Xiaomi Inc. Report 2018

Xiaomi Inc.
Company Report
2018
Contents
1. Executive Summary..................................................................................................................... 1
2. Business Strategy......................................................................................................................... 1
3. Leadership ................................................................................................................................... 3
4. Organisational Structure .............................................................................................................. 4
5. Organizational Culture ................................................................................................................ 5
6. Xiaomi and Ansoff Matrix .......................................................................................................... 6
7. SWOT Analysis ........................................................................................................................... 8
7.1 Strengths ................................................................................................................................ 9
7.2 Weaknesses .......................................................................................................................... 10
7.3 Opportunities ....................................................................................................................... 11
7.4 Threats ................................................................................................................................. 12
8. PESTEL Analysis ...................................................................................................................... 13
8.1 Political Factors ................................................................................................................... 13
8.2 Economic Factors ................................................................................................................ 14
8.3 Social Factors ....................................................................................................................... 15
8.4 Technological Factors .......................................................................................................... 15
8.5 Environmental Factors ......................................................................................................... 16
8.6 Legal Factors........................................................................................................................ 16
9. Marketing Strategy .................................................................................................................... 17
9.1 7Ps of Marketing .................................................................................................................. 17
9.2 Segmentation, Targeting & Positioning............................................................................... 20
9.3 Marketing Communication Mix .......................................................................................... 21
9.3.1 Print and Media Advertising ............................................................................................. 22
9.3.2 Sales Promotions............................................................................................................... 22
9.3.3 Events & Experiences ....................................................................................................... 23
9.3.4 Public Relations ................................................................................................................ 23

9.3.5 Direct Marketing ............................................................................................................... 24
9.3.6 Personal Selling ................................................................................................................ 24
10. Porter’s Five Forces Analysis .................................................................................................. 24
10.1 Threat of new entrants ....................................................................................................... 25
10.2 Bargaining power of buyers ............................................................................................... 26
10.3 Bargaining power of suppliers ........................................................................................... 26
10.4 Threat of substitute products or services ........................................................................... 26
10.5 Rivalry among existing firms ............................................................................................ 27
11. Value-Chain Analysis .............................................................................................................. 28
11.1 Xiaomi Primary Activities ................................................................................................. 28
11.1.1 Xiaomi Inbound logistics ............................................................................................ 28
11.1.2 Xiaomi Operations ...................................................................................................... 29
11.1.3 Xiaomi Outbound Logistics ........................................................................................ 29
11.1.4 Xiaomi Marketing and Sales ....................................................................................... 30
11.1.5 Xiaomi Service ............................................................................................................ 31
11.2 Xiaomi Support Activities ................................................................................................. 31
11.2.1 Xiaomi Infrastructure. ................................................................................................. 31
11.2.2 Xiaomi Human Resource Management ...................................................................... 31
11.2.3 Xiaomi Technology Development .............................................................................. 32
11.2.4 Xiaomi Procurement ................................................................................................... 32
12. McKinsey 7S Model ................................................................................................................ 33
12.1 Hard Elements .................................................................................................................... 33
12.2 Soft Elements ..................................................................................................................... 34
13. Corporate Ecosystem ............................................................................................................... 35
14. Corporate Social Responsibility .............................................................................................. 37
14.1 CSR Programs and Initiatives ............................................................................................ 37
14.2 CSR Criticism .................................................................................................................... 38
15. Recommendations ................................................................................................................... 40

List of Figures
Figure 1 Xiaomi business model map ............................................................................................. 3

Figure 2 Xiaomi organizational structure ........................................................................................ 4
Figure 3 Xiaomi Ansoff Growth Matrix ......................................................................................... 6
Figure 4 Xiaomi Porter's Five Forces ............................................................................................ 25
Figure 5 Global market share of leading smartphone vendors ...................................................... 27
Figure 6 Xiaomi Value Chain Analysis......................................................................................... 28
Figure 7 Xiaomi McKinsey 7S Model .......................................................................................... 33
Figure 8 Xiaomi Ecosystem .......................................................................................................... 36
List of Tables
Table 1 Xiaomi SWOT analysis ...................................................................................................... 8

Table 2 Xiaomi segmentation, targeting and positioning .............................................................. 21
Table 3 Xiaomi CSR Programs and Initiatives ............................................................................. 38
1. Executive Summary
Xiaomi Inc. is a privately owned electronics and software company founded in 2010 by serial
entrepreneur Lei Jun, along with seven other co-founders. The mobile internet company has
established its presence in 70 countries and regions and it is among the top 5 in 16 markets.
Xiaomi currently employs about 18,000 people. In 2017 Xiaomi generated more than RMB 100
billion revenues and expected to get listed in the Fortune Global 500 list in foreseeable future.1
Xiaomi business strategy is based on cost advantage. Moreover, the company gathers and utilizes
its large fan base in an efficient manner with positive implications on customer loyalty and the
bottom line for the business. An aggressive expansion of ecosystem of products and services is
also placed at the core of Xiaomi business strategy.
The mobile internet company has matrix and flat organizational structure. According to
framework of Ansoff Growth Matrix, Xiaomi uses all for strategies - market penetration, product
development, market development and diversification, in an integrated manner.
Efficient leadership by founder and CEO Lei Jun, impressive rate of growth and cost advantages
compared to competition are considered as major strengths associated with Xiaomi. At the same
time, the company has noteworthy weaknesses such as low profit margin, lower smartphone
capabilities and functionalities compared to major competitors and difficulties of sustaining
competitive advantage.
2. Business Strategy
Xiaomi business strategy can be classified as cost leadership. According to its founder and CEO
Lei Jun, Xiaomi was founded on the belief that “high-quality technology doesn't need to cost a
fortune.”2 Accordingly, the company offers smartphones and other internet-technology products
and services for affordable prices.
1
Lei, J. (2018) “AFTER CROSSING RMB 100B REVENUE MILESTONE, A NEW JOURNEY FOR XIAOMI
BEGINS in 2018” MI, Available at: http://blog.mi.com/en/2018/02/07/after-crossing-rmb-100b-revenue-milestone-
a-new-journey-for-xiaomi-begins-in-2018/
2
About Us (2018) MI, Available at: http://www.mi.com/en/about/
1
On a wider perspective, Xiaomi business strategy is based on the following four pillars.
1. Gathering and utilising a large fan base. Xiaomi has a large fan base involving millions of
people across the globe. Fans spend countless hours online discussing Xiaomi products on
various forums, thus increasing the level of brand awareness with no extra cost for the company.
The mobile internet company enjoys cult-like following, the same way as its major competitor
Apple.
According to its business strategy, Xiaomi fosters, develops and encourages its fans via Mi Fan
Festivals that involves discounts and gifts. The motto of the company is “Just for Fans” and the
company is also known to recruit its new employees among Mi Fans.
2. Designing great products at a reasonable price. Xiaomi practices ‘design as you built’
philosophy, incorporating Mi Fans feedback in a constant manner at all stages of new product
development. Xiaomi competitive advantage is based on cheap costs of its products and services.
In simple terms, cheap costs of Xiaomi products and services is the main reason for consumers
buying those products and services.
3. Constant optimization of products through eco-chain. The mobile internet company is

aggressively increasing the ecosystem of its products and services. This is another important
aspect of Xiaomi business strategy. Currently, Xiaomi ecosystem comprises 55 companies
including 29 companies which were incubated from the ground up by Xiaomi.3 The ecosystem
produces ever-increasing range of products ranging from smartphones to rice cookers.
4. Xiaomi Triathlon: Hardware+New Retail+Internet. As it is illustrated in Figure 1 below,

Xiaomi Triathlon sources of revenues consist of hardware, new retail and internet. Xiaomi
positions itself as an internet and software company to a greater extent than a hardware
company.
The company perceives the sales of hardware as a means to deliver software and services in the
long-term perspective. Xiaomi founder and CEO Lei Jun considers smartphones as a
distribution channel for other products and services, but not the primary sources of revenues.
Nevertheless, currently around 80% of the company’s revenues are generated from selling
smartphones.
3
Liao, R. (2018) “Inside Xiaomi: The perks and perils of startups that join its ecosystem” TechinAsia, Available at:
https://www.techinasia.com/xiaomi-ecosystem
2
Figure 1 Xiaomi business model map4
3. Leadership
Effectiveness of Xiaomi leadership can be considered as one of the main competitive advantages
for the business. Xiaomi CEO Lei Jun is a respected businessman in China who previously led
Kingsoft and founded Joyo.com that was sold to Amazon in 2014.
It is said that Lei has never yelled at his staff. When he encounters a problem, he just smiles and
gets down to business, and tries to find a solution. In social gatherings, Lei is always a good
listener.5 Named businessmen of the Year by Forbes in 2014 and along with Alibaba Founder
Jack Ma, Lei Jun is rightly considered as the face of China Inc.6 Xiaomi CEO is recognized as an
effective charismatic leader worldwide.
Along with Lei Jun, seven co-founders of the company have senior leadership roles with the
titles of president and vice-presidents. Having co-founders in the senior management team is an
4
Source: Pandaily (2017) Available at: https://pandaily.com/xiaomi-ceo-lei-jun-how-xiaomi-turned-the-tables/
5
Tin-yau, K. (2017) “Character lessons from Xiaomi’s Lei Jun” Ejinsight, Available at:
http://www.ejinsight.com/20170710-character-lessons-from-xiaomis-lei-jun/
6
White, G. (2014) “13 things you didn’t know about Xiaomi’s Lei Jun” Manufacturing Global, Available at:
https://www.manufacturingglobal.com/leadership/13-things-you-didnt-know-about-xiaomis-lei-jun
3
important factor due to increased sense of ownership with positive implications on the
performance of executives.
Xiaomi has been dubbed as “Apple of China” for its emulation of design of Apple’s products, as
well as, Lei Jun style of product announcements and his general image that resembles late Apple
founder and CEO Steve Jobs. However, Lei Jun leadership style is fundamentally different from
Steve Jobs leadership. Specifically, while Steve Jobs was known for his centralized and micro-
managing leadership style, Xiaomi CEO has a reputation for being a good listener and takes into
account views of other members of his senior management team.
Xiaomi leadership challenges at present include maintaining cost leadership position amid
intensifying competition from other budget internet technology brands such as Oppo and Vivo.
4. Organisational Structure
Xiaomi organizational structure can be classified as matrix. Specifically, Xiaomi organizational

structure is decentralized, where different business units are managed independently. Despite the
large size of the business involving presence in 70 countries with more than 18000 employees,
the company has less layers of management compared to other businesses of similar sizes.
Figure 2 below illustrates Xiaomi organizational structure:
Chairman & CEO

