Xiaomi SWOT & PESTLE Analysis

Strength

1. Variety of smartphones and other devices available: Xiaomi has a variety of smartphones at different prices in its portfolio, catering to different types of customers. Also, the company is not entirely dependent on the smartphone business and it is diversifying into various consumer electronics products like smart TV, fitness bands, notebooks, air purifier, water purifier etc. This related diversification can ensure the survival of the company if the smartphone business is severely dented by the high competition from Samsung and Xiaomi’s fellow Chinese brands like Oppo, Vivo and Huawei. It would also help in having a future ecosystem of interconnected Xiaomi product in consumers’ homes where one Xiaomi smart device interacts with another smart device to fulfil consumer needs. For example, the smartphone might be used as a remote for the smart TV. This kind of interconnection would create a lock in for the customer to Xiaomi products.

2. Strong brand awareness and value: Xiaomi has shipped an estimated 90 million smartphones in 2017, a significant portion of shipments being in emerging markets such as India. New launches and premium products like Note Pro and Mi Mix 2 are expected to result in the 2018 sales figure being even higher. The company has a variety of products like smartphones, air purifiers, smart TVs, etc. Not only products but revenues from services like app store and browser are also expected to rise. The high growth prospects due to rising market share in emerging markets and plans to expand into developed markets are good reasons to give Xiaomi a valuation of 20x, higher than its major competitor Apple (16x). The major reason for Xiaomi’s growth despite few marketing campaigns and thin channel partner margins is the value for money that its products give to the consumers due to competitive price to specifications ratios.

3. Focus on hardware and software: Xiaomi not only sells smartphones having high end features but also sells low to mid-range models. The company is able to sell low to mid-range models with good features due to its competitiveness in software. The company’s core competence is not in hardware but in software. Xiaomi phones run on MIUI, an Android-based OS that provides its own app market despite not having Google Play pre-installed. Even if users want to download apps only from Google Play, the OS allows them to download Google Play separately. Having its own operating system enables the company to roll out quick OS updates to increase customer satisfaction. The OS is also modified for different models of phones. The Poco models have a different MIUI than Redmi 6A.

4. Strong performance in multiple markets: Xiaomi first entered the Indian market in 2014. Despite initial hiccups, the company crossed $1 billion mark in Indian market revenues in just 2 years. The company’s India MD Manu Kumar Jain was instrumental in steering the company’s India business by removing roadblocks in the company’s growth. The growth was largely due to the establishment of a strong offline sales network of Mi Homestores and Mi Preferred Partner stores to complement the online sales network. As of Q3 2018, Xiaomi has the largest market share in India with 27.3%. The company has always seen the Indian market as crucial to its globalisation strategy, so the runaway success in the Indian market ahead of a powerful competitor like Samsung is a major step towards becoming a global leader. Xiaomi is also making waves in Western Europe with an increase in market share from 1% in Q3 17 to 4% in Q3 18 and a YoY growth of a whopping 386%, making it the number 4 brand in the region. In Indonesia too, the company surged from just 6% market share in Q3 17 to 23% in Q3 18 with YoY growth of 337% to become the number 2 brand behind Samsung, whose market share had actually declined from 28% to 24% during the same period.

Weakness

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Opportunity

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Threat

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Technological

1. Artificial intelligence to improve customer experience: AI is recognised as the future of business that will drive autonomous networks and improve customer experience through a more in-depth understanding of customer behaviour. Artificial intelligence has found application in many industries, including smartphone industry. LG has come up with the V30S ThinQ phone that has an AI-enabled camera. The global smartphone leader Samsung has also come up with Bixby AI assistant. The industry is clearly moving towards AI-enabled smartphones to provide greater value to the users. Xiaomi is also keeping pace with this trend by introducing its AI assistant named Xiao AI. It was initially only available in the Mi Mix 2 model but the company is soon making it available on other models. However, the assistant currently understands only Chinese and the company is likely to include more languages as it continues to expand globally. In June 2018, Xiaomi made its Mobile AI Compute Engine (MACE) a fully open source platform. MACE is a prediction framework for a deep learning model optimised for mobile devices, using which the developers can develop AI applications more quickly and efficiently, while enhancing the user experience of these applications. Currently MACE covers scene recognition, image stylisation processing, intelligent translation etc.

2. 5G technology to be the next growth driver: 4G is slowly making way for 5G across the world. The competition among smartphone manufacturers is expected to move into the 5G space. Samsung and Huawei have 5G phones in the pipeline. Xiaomi has also announced its 5G model Mi Mix 3 smartphone, to be launched in Europe and China later in 2019. Xiaomi has also signed up to participate in 5G pre-commercial field tests that will be conducted by China Mobile in Q1 2019. 5G technology also provides the perfect base for IoT to function.

3. Popularity of wearable technology: Wearable technology is seeing a resurgence in popularity. The wearables sector grew 5% Y-o-Y in Q2 2018 which more than quadrupled to 21.7% in Q3. This surge was due to the popularity of smartwatches. Xiaomi saw the largest number of wearable shipments in Q3 2018 with almost 7 million units, which was a superb 90% increase from Q3 2017. This growth was mainly driven by the success of its Mi Band 3. The other major players in the wearable market are Apple, Fitbit, Huawei and Samsung. Xiaomi has left all these companies far behind in Q3 2018.

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