacles to executing the company’s strategy. Currently, Xiaomi sells most of its products through e-commerce. This implies that the company will invest a large percentage of revenues in establishing stores and distributing centers globally. Consequently, the company lacks adequate output capacity since it uses a hunger marketing strategy. Additionally, navigating cross-cultural issues on the global stage is a huge obstacle to the company. Xiaomi needs to understand underlying cultural values in each country to execute its globalization strategy successfully.
Burgelman, R., Zheng, G. & Guo, Y. (2016). Xiaomi’s globalization strategy and challenges. Stanford Business, pp: 1-30, https://www.gsb.stanford.edu/faculty-research/case-studies/xiaomis-globalization-strategy-challenges
Deloitte. (2013). Exploring Strategic Risk. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Governance-Risk-Compliance/dttl-grc-exploring-strategic-risk.pdf
IDC. (2020). Smartphone Market Share. International Data Corporation, Retrieved from https://www.idc.com/promo/smartphone-market-share/vendor
Johnston, K. (2020). The Disadvantages of an Everyday Low Pricing Strategy. Retrieved from https://yourbusiness.azcentral.com/disadvantages-everyday-low-pricing-strategy-6356.html
UNCTAD. (2019, Nov.6). Trade war leaves both US and China worse off. United Nations Conference on Trade and Development, Retrieved from https://unctad.org/news/trade-war-leaves-both-us-and-china-worse#:~:text=The%20analysis%20shows%20that%20US,their%20exports%20to%20the%20US.