Lei Jun
Co-founders 2 Senior Vice Presidents
President
Senior Vice President
Chief Financial Officer
Chief Brand Officer
Vice President & Managing

3 Senior Vice Presidents Director, Xiaomi India
3 Vice Presidents
Figure 2 Xiaomi organizational structure

4
Matrix organizational structure allows the mobile internet company to develop its new products
and services in a short duration of time. This is due to absence of bureaucracy that is associated
with hierarchical organizational structures. However, disadvantages of matrix organizational
structure for the business may include lack of strict control by the top management over separate
business units and lack of integration between the operations of individual business units.
Nevertheless, it is important for Xiaomi to maintain its flat organizational structure in order to
remain flexible, so that the mobile internet company can adapt to frequent changes in the global
marketplace.
5. Organizational Culture
According to Harrison’s model of culture, Xiaomi organizational culture can be classified as

power culture. Specifically, powers of decision making at the internet technology company are
concentrated in the hands of founder and CEO Lei Jun. Inspirational and effective leadership
style of Lei Jun justifies the necessity of power culture for Xiaomi.
Xiaomi organizational culture integrates the following three key elements:
1. “Just for Funs” concept. The tagline "Just for fans" is placed at the core of Xiaomi
organizational culture. Founder and CEO Lei Jun explains that “the culture of fandom is about
becoming friends with our consumers.”7 There is a story of a master’s student who spends free
time doing MiUI testing and moderating a Xiaomi fan forum that nets 200,000 posts every day
as a volunteer.8
2. Innovation and creativity. Company’s official website claims that “we are incredibly flat,
open, and innovative. No never-ending meetings. No lengthy processes. We provide a friendly
and collaborative environment where creativity is encouraged to flourish.”9 In other words,
Xiaomi aims to promote informal organizational culture at all levels with positive implications
on employee creativity.
7
Jun, L. (2017) “Xiaomi CEO Lei Jun: How Xiaomi Turned the Tables” Pandaily, Available at:
https://pandaily.com/xiaomi-ceo-lei-jun-how-xiaomi-turned-the-tables/
8
Crimer, A. (2015) “What Xiaomi Teaches Us About Engaging Employees in Innovation” Kindling Blog, Available
at: https://www.kindlingapp.com/blog/xiaomi-engaging-employees-innovation/
9
Office Environment (2018) MI, Available at: http://www.mi.com/en/about/
5
3. Intense working culture. Xiaomi organizational culture can be characterized as intense. This
is due to cost leadership business strategy followed by the company in a way that effective
application of this strategy involves deriving the maximum benefit from resources, including
human resources. Departure of former Google executive Hugo Barra from the key post of
Xiaomi international vice president has been said to be linked to negative elements of Xiaomi
organizational culture. Specifically, Barra said he was leaving because difficulties of living in
“such a singular environment” had “taken a huge toll” on his life.10
6. Xiaomi and Ansoff Matrix
Xiaomi Ansoff Matrix is a marketing planning model that helps the mobile internet company to
determine its product and market strategy. Ansoff Matrix illustrates four different strategy
options available for businesses. These are market penetration, product development, market
development and diversification.
Figure 3 Xiaomi Ansoff Growth Matrix
10
Temperton, J. (2017) “Nine numbers that suggest all is not well at Xiaomi” Wired, Available at:
http://www.wired.co.uk/article/xiaomi-hugo-barra-china-smartphone-profits
6
Within the scope of Ansoff Matrix, Xiaomi uses all four growth strategies in an integrated
manner:
1. Market penetration. When using market penetration, companies focus on selling existing
products to existing customers. Xiaomi successfully uses market penetration strategy in its home
market in China. According to Q1, 2018 smartphone sales results in China, Mi smartphones
ranked third with the local market share of 12,8% after Huawei (20,8%), Oppo (18,5%), iPhone
(18,2%) and Vivo (14,6%).
2. Product development. This strategy option involves developing new products to sell to
existing markets. Xiaomi has ever-increasing product portfolio ranging from smartphones to
water purifiers and tooth brushes. Product development strategy is likely to be continued by
Xiaomi. This is because Xiaomi positions itself as a “company that provides innovation to
everyone at every level — from smartphones and technology to IoT connected smart products to
the basic everyday tools like power banks, backpacks and pens”.11
3. Market development. Market development strategy is associated with finding new markets
for existing products. Xiaomi started market development in 2014, only four years after the
company was founded. In mid-2013, the company hired Hugo Barra away from Google and
Android to work on international expansion.12 Since that time, the electronics and software
company has established its presence in rapidly developing markets such as India, Singapore and
Russia. The mobile internet company also has plans to enter US market.13
4. Diversification. Diversification involves developing new products to sell to new markets.

Xiaomi is engaged in an aggressive diversification strategy. Xiaomi ecosystem is vast and
comprises 55 companies, including 4 unicorn companies14. Companies within the ecosystem
produce a wide range of products and services such as TVs, set-top boxes, robot vacuum
cleaners, headphone and even towels and rice cookers.
11
WE OFFER SMARTPHONES, AND TOOTHBRUSHES (2017) Mi Blog, Available at:
http://blog.mi.com/en/2017/08/02/beyond-the-smartphone-why-we-make-consumer-products/
12
Dowling, S. (2018) “The Rise And Global Expansion Of Xiaomi” Chrunchbase, Available at:
https://news.crunchbase.com/news/rise-global-expansion-xiaomi/
13
Kharpal, A. (2018) “Xiaomi on US market entry: ‘We’ll be there’ CNBC, Available at:
https://www.cnbc.com/2018/02/26/xiaomi-on-us-market-entry-well-be-there.html
7
7. SWOT Analysis
In business context, SWOT acronym stands for strengths, weaknesses, opportunities and threats
associated with the company. The following table illustrates Xiaomi SWOT analysis
Strengths
1. Efficient leadership by Lei Jun

2. Impressive growth rate
3. Cost advantage
4. Brand value estimated at USD 100 billion15
Weaknesses
1. Low profit margin

2. Lower smartphone capabilities and functionalities compared to major competitors such as
Apple and Samsung
3. Competitive advantage difficult to sustain
4. Lack of experience in the global marketplace
Opportunities
1. Increasing presence in cloud segment

2. Formation of strategic collaborations
3. Focusing on marketing strategy
4. Achieving a disruptive innovation in the industry as a result of research and development
Threats
1. Market saturation in smartphone industry

2. Increase in the costs of resources
3. Issues with product functionality
4. Emergence of CSR-related scandals
Table 1 Xiaomi SWOT analysis
15
Xiaomi Chooses Morgan Stanley, Goldman Among IPO Banks (2018) Bloomberg, Available at:
https://www.bloomberg.com/news/articles/2018-01-15/xiaomi-is-said-to-choose-morgan-stanley-goldman-among-
ipo-banks
8
7.1 Strengths
`1. Xiaomi co-founder and CEO Lei Jun is an effective business leader named “Businessman of
the Year” 2014 by Forbes Asia. Dubbed the ‘new Steve Jobs’, Lei Jun is perceived as the face of
China Inc, along with Alibaba Founder Jack Ma.16 Moreover, it is said that Lei has never yelled
at his staff. When he encounters a problem, he just smiles and gets down to business, and tries to
find a solution. In social gatherings, Lei is always a good listener.17 Efficient and visionary
leadership style is one of the major factors behind the phenomenal growth of the internet
technology company.
2. The electronics and software company has enjoyed an impressive growth rate since its
foundation in 2011. In Q4 2017, Xiaomi became the world’s No.4 in terms of quantity of
shipments. Despite the decline of 6,3% in the global smartphone market, Xiaomi managed to
maintain a year-on-year growth of 96.9%, the only brand demonstrating continuous growth.18
Moreover, Xiaomi became number one smartphone vendor in India in Q3 2017, with a market
share of 23.5%. The company shipped 9,2 million smartphones in India in this quarter alone.19
3. Cost advantage is one of the major strengths associated with Xiaomi. The profit margin of as
low as 3%20 and mainly focusing on online sales channels enables the company to price its
products considerably lower compared to the competition. It has been noted that “because a
Xiaomi phone does deliver more than 90 percent of the functionality of an iPhone for less than
50 percent of the price that Xiaomi has a competitive edge.”21
16
White, G. (2014) “13 Things You Didn’t Know about Xiaomi’s Lei Jun” Available at:
http://www.manufacturingglobal.com/leadership/13-things-you-didnt-know-about-xiaomis-lei-jun
17
Tin-yau, K. (2017) “Character lessons from Xiaomi’s Lei Jun” Ejinsight, Available at:
http://www.ejinsight.com/20170710-character-lessons-from-xiaomis-lei-jun/
18
BEGINS IN 2018” MI, Available at: http://blog.mi.com/en/2018/02/07/after-crossing-rmb-100b-revenue-milestone-
19
XIAOMI IS THE NUMBER ONE SMARTPHONE VENDOR IN INDIA IN Q3 2017 (2017) Xiaomi,Available
at: http://blog.mi.com/en/2017/10/14/xiaomi-is-the-number-one-smartphone-vendor-in-india-in-q3-2017/
20
Kharpal, A. (2014) “What’s behind rapid rise of ‘China’s Apple’ Xiaomi?” CNBC, Available at:
https://www.cnbc.com/2014/12/22/whats-behind-rapid-rise-of-chinas-apple-xiaomi.html
21
Ross, J. (2015) “Xiaomi or Apple – two innovation strategies for China” China.org.ch, Available at:
http://www.china.org.cn/opinion/2015-04/13/content_35307226.htm
9
4. Xiaomi brand value has been estimated as much as USD 100 billion22. The mobile internet
company has raised funds at a USD45 billion valuation in 2014 and it could be the biggest IPO
since Alibaba Group Holding Ltd.’s USD25 billion debut. An immense brand value can be
interpreted as a convincing indicator of customer loyalty and potential of the company.
7.2 Weaknesses
1. Low profit margin can be shown as a noteworthy weakness associated with Xiaomi. A filing
at the end of 2013 revealed that Xiaomi's operating margin was just 1.8%.23 Although low profit
margin is necessary for the internet technology company to sustain its cost-based competitive
advantage, it also subjects the brand to certain risks. Specifically, there is a higher risk for
Xiaomi that a decline in sales volume will erase its profit and this may result in a net loss for the
period. Moreover, low profit margin may limit R&D investments for the electronics and software
company, thus compromising its long-term growth prospects.
In contrast, Apple, one of the main competitors for Xiaomi maintains a high profit margin. For
example, the raw cost of iPhone X has been estimated USD 357, but Apple priced it USD 999.24
Unlike Xiaomi, a high profit margin allows Apple to maintain its operations in times of
economic uncertainties thanks to cash reserves.
2. Lack of product innovation, and lower smartphone capabilities and functionalities compared
to major competitors such as Apple and Samsung is another weakness associated with Xiaomi.
The company is often criticized for the lack of innovation in its products. It has been noted that
“unlike Xiaomi, its competitors were able to offer something new and innovative. Vivo offered
curved screens; Oppo and OnePlus dangled rapid charging; LeEco offered exclusive content; and
Huawei threw in dual lens cameras and fingerprint sensors.”25
3. Xiaomi has based its competitive advantage mainly on cheaper costs of its products and
services. This strategy has played an instrumental role for the mobile internet company to
22
Xiaomi Chooses Morgan Stanley, Goldman Among IPO Banks (2018) Bloomberg, Available at:
https://www.bloomberg.com/news/articles/2018-01-15/xiaomi-is-said-to-choose-morgan-stanley-goldman-among-
ipo-banks
23
Sun, L. (2016) “How Does Xiaomi Technology Make Money?” The Motley Fool, Available at:
https://www.fool.com/investing/2016/06/03/how-does-xiaomi-technology-make-money.aspx
24
Spence, E. (2017) “iPhone X Price Confirms Apple’s Love Of Profit” Forbes, Available at:
https://www.forbes.com/sites/ewanspence/2017/11/08/apple-iphonex-profit-margin-price-cost/#629d59c11a1c
25
Gilbert, D. (2016) “How Xiaomi lost $40bn: Where it all went wrong for the 'Apple of the East'” International
Business Times, Available at: https://www.ibtimes.co.uk/how-xiaomi-lost-40bn-where-it-all-went-wrong-apple-east-
1576781
10
become the largest smartphone seller in China within only four years. At the same time, it is
important to understand that cost advantage competitive edge is difficult to sustain in long-term
perspective, especially in China. New competitors such as Oppo and Vivo emerged shortly after
Xiaomi, offering smartphones for competitive prices claiming for Xiaomi’ market shares in
inexpensive smartphone market segment.
4. Being only 7-year-old company, Xiaomi lacks experience in the global marketplace and this is
a considerable weakness for the company. Its major rivals such as Apple and Samsung have been
operating in dozens of international markets for decades. Therefore, they have solid experience
in dealing with various issues associated with operating in international markets such as cross-
cultural differences, access to distribution channels and international supply-chain management.
7.3 Opportunities
1. Increasing its presence in cloud segment is one of the strategic opportunities for Xiaomi.
Currently, the internet technology company is trying to be everything for all in inexpensive
product segment selling a vast range of products from smartphones to rice cookers to umbrellas.
Xiaomi needs to narrow its focus to products and services with high growth rates such as cloud
segment and artificial intelligence taking into account major trends in the global e-commerce and
IT industries.
2. Formation of strategic collaborations with companies operating in ecommerce, IT and

affiliated industries is a good opportunity to be used by Xiaomi. The company has already made
some steps in this direction. For example, “the cooperation between Xiaomi and Microsoft has
been long-standing: since 2015, Xiaomi has adopted Microsoft Azure operated by 21Vianet in
China to run its Mi Cloud service for smartphone users; in June 2016, the two companies
reached a global-scale partnership, and Xiaomi began to pre-install Microsoft Office and Skype
apps on its Android-based smartphones and tablets, to benefit its customers with modern
workforce and communication tools; at the same time, Microsoft and Xiaomi also reached
intellectual property agreements, to help Xiaomi’s product go global compliantly.”26
Nevertheless, benefits to be gained by Xiaomi from strategic collaborations are still immense
and the mobile internet company needs to exploit such opportunities more actively.
26
Xiaomi and Microsoft sign strategic mou in cloud, devices and AI areas (2018) MI Blog, Available at:
http://blog.mi.com/en/2018/02/24/xiaomi-and-microsoft-sign-strategic-mou-in-cloud-devices-and-ai-areas/
11
3. Xiaomi needs to focus on making its marketing strategy more sophisticated. Traditionally, the
internet technology company was relying mainly on social media and word-of-mouth marketing.
Although cost effective, these strategies may not be sufficient to sustain Xiaomi market share in
long-term perspective. Moreover, “Oppo and Vivo have grown in China by using the exact
tactics that Xiaomi once avoided. Both companies spend heavily on offline advertisements and
celebrity endorsements, plastering billboards on subways and bus stops across China’s second-
and third-tier cities.”27 Therefore, it is important for Xiaomi to start integrating conventional
marketing techniques within its marketing strategy.
4. Xiaomi has an opportunity to achieve disruptive innovation in mobile internet by making

effective investments in research and development. To utilize this opportunity in an efficient
manner, Xiaomi needs to attract the best minds in the industry and motivate them via the
application of tangible and intangible employee motivation tools in an integrated manner.
7.4 Threats
1. Market saturation in smartphone industry is one of the biggest threats for Xiaomi. It has been
noted that “China's smartphone market has fallen for the first time, with annual shipments down
by 4% in 2017”28. In order to deal with this threat, Xiaomi needs to further explore the
opportunities for international market expansion in general and opportunities for entering
developing countries in particular. The target countries for Xiaomi may include Central Asia,
some countries in Africa and South America. The choice of developing countries as potential
new markets for Xiaomi resonates well with inexpensive prices of Xiaomi products.
2. Increase of the costs of resources can be mentioned as another significant threat for Xiaomi.
As mentioned above, the electronics and software company pursues cost leadership business
strategy and operates with razor-thin profit margin as low as 1.8%.29 Unlike its major
27
Horwitz, J. (2016) “Xiaomi’s once-admired strategy for winning China’s smartphone market has backfired”
Quartz, Available at: https://qz.com/758955/xiaomis-once-admired-strategy-for-winning-chinas-smartphone-
market-has-backfired/
28
Russon, M. (2018) “China's eight-year-long smartphone growth comes to an end” BBC, Available at:
http://www.bbc.com/news/business-42830375
29
Sun, L. (2016) “How Does Xiaomi Technology Make Money?” The Motley Fool, Available at:
https://www.fool.com/investing/2016/06/03/how-does-xiaomi-technology-make-money.aspx
12
competitors such as Apple and Samsung, any slight increase in the costs of resources for Xiaomi
will have inevitable impact on the costs of products, thus compromising Xiaomi competitive
advantage.
3. It can be argued that risks related to issues with product functionality may be greater for
Xiaomi compared to its rivals in the premium segment. This is because Xiaomi pursues cost
leadership business strategy and as such, aims to achieve cost reduction at every aspect of its
business, including new product development and product manufacturing. Problems with battery
of Mi A1 smartphone30 can be mentioned to illustrate this point.
4. There is a threat for CSR-related issues for Xiaomi and this threat can compromise long-term
growth prospects of the business. Again, due to cost leadership business strategy pursued by
Xiaomi, the company tries to save costs wherever it can. Accordingly, in its attempts to save
costs, including the costs of human resources, the electronics and software company may face
ethical dilemmas that can escalate into scandals.
8. PESTEL Analysis
PESTEL is a strategic analytical tool and the acronym stands for political, economic, social,
technological, environmental and legal factors. Xiaomi PESTEL analysis involves the analysis of
potential impact of these external factors on the profitability and long-term growth prospects of
the mobile internet company.
8.1 Political Factors
There is a wide range of political factors that can affect the internet technology company. These
include government stability, bureaucracy, corruption, freedom of press and others. On one hand,
Xiaomi has benefited from political factors in China in general and protectionism policy of
Chinese government in particular. The government of China protects local technology
30
Burlacu, A. (2018) “Xiaomi Says It’s Working To Solve The Mi A1 Battery Issue” Android Headlines, Available
at: https://www.androidheadlines.com/2018/01/xiaomi-says-its-working-to-solve-the-mi-a1-battery-issue.html
13
companies such as Tencent, Baidu and Xiaomi by imposing barriers to operate in the country to
their international rivals such as Facebook, Twitter, Snapchat, YouTube and Google.
The head of Xiaomi, along with the heads of Tencent and Baidu advice the government on
international business policies.31 This grants technology companies enviable opportunities to
influence local political factors that affect their businesses to a certain extent. Xiaomi has even
set up its Communist Party Committee in 201532 as a display of its support for the ruling
government.
On the other hand, while political factors benefit Xiaomi in its home market in China, the
company is usually negatively affected from political factors outside of China. For example, the
Taiwanese government has investigated Xiaomi on a cyber security threat in 2014 causing
certain damage to the brand image of the company. There is a popular concern that the
investigation was politically motivated because “China and Taiwan have been historical foes
since defeated Nationalists fled to the island after losing a civil war to China’s Communists in
1949”.33
8.2 Economic Factors
Economic factors affecting the internet technology company are diverse. These include
macroeconomic climate in the country, inflation and interest rates, taxation, currency exchange
rate etc. Moreover, the cost of labour and unemployment rate can be mentioned as examples for
economic factors that have direct implications on businesses.
For example, average cost of labour for factory workers in China has reached USD 3,60 an hour
in 2017, an increase of 64% compared to 201134. Such an economic tendency has direct
implications on Xiaomi competitive advantage taking into account cost leadership business
strategy pursued by the company.
31
Banjo, S. (2018) “China Protectionism Creates Tech Billionaires Who Protect Xi” Bloomberg, Available at:
https://www.bloomberg.com/news/articles/2018-03-06/how-china-protectionism-creates-tech-billionaires-who-
protect-xi
32
Gao, K. (2015) “China’s largest smartphone maker Xiaomi sets up Communist Party committee” South China
Morning Post, Available at: http://www.scmp.com/news/china/policies-politics/article/1828191/chinas-largest-
smartphone-maker-xiaomi-sets-communist
33
Gold, M. (2014) “Taiwan probes Xiaomi on cyber security” Reuters, Available at:
https://www.reuters.com/article/us-taiwan-xiaomi-cybersecurity/taiwan-probes-xiaomi-on-cyber-security-
idUSKCN0HJ08Z20140924
34
Yan, S. (2017) “'Made in China' isn't so cheap anymore, and that could spell headache for Beijing” CNBC,
Available at: https://www.cnbc.com/2017/02/27/chinese-wages-rise-made-in-china-isnt-so-cheap-anymore.html
14
8.3 Social Factors
The financial performance of Xiaomi is subject to a number of social factors such as

demographic changes, changes in family values, changes in the level of education of customers
and others. Moreover, changes in consumer attitudes and opinions towards using smartphones,
media perception of the brand and health and welfare of the target customer segment can also
affect Xiaomi.
Demographic aspect of China, home market for Xiaomi can be specified as a major social factor
affecting the sales of the mobile internet company. Specifically, China’s population is more than
1,4 billion people, which is roughly 18,50% population of the world.35 As discussed above,
Chinese government practices protectionism policy, granting competitive advantage to local tech
companies including Xiaomi. Accordingly, large number of China’s population is an important
social factor for Xiaomi, contributing to the volume of its sales.
Moreover, a range of social tendencies such as increasing popularity of social networking sites
and increasing integration of internet into a wide range of personal and professional aspects of
life can be mentioned as important social factors that benefit Xiaomi.
8.4 Technological Factors
Generally, prominent technological factors that impact Xiaomi include industry-specific

technological innovations and breakthroughs and decreasing life cycle of technology. Moreover,
changes in energy consumption practices, shifts in manufacturing maturity and capacity also can
be mentioned as technological factors that can affect Xiaomi.
Being an internet technology company, it is important for Xiaomi to deal with changes in
technological factors in a proactive manner via making investments in research and
development. However, this can be difficult in practice taking into account the fact that Xiaomi
pursues cost leadership business strategy and attempts to save costs wherever it can. In other
words, substantial investments in R&D to deal with technological factors contradict Xiaomi
business strategy.
35
China Population 2018 (2018) Available at: http://worldpopulationreview.com/countries/china-population/
15
8.5 Environmental Factors
The performance of Xiaomi can be indirectly impacted by a set of ecological factors such as
global warming, air pollution, thickening of ozone layer and others. Moreover, the impact of
environmental factors on Xiaomi performance can be direct as well in cases of environmental
disasters such as earthquakes, flooding, tornados etc.
Similarly, air pollution is a serious environmental factor that can effect Xiaomi via decreased
employee performance. It has been estimated that employee productivity across 190 Chinese
cities would rise by about 4 per cent per year if the amount of fine-particle pollution in the air
was cut to fall within World Health Organization standards.36
Any corporation of a size of Xiaomi is expected by stakeholders in general, general public and
non-governmental organization in particular to behave in a socially responsible manner and to
illustrate commitment in dealing with a wide range of environmental issues. Neglecting this
expectation may result in damage to the brand image via negative online and offline press
coverage.
8.6 Legal Factors
Xiaomi is directly impacted by a set of legal factors such as trade regulations, anti-trust rules and
regulations, data protection regulations and others. Additionally, there is a wide range of rules
and regulations relating to employee health and safety, consumer protection laws, employment
laws, and competitive rules and regulations that need to be adhered fully adhered by Xiaomi.
Changes in these rules and regulations are most likely to impact Xiaomi performance in direct
and indirect manner and in ways that are difficult to predict.
Moreover, legislators and regulators may make legal and regulatory changes, or interpret and
apply existing laws or policies, in ways that make Xiaomi products and services less useful to its
users, require the company to incur substantial costs, expose it to unanticipated civil or criminal
liability, or cause it to change its business practices.
36
Phillips, R. (2017) “Air pollution: The business concern” Eco-Business, Available at: http://www.eco-
business.com/opinion/air-pollution-the-business-concern/
16
9. Marketing Strategy
Xiaomi marketing strategy has been traditionally minimalistic due to the cost leadership business
strategy pursued by the company. Accordingly, the mobile internet company only engaged in
social media marketing, saving on advertising costs and passing this cost advantage to customers
in the forms of products with low price tags.
However, “Oppo and Vivo have grown in China by using the exact tactics that Xiaomi once
avoided. Both companies spend heavily on offline advertisements and celebrity endorsements,
plastering billboards on subways and bus stops across China’s second- and third-tier cities.”37
This has caused a shift in Xiaomi marketing strategy and starting from lately the internet
technology company has started to use traditional marketing communications channels as well.
Moreover, Xiaomi marketing strategy nowadays also includes product placements and Xiaomi
holograms in fiction triller Anon (2018) can be mentioned as an example.
As s privately-owned company, Xiaomi does not disclose its annual marketing budget. Xiaomi
7ps of marketing focuses on price element of the marketing mix to a greater extent compared to
other elements. Accordingly, the brand’s target customer segment represents price-conscious
consumers who want to own the latest smartphones with advanced functions and capabilities for
affordable cost.
Hunger marketing strategy is one of the integral components of Xiaomi marketing strategy. The
electronics and software company appeals to emotional needs of their target customer segment
by selling only limited amount of products for a limited duration of time. In other words, the
company creates the shortage of supply in purpose, creating a buzz in the market and evoking
desire in customers to own a MI brand smartphone.
9.1 7Ps of Marketing
Xiaomi marketing mix (Xiaomi 7Ps of marketing) comprises elements of the marketing mix that
consists of product, place, price, promotion, process, people and physical evidence.
37
17
Product
Xiaomi mainly focuses on hardware, software and internet services. The company’s product
range is vast and includes laptops, mobile phones, tablets, smart TVs, power banks,
smartwatches etc. Xiaomi also manufactures and drones, sells water purifiers, vacuum cleaners
and even rice cookers. Xiaomi products such as cellphones, TVs, TV boxes, and speakers have
received more than 145 industrial design awards altogether.38 Continuous expansion of
ecosystem of products and services is placed at the core of company’s business strategy.
Place
Xiaomi is headquartered in Beijing, China and has offices in Asia-Pacific, India, and Brazil. The
mobile internet company has established its presence in 70 countries and regions and it is among
the top 5 in 16 markets. These markets include Turkey, Malaysia, Mexico, Thailand, Philippines,
Russia, Singapore, Indonesia, Brazil, India, and Vietnam.
The mobile internet company opened its first offline retail store in February 2016 and by the end
of 2017 had more than 155 stores.39 In March 2017, the company established a new sales
channel called Xiaomi kiosks to reach districts without Mi Home Stores and towns and villages
with limited e-commerce access40
Price
Xiaomi pricing strategy can be described as economy pricing. Accordingly, the internet
technology company sets its prices low, keeping marketing and promotional costs to a minimum.
Flash sales are integral component of Xiaomi pricing strategy. The electronics and software
company uses the flash sales to announce the sales of its smartphones at a greatly reduced price.
Xiaomi flash sales last only for a short duration of time. For example, in India “a flash sale for
38
39
40
FROM MI FANS TO PARTNERS (2018) Xiaomi, Available at: http://blog.mi.com/en/2018/01/31/from-mi-fans-
to-partners/
18
the Redmi 1S model in September 2014, around 40,000 pieces were sold out in just 4.2
seconds.”41
Promotion
Traditionally, Xiaomi focused on social media and word-of-mouth marketing as only channels to
communicate its marketing message to the target customer segment. However, due to increasing
competition from local rivals such as Oppo and Vivo, the company had to start using traditional
print and media advertising platforms as well.
Today, Xiaomi uses a range of elements of the marketing communication mix such as print and
media advertising, sales promotions, events and experiences, public relations and direct
marketing in an integrated manner in order to communicate the marketing message to the
representatives of the target customer segment.
Process
The range of processes critical to Xiaomi’s success include employee recruitment and selection,
marketing research, new product research and development, sales, product return, customer
service processes and others. Xiaomi attempts to gain efficiency in relation to each of these
processes.
People
The internet technology company has about 18,000 employees. A substantial part of Xiaomi
employees were initially fans of the brand and were later employed by the company. Xiaomi
Employees are known to work extremely long hours of 12 hours and even longer.42
41
Sushma, U. (2017) “How Xiaomi is winning over India’s booming smartphone market” Quartz, Available at:
https://qz.com/1115071/samsung-beware-how-xiaomi-is-winning-over-indias-booming-smartphone-market/
42
Cook, J. (2015) “Employees At Xiaomi Work Insane Hours – Just Like Apple” Business Insider, Available at:
http://uk.businessinsider.com/employees-at-xiaomi-work-insane-hours--just-like-apple-2015-1
19
Physical evidence
Physical evidence refers to items related to the recognition of brands within Xiaomi portfolio.
Xiaomi logo consisting of modified version of letters “MI” in white colour and yellow
background is a major component of physical evidence of the brand. The "MI" in logo stands for
“Mobile Internet”.43 A white mascot with red scarf and a hat with red star is another
representation of Xiaomi physical evidence.
9.2 Segmentation, Targeting & Positioning
Xiaomi segmentation, targeting and positioning is needed to indentify the target customer
segment for the company and to develop products and services that are attractive to this segment.
Segmentation involves dividing population into groups according to certain characteristics,

whereas targeting implies choosing specific groups identified as a result of segmentation to sell
products. Positioning refers to the selection of the marketing mix the most suitable for the target
customer segment. Xiaomi uses mono-segment and imitative types of positioning.
The internet technology company uses mono-segment positioning, appealing to the needs of a
single customer segment. Specifically, Xiaomi targets a customer segment that want to use
smartphones and other technology products, but have limited budget to make such a purchase.
Xiaomi also uses imitative type of positioning by closely imitating the products of market
leaders such as Apple and Samsung. The electronics and software company has even earned the
nickname “Apple of the East” due to its close imitation of Apple products and Apple product
presentation.
43
Our Logo (2018) MI, Available at: http://www.mi.com/en/about/
20
The following table 2 illustrates Xiaomi segmentation, targeting and positioning:
Type of Segmentation Xiaomi target customer segment

segmentation criteria
Region 70 countries and regions globally
Geographic Density Urban and rural
Age 18 – 65
Demographic Gender Males & Females
Life-cycle Bachelor Stage young, single people not living at home
stage Newly Married Couples young, no children
Full Nest I youngest child under six
Full Nest II youngest child six or over
Full Nest III older married couples with dependent children
Empty Nest I older married couples, no children living with
them
Empty Nest II older married couples, retired, no children living
at home
Solitary Survivor I in labour force
Solitary Survivor II retired
Occupation Students, employees, professionals
Behavioural Degree of 'Hard core loyals' 'Soft core loyals' 'Switchers'
loyalty
Benefits Cost attractiveness
sought
Personality Easygoing, determined and ambitious personality types
User status non-users, potential users, first-time users and regular users
Psychographic Social class Lower class, working class and middle class
Lifestyle44 Struggler, Mainstreamer, Aspirer, Explorer
Table 2 Xiaomi segmentation, targeting and positioning
9.3 Marketing Communication Mix
Xiaomi marketing communication mix explains the extend of usage of individual elements of
marketing communication channels by the mobile internet company. Generally, elements of the
marketing communication mix consist of print and media advertising, sales promotions, events
and experiences, public relations, direct marketing and personal selling.
44
According to Cross Cultural Consumer Characterization by Young & Rubican
21
9.3.1 Print and Media Advertising
“Xiaomi once touted its avoidance of advertising as one of the keys to its early success—saving
money on commercials helped keep the overall price of the phones lower. Instead, it relied on its
upper executives and its “fans” to spread the word and attract new customers through social
media.”45 However, due to increasing competition from its local rivals Oppo and Vivo, The
mobile internet company had no choice but to engage in certain forms of traditional advertising
such as posters and newspaper advertising.
Nevertheless, viral marketing remains as the most important form of marketing for Xiaomi. The
internet technology company also uses celebrity endorsement from the likes of top Hong Kong
actor-singer, Tony Leung, a 54-year-old best-known to English-speaking audiences for movies
like "In the Mood for Love" and "Lust, Caution."46
9.3.2 Sales Promotions
Xiaomi uses the following sales promotions techniques:
Flash sales. Flash sales refer to sales of products and services online at a heavily discounted
price for a short period of time. Xiaomi uses flash sales extensively, especially in India.
Customer Loyalty Scheme. Reward Mi is a customer loyalty program that rewards loyal
customers with exclusive benefits such as priority passes a.k.a F-codes and discount coupons
which can be redeemed on selected products across Mi Store.47
Seasonal sales promotions. The electronics and software company announces sales promotions
on notable occasions as Christmas day and anniversaries of notable days for the company.
45
46
Donald, A. (2016) “DESIGNER PHILIPPE STARCK IS HELPING CHINA'S XIAOMI GO MORE UPSCALE”
AdAge, Available at: http://adage.com/article/cmo-strategy/designer-philippe-starck-helping-xiaomi-
upscale/306452/
47
Introducing Reward Mi: A Loyalty Program To Recognize and Reward Mi Fans (2017) Available at:
http://c.mi.com/thread-250397-1-1.html
22
Point of sale materials. The company uses point of sale materials such as posters and display
stands at its stores.
9.3.3 Events & Experiences
Xiaomi organizes Mi Fan Festivals regularly. Each festival involves flash sales, jaw-dropping
deals, bundles and freebies etc. Moreover, the mobile internet company hosts special events for
the launch of its new products. Special events hosted by the company in relation to the launch of
Xiaomi Redmi Note 5 Pro and Xiaomi MIX 2S can be mentioned to illustrate this point.
Xiaomi CEO Lei Jun takes on stage and presents new products personally during special events
in the same way as late Apple co-founder and CEO Steve Jobs used to present. Therefore, Lei
Jun earned the nickname ‘China’s Steve Jobs’ along the way.48
Xiaomi events and experiences are aimed at increasing the level of brand awareness among the
public in general and the target customer segment in particular. Moreover, Xiaomi attempts to
communicate the brand value offer to the target customer segment in indirect manner via such
events.
9.3.4 Public Relations
Public relations can be defined as a “discipline which looks after reputation, with the aim of
earning understanding and support and influencing opinion and behaviour. It is the planned and
sustained effort to establish and maintain goodwill and mutual understanding between an
organisation and its publics”49 Xiaomi runs its public relations practices via online press releases,
annual reports, speeches and seminars.
48
Why Xiaomi's Lei Jun has earned the right to call himself China's Steve Jobs (2014) South China Morning Post,
Available at: http://www.scmp.com/business/china-business/article/1596372/billionaire-profile-lei-jun-xiaomi
49
Chartered Institute of Public Relations (n.d.) Available at: http://www.cipr.co.uk/content/careers-advice/what-pr
23
9.3.5 Direct Marketing
Direct marketing can be defined as “as a marketing strategy to build stronger, more personal
relationships between the buyer and selected customers directly”50. In other words, in direct
marketing there are no intermediaries between the buyer and the seller in terms of promotion and
distribution. Xiaomi is not known to engage in direct marketing up to date.
9.3.6 Personal Selling
Personal selling is “person-to-person communication with a prospective customer in order to

develop a relationship, identify customer needs, match goods/services with those needs,
communicate benefits to customers, and gain commitment to purchase goods/services that satisfy
customer needs.”51 Xiaomi does engage in personal selling in a limited scope in company-
operated offline stores.
10. Porter’s Five Forces Analysis
Porter’s Five Forces is an analytical framework developed by Michael Porter (1979).52 The
framework consists of five individual forces that shape an overall extent of competition in the
industry. These forces are illustrated in Figure 4 below:
50
Moore, K. & Pareek, N. (2010) “Marketing: The Basics” 2nd edition, Taylor & Francis, p.168
51
Siguaw, J.A. & Bojanic, D.C. (2004) “Hospitality Sales: Selling Smarter” Cengage Learning, p.2
52
Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review
24
Bargaining Bargaining
power of power of
buyers suppliers
Threat of
Threat of new substitute
entrants Rivalry products or
among services
existing
firms
Figure 4 Xiaomi Porter's Five Forces
10.1 Threat of new entrants
Threat of new entrants into the internet technology is low. There are entry barriers for potentially
new market players. Economies of scale is one of the major factors and entry barrier for new
companies. Xiaomi is able to offer its products for competitive prices because it purchases raw
materials in bulk and benefits from the economies of scale to a large extent.
Moreover, entry into the electronics and software industry requires formidable capital
investments. Xiaomi was initially funded with USD41 million in 2010 and the company went
through series of funding and debt financing of several billion USD to reach its current state.53 It
may not be easy for new market entrants to secure funding at such a scale to enter the industry.
Additional range of factors that

t decrease the threat of new entrants to the industry include access
to distribution channels and likely retaliation from existing market players such as Apple,
Samsung, Xiaomi and Huawei.
53
Source: Crunchbase, Available at:
https://www.crunchbase.com/organization/xiaomi/funding_rounds/funding_rounds_list
25
10.2 Bargaining power of buyers
Bargaining power of buyers in technology and the mobile internet industry is significant. This is
caused by primarily high level of competition in the global marketplace. Nevertheless,
companies try to reduce buyer bargaining power through developing their ecosystem.
For example, “all products belonging to Apple ecosystem are highly compatible with each-other
and the purchase of one product belonging to the brand’s portfolio often leads to the purchase of
other products. Gradually, it will come to the point that consumers only give preference to
devices that work best in the ecosystem where they live. The current ecosystem carefully
cultivated by Apple is a powerful customer retention strategy.”54
Xiaomi is also working towards reducing the bargaining power of buyers through strengthening
its corporate ecosystem in general and increasing inter-dependence of products and services
within its ecosystem in particular.
10.3 Bargaining power of suppliers
Bargaining power of suppliers in the internet technology industry is insignificant. There are great
numbers of potential suppliers for the majority of raw resources Xiaomi uses to produce its
products and services. Supplier switching costs for the mobile internet company is insignificant
in most occasions and this factor reduces supplier bargaining power to a considerable extent.
Moreover, the importance of having business with Xiaomi is paramount for the majority of
suppliers the company purchases from and this is an additional factor that increases Xiaomi
bargaining power when dealing with its suppliers.
10.4 Threat of substitute products or services
Threat of substitute products or services for Xiaomi ecosystem is not substantial. Although
landline telephones represent the most obvious substitution for mobile phones, they pose limited
risk to mobile phones due to the portability convenience of the latter. Nevertheless, there is an
54
Dudovskiy, J. (2018) “Apple Ecosystem: closed and effective” Research Methodology, Available at:
https://research-methodology.net/apple-ecosystem-closed-effective/
26
indirect substitution for Xiaomi products and services. These include but not limited to satellite
radio for music (XM, Sirius), music, media and entertainment media (TV, XBOX, PS2),
alternative sources of music (CDs and DVDs) and alternative sources of video (cable, broadcast).
It can be argued that the threat of substitute products and services for Xiaomi may further decline
in the future. This is because according to its business strategy Xiaomi is aggressively expanding
its ecosystem of products and services and the company may start producing indirect substitutes
to its core products and services.
10.5 Rivalry among existing firms
Rivalry among existing firms in internet technology industry is fierce. Increasing popularity of
smartphones and increasing integration of internet into a wide range of personal and professional
aspects of life are further intensifying competition in the global marketplace. As it is
illustrated in Figure 5 below, the global market of smartphone vendors is currently dominated by
Samsung, Apple, Huawei, Xiaomi, OPPO and LG, among others.
Figure 5 Global market share of leading smartphone vendors55
55
Source: Statista (2018) Available at: https://www.statista.com/statistics/271496/global-market-share-held-by-
smartphone-vendors-since-4th-quarter-2009/
27
11. Value-Chain
Chain Analysis
Xiaomi value
alue chain analysis is an analytical framework that assists in identifying business
activities that can create value and competitive advantage
adv to the mobile internet company
company. Figure
6 below illustrates the essence of Xiaomi value chain analysis.
Figure 6 Xiaomi Value Chain Analysis
11.1 Xiaomi Primary Activities
11.1.1 Xiaomi Inbound logistics
Xiaomi inbound
nbound logistics involves the delivery and storage activities of raw materials by the
mobile internet company.. Strategic relationships with Taiwan-based
based manufacturers of various
components is one of the main sources of value for Xiaomi inbound logistics. Specifically,
Xiaomi partners with Inventec and Hon Hai for assembly, Wintek and TPK for screen
technology and Unicorn for PCB (printed
( circuit boards).
28
Moreover, Taiwan Semiconductor Manufacturing Corporation (TSMC) is the main processor
supplier for the company. Xiaomi also procures various electronic components from nearby
countries. For example, MOS and batteries are mainly imported from Thailand.
11.1.2 Xiaomi Operations
Operations activities within Xiaomi value chain analysis refer to the processes of transforming
raw materials into ready products. The mobile internet company has established its presence in
70 countries and regions and it is among the top 5 in 16 markets. Xiaomi manufactures locally
more than 75% of smartphones it sells in India.56
Location of manufacturing units in China and India is one of the main sources of value in
Xiaomi operations. This is because the costs of human resources in these developoing countries
are cheap. Along with proximity of manufacturing units to the sources of raw materials, cost-
effective human resources play an instrumental role in sustaining cost advantage competitive
edge of the business. Moreover, Xiaomi sophisticates its manufacturing processes in a systematic
manner using advanced technologies and benefiting from technological innovations.
11.1.3 Xiaomi Outbound Logistics
Initially, Xiaomi outbound logistics practices were limited to the shipment of products directly to
end-users via couriers. At that stage the company was using only online sales channels in order
to save costs and maintain its cost leadership position in the global marketplace. However, due to
increasing demand for Xiaomi products and intensifying competition in the market, the
electronics and software company had to open company-operated stores as well. Xiaomi opened
its first offline retail store in February 2016 and by the end of 2017 had more than 155 stores.57
Known as Mi Home stores, company-operated stores are places where customers can see and use
Xiaomi smartphones water purifiers, portable air purifiers, laptops, rice cookers, robot vacuum
cleaners, Ninebot hoverboards and a wide range of other products.
56
57
29
In March 2017, the company established a new sales channel called Xiaomi kiosks to reach
districts without Mi Home Stores and towns and villages with limited e-commerce access58. In
March 2018, the company opened its 25th Mi Home and the first Mi Home Experience store in
Chennai, India.59 Xiaomi has plans to open 2000 stores around the world by 2020.60
Increasing numbers of sales channels and expanding geographical scope is expected to

complicate Xiaomi outbound logistics in the foreseeable future. This can create certain
challenges for the business. Having been founded only in 2010, Xiaomi does not have many
years of experience in operating in the global marketplace. Its major competitors such as Apple
and Samsung, on the contrary, have decades of experience in the global marketplace and
accordingly, they are more experienced in global supply chain management and addressing the
issues of cross-cultural differences .
11.1.4 Xiaomi Marketing and Sales
Xiaomi marketing and sales practices are based on its cost leadership business strategy. As
discussed above, the mobile internet company was initially selling its products using only online
sales channels and later adapted traditional offline sales channels as well. The company uses
hunger marketing strategy and flash sales frequently, making only limited numbers of products
available online for a short duration of time.
Xiaomi has set a Guinness World Record for selling the most number of phones ever in a single
day — 2.12 million units.61 In India, “to increase its offline sales, Xiaomi is opening direct stores
called Mi Home, and partnering with big retail chains like Croma, Univercell, Poorvika, and
Sangeetha.”62
58
FROM MI FANS TO PARTNERS (2018) Xiaomi, Available at: http://blog.mi.com/en/2018/01/31/from-mi-fans-
to-partners/
59
Kumar, K. (2018) “Xiaomi opens 25th Mi Home and the first Mi Home Experience store in Chennai to display
products yet to be launched in India” First Post, Available at: https://www.firstpost.com/tech/news-analysis/xiaomi-
opens-25th-mi-home-and-the-first-mi-home-experience-store-in-chennai-4372125.html
60
Yan, S. (2017) “China's Xiaomi plans to flood the world with 2,000 stores within three years” CNBC, Available
at: https://www.cnbc.com/2017/07/10/chinas-xiaomi-plans-to-flood-the-world-with-2000-stores-within-three-
years.html
61
Yan, S. (2017) “China's Xiaomi plans to flood the world with 2,000 stores within three years” CNBC, Available
at: https://www.cnbc.com/2017/07/10/chinas-xiaomi-plans-to-flood-the-world-with-2000-stores-within-three-
years.html
62
30
11.1.5 Xiaomi Service
Xiaomi post-sale service was often criticized as poor. This problem was rooted on company’s
cost leadership business strategy, because the mobile internet company was looking for
opportunities to save costs everywhere including in customer services and post-sale services.
However, due to intensifying competition in home market and abroad, Xiaomi had no choice but
to pay greater attention to customer service aspect of the business. For example, nowadays in
India “95 percent of all repair jobs at authorized service centres are processed within a day, with
86 percent processed within four hours of the customer handing over the device to the service
centre.”63
11.2 Xiaomi Support Activities
11.2.1 Xiaomi Infrastructure.
Xiaomi infrastructure includes its wide range of support systems and functions such as finance,
planning, quality control and general senior management. Moreover, Xiaomi infrastructure
relates to physical and organizational structures and facilities that that company uses to achieve
its primary objective of profit maximization. Despite its large size with presence in 70 countries
employing more than 18000 people, Xiaomi’s ability to maintain its relatively flat organizational
structure can be listed as one of the main sources of value related to its infrastructure.
11.2.2 Xiaomi Human Resource Management
Xiaomi official website claims the following:
“Xiaomi is focused on being the most user-centric mobile internet company, and we aim
to constantly exceed expectations through innovations in software, hardware and services.
Many of our employees were initially fans of Mi products, before they decided to join us.
63
Pardiwala, A. (2017) “Xiaomi after-sales service in India: A closer look at the company's efforts towards
customer satisfaction” BGR, Available at: http://www.bgr.in/news/xiaomi-after-sales-service-in-india-a-closer-look-
at-the-companys-efforts-towards-customer-satisfaction/
31
Our team is not only passionate about technology, but also relentlessly pursues perfection to
break tradition and push boundaries, all just to ensure that our products remain unique and
offer an unparalleled user experience. Xiaomi is headquartered in Beijing, China and has offices
in Asia-Pacific, India, and Brazil.”64
As of May 2018, the internet technology company has about 18,000 employees.
11.2.3 Xiaomi Technology Development
Technology Development is rightly understood by Xiaomi as one of the critical success factors
to survive in the contemporary marketplace. Xiaomi is expected to recruit 1000 technical experts
in 2018 and some of them would be deployed to the Shenzhen R&D centre which it hoped to
build into one of its strongest R&D centre, second only to the Beijing Headquarters.65
So far Xiaomi has “applied for more than 24,000 patents globally with 5920 of them granted,
among which half are global patents.”66 It can be argued that the choice of cost leadership
business strategy has certain negative implications on technology development potential of the
business. Specifically, due to its adherence to cost leadership business strategy, Xiaomi operates
on razor-thin profit margin and as such, the company may not be able to commit to substantial
investments on research and development.
11.2.4 Xiaomi Procurement
Procurement activity within Xiaomi chain of support operations relates to the ways resources are
acquired for the business. Due to the size and scope of Xiaomi business operations, the company
runs complex procurement activities in the global scale, aiming to adhere to fair business
practices. Major sources of value for Xiaomi in procurement include cost savings due to
proximity of suppliers to manufacturing locations. Moreover, the company achieves considerable
savings on procurement costs due to high volume of its orders.
64
About (2018) Xiaomi, Available at: http://www.mi.com/en/about/
65
John, J. (2018) “Xiaomi Aims To Bolster Its Mobile Phone Arm With New R&D Complex In Shenzhen” Gizmo
China, Available at: https://www.gizmochina.com/2018/01/25/xiaomi-aims-bolster-mobile-phone-arm-new-rd-
complex-shenzhen/
66
BEGINS IN 2018” MI, Available at: http://blog.mi.com/en/2018/02/07/after-crossing-rmb-100b-revenue-milestone-
32
12. McKinsey 7S Model
Xiaomi McKinsey 7S model illustrates the ways in which seven elements of businesses can be
aligned so that overall effectiveness can be increased. According to the framework strategy,
structure and systems are hard elements, whereas shared values, skills, style and staff are
considered as soft elements.
McKinsey 7S model stresses the presence of strong links between elements in a way that a
change in one element causes changes in others. As it is illustrated in Figure 7 below, shared
values are positioned at the core of Xiaomi McKinsey 7S model, since shared values guide
employee behaviour with implications in their performance.
Figure 7 Xiaomi McKinsey 7S Model
33
12.1 Hard Elements
Strategy. Xiaomi business strategy is based on cost leadership. Company’s business strategy
also integrates gathering and utilising a large fan base and aggressively increasing the ecosystem
of products and services. Moreover, Xiaomi positions itself as an internet and software company
rather than a hardware company. Accordingly, the sales of hardware are perceived as a means to
deliver software and services in the long-term perspective.
Structure. Xiaomi has a matrix organizational structure. The electronics and software company
has various business units that are managed independently. Xiaomi organizational structure can
also be also classified as flat. Despite its large size employing more than 18000 people in 70
countries, the company has only a few layers of management.
Systems. Xiaomi’s business depends on a wide range of systems such as employee recruitment
and selection system, team development and orientation system and transaction processing
systems. Moreover, there are critically important systems for the company such as customer
relationship management system, business intelligence system, and knowledge management
system. The mobile internet company aims to increase the efficiency of these and other systems
via the integration of internet-based information technologies.
12.2 Soft Elements
Skills. The range of skills and competencies required to be successful at Xiaomi is vast and
include interpersonal skills, leadership skills, teamwork, ability to work under pressure, and
ability to embrace change. Moreover, Xiaomi aims to recruit candidates with advanced
communication skills, customer orientation, creativity, analytical thinking and forward thinking
skills. Conceptual thinking, strategic thinking and technical expertise also belong to the list of
skills needed to be successful at Xiaomi.
Staff. Xiaomi has about 18,000 employees. Xiaomi official website claims the following:
“Xiaomi is focused on being the most user-centric mobile internet company, and we aim
to constantly exceed expectations through innovations in software, hardware and services.
Many of our employees were initially fans of Mi products, before they decided to join us.
34
Our team is not only passionate about technology, but also relentlessly pursues perfection to
break tradition and push boundaries, all just to ensure that our products remain unique and
offer an unparalleled user experience. Xiaomi is headquartered in Beijing, China and has offices
in Asia-Pacific, India, and Brazil.”67
Style. Xiaomi founder and CEO Lei Jun effectively exercises visionary and inspirational
leadership styles. Lei Jun’s vision is based on the belief that “high-quality technology doesn't
need to cost a fortune”68 and he effectively communicates this vision to internal and external
stakeholders. The use of inspirational leadership style plays an instrumental role in terms of
increasing the numbers of Xiaomi fans with positive implications on the bottom line for the
business.
Shared values. According to Xiaomi, the company cherishes the following values:
“As a team, we share the same relentless pursuit of perfection, constantly refining and enhancing
our products to create the best user experience possible. We are also fearless in testing new ideas
and pushing our own boundaries. Our dedication and belief in innovation, together with the
support of Mi fans, are the driving forces behind our unique Mi products.”69
13. Corporate Ecosystem
Xiaomi ecosystem is vast and comprises 55 companies including 29 companies that have been
incubated from the beginning by Xiaomi. The company sells a wide range of products from
70
smartphones to kettles and gloves. Moreover, ever-expanding corporate ecosystem has been
placed at the core of Xiaomi business strategy.
Usually, producing a wide range of products and services threats to compromise the focus on
core products and services. However, Xiaomi claims to have addressed this threat in a proactive
manner. Specifically, according to its official website, while the company focuses on its core
67
About (2018) Xiaomi, Available at: http://www.mi.com/en/about/
68
About Us (2018) MI, Available at: http://www.mi.com/en/about/
69
Our Culture (2018) MI, Available at: http://www.mi.com/en/about/
70
THREE XIAOMI PRODUCTS YOU NEED FOR A COZY WINTER (2017) Mi Blog, Available at:
http://blog.mi.com/en/2017/11/27/three-xiaomi-products-you-need-for-a-cozy-winter/
35
products - smartphones, smart TVs and smart routers, Xiaomi invests in companies that produce
other types of products without being involved in operational management.71
Figure 8 Xiaomi Ecosystem72
Smartphones are placed at the core of Xiaomi ecosystem. Moreover, smartphones are used to
facilitate the sales and use of many other products and services. Xiaomi smart devices include
Mi Water Purifier, Mi Air Purifier, Mi Induction Heating Rice cooker and other products.
All smart devices are connected to Xiaomi IoT platform and can be managed though Xiaomi
smartphone. In 2013, the electronics and software company announced its plans to invest in 100
71
WE OFFER SMARTPHONES, AND TOOTHBRUSHES (2017) Mi Blog, Available at:
http://blog.mi.com/en/2017/08/02/beyond-the-smartphone-why-we-make-consumer-products/
72
36
hardware startups.73 The company also sells a range of “non-smart” products, like towels, and
suitcases.
Increasing numbers of startups are currently joining Xiaomi ecosystem to gain support to grow
rapidly. Xiaomi has experienced technical staff, engineers and product managers, who can play
an instrumental role in fuelling the growth of small-sized companies.
At the same time, joining Xiaomi ecosystem also has some drawbacks. Specifically, start-ups
need to operate with low profit margin according to Xiaomi business strategy. Moreover, over-
dependence on Xiaomi for branding and distribution can be mentioned as another drawback of
belonging to Xiaomi ecosystem.74
14. Corporate Social Responsibility
14.1 CSR Programs and Initiatives
Xiaomi does not publish annual CSR report. It has been noted that despite its branding effort to
resemble the minimalist style of Apple, Xiaomi does not show similar commitment in
environmental responsibility.75 However, the mobile internet company may start publishing CSR
reports after initial public offering (IPO) of its stocks that is expected to take place in the
foreseeable future.
Official Xiaomi website declares company’s pledge “to reduce the use of hazardous substances
in products.”76 However the website does not disclose any data at all regarding emissions or any
other environmental impact of Xiaomi products and services.
According to German Federal Office for Radiation Protection (Bundesamt für Strahlenschutz)
Xiaomi smartphone Mi A1 has “Specific Absorption Rate” of 1,75 watts per kilogram, which is
the highest level of radiation of smartphones worldwide.77
73
Liao, R. (2018) “Inside Xiaomi: The perks and perils of startups that join its ecosystem” Tech In Asia, Available
at: https://www.techinasia.com/xiaomi-ecosystem
74
75
Company Report Card (2017) Greenpeace Guide to Greener Electronics
76
PRODUCT ENVIRONMENTAL INFORMATION (2018) Xiaomi, Available at:
http://www.mi.com/en/about/environment/
37
In general, there is a lack of information related to Xiaomi CSR programs and initiatives, as it is
illustrated in Table 3 below.
CSR aspect of the business Xiaomi performance

Supporting Local No information available
Communities
Educating and Empowering No information available
Workers
Labour and Human Rights No information available
Employee Health and Safety No information available
Gender Equality and It has been noted that Xiaomi uses “yanzhi,” or physical
Minorities appearance metric when hiring, leading to discriminaton
during employee recruitment and selection process.78
Energy Consumption No information available
Water Consumption No information available
Waste Reduction and MI INDIA maintains PRODUCT TAKE-BACK &
Recycling RECYCLING PROGRAM. Xiaomi Authorised e-waste
recycler can collect e-waste from customer’s location, or
customers can also drop e-waste at any of company’s service
centers79
Carbon Emissions No information available
Sustainable Sourcing No information available
other CSR Initiatives and No information available
Charitable Donations
Table 3 Xiaomi CSR Programs and Initiatives
14.2 CSR Criticism
Xiaomi has faced criticism on the grounds of false advertising, very long working hours, user
privacy concerns and others. In 2014 The Taiwanese branch of Xiaomi Inc. was fined
NTUSD600,000 (USUSD19,884) by Taiwan’s Fair Trade Commission (FTC) for false
77
McCarthy, N. (2018) “Which Smartphones Emit The Most Radiation?” Forbes, Available at:
https://www.forbes.com/sites/niallmccarthy/2018/03/01/which-smartphones-emit-the-most-radiation-
infographic/#10eede501b04
78
Einhorn, B. & Chen, L.Y. (2018) “Sexist Job Ads Show Discrimination Rife at China Tech Giants” Bloomberg,
Available at: https://www.bloomberg.com/news/articles/2018-04-23/sexist-job-ads-show-discrimination-rife-at-
china-s-tech-giants
79
TAKE BACK & RECYCLING FAQ (2018) Xiaomi India, Available at:
https://www.mi.com/in/service/recycling_guide/
38
advertising in which the company ballooned the sales figures for its Redmi phones, a violation of
the Fair Trade Act.80
Xiaomi has been also criticized for making its employees to work for very long hours. In 2015,
Xiaomi's then Vice President of International, Hugo Barra stated that: “Our company working
hours are 9.30 in the morning to 9.30 in the evening, and that's just the regular working hours,
plus one hour for lunch. But show up in our office here at 11pm and you'll see that 80% of the
people are still around often because they're working on something that they feel is so important
that they need to spend extra time on it.”81
Xiaomi has been also criticized for privacy concerns. “Discovered by India-based security firm
eScan Antivirus, one of the vulnerabilities centers around the Mi Mover app, which lets you
transfer settings and other data from an Android device to a Xiaomi phone. The app overrides
Android’s sandbox protection, however, when that transfer takes place between two Xiaomi
devices, since system data like and confidential information like payment information get moved
over.
To protect that information from being transferred willy-nilly, you must provide a password
before using the Mi Mover app. What the research found was that the app did not ask for any
sort of password, be it a fingerprint or a pattern lock, when transferring between the Mi Max
2 and Redmi 4A, both of which are Xiaomi devices.
This becomes a serious issue if someone gains access to your unlocked Xiaomi device, since
they can clone your system and app data without too much hassle. Also, without Android’s built-
in sandbox protection, there is no fallback protection from the system itself.”82
Apart from incidents mentioned above, Xiaomi had to deal with a number of other CSR-related
issue during the past years.
80
Xiaomi Fined for False Advertising on Redmi Phones in Taiwan: A Closer Look (2014) Tech News, Available at:
http://technews.co/2014/08/01/xiaomi-fined-for-false-advertising-on-redmi-phones-in-taiwan-a-closer-look/
81
Cook, J. (2015) “Employees At Xiaomi Work Insane Hours – Just Like Apple” Business Insider, Available at:
http://uk.businessinsider.com/employees-at-xiaomi-work-insane-hours--just-like-apple-2015-1
82
Pelegrin, W. (2017) “Security firm discovers several major security flaws in Xiaomi’s MIUI” Android Authorty,
Available at: https://www.androidauthority.com/xiaomi-miui-security-flaws-793107/
39
15. Recommendations
On the basis of discussions and analysis above, the following recommendations can be
formulated to Xiaomi in order to address the current challenges faced by the business and
increase its long-term growth prospects:
1. Narrowing the focus. The internet technology company is trying to be everything for all in
inexpensive product segment selling a vast range of products from smartphones to rice cookers
to umbrellas. While expansion of Xiaomi ecosystem can benefit the sales of all products and
services belonging to ecosystem, this strategy can also compromise the focus for the company.
Therefore, Xiaomi senior management is recommended to limit the range of products and
services that enter into its ecosystem.
2. Increasing focus on cloud segment. Xiaomi is rightly perceiving the immense potential of
Internet of Things (IoT) and committing to investments in this direction. At the same time, it is
important for the electronics and software company to strengthen its position in cloud segment,
currently dominated by Microsoft, so that Xiaomi can succeed with its IoT ambitions.
Accordingly, Xiaomi is recommended to invest in cloud segment and try to cause a disruptive
innovation in this segment by attracting highly competent specialists.
3. Formation of strategic alliances. Xiaomi is recommended to form strategic alliances with

companies operating in ecommerce, IT and affiliated industries. Efficient implementation of this
strategy can play an instrumental role in reducing marketing and operational costs in various
manners. Moreover, formation of strategic alliances is also important for Xiaomi in terms of
addressing its weakness associated with a lack of experience in international marketplace.
40

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Xiaomi Inc.

4. Organisational Structure .............................................................................................................. 4

5. Organizational Culture ................................................................................................................ 5

6. Xiaomi and Ansoff Matrix .......................................................................................................... 6

7. SWOT Analysis ........................................................................................................................... 8

7.1 Strengths ................................................................................................................................ 9

7.2 Weaknesses .......................................................................................................................... 10

7.3 Opportunities ....................................................................................................................... 11

7.4 Threats ................................................................................................................................. 12

8. PESTEL Analysis ...................................................................................................................... 13

8.1 Political Factors ................................................................................................................... 13

8.2 Economic Factors ................................................................................................................ 14

8.3 Social Factors ....................................................................................................................... 15

8.4 Technological Factors .......................................................................................................... 15

8.5 Environmental Factors ......................................................................................................... 16

8.6 Legal Factors........................................................................................................................ 16

9. Marketing Strategy .................................................................................................................... 17

9.1 7Ps of Marketing .................................................................................................................. 17

9.2 Segmentation, Targeting & Positioning............................................................................... 20

9.3 Marketing Communication Mix .......................................................................................... 21

9.3.1 Print and Media Advertising ............................................................................................. 22

9.3.2 Sales Promotions............................................................................................................... 22

9.3.3 Events & Experiences ....................................................................................................... 23

9.3.4 Public Relations ................................................................................................................ 23

9.3.6 Personal Selling ................................................................................................................ 24

10. Porter’s Five Forces Analysis .................................................................................................. 24

10.1 Threat of new entrants ....................................................................................................... 25

10.2 Bargaining power of buyers ............................................................................................... 26

10.3 Bargaining power of suppliers ........................................................................................... 26

10.4 Threat of substitute products or services ........................................................................... 26

10.5 Rivalry among existing firms ............................................................................................ 27

11. Value-Chain Analysis .............................................................................................................. 28

11.1 Xiaomi Primary Activities ................................................................................................. 28

11.1.1 Xiaomi Inbound logistics ............................................................................................ 28

11.1.2 Xiaomi Operations ...................................................................................................... 29

11.1.3 Xiaomi Outbound Logistics ........................................................................................ 29

11.1.4 Xiaomi Marketing and Sales ....................................................................................... 30

11.1.5 Xiaomi Service ............................................................................................................ 31

11.2 Xiaomi Support Activities ................................................................................................. 31

11.2.1 Xiaomi Infrastructure. ................................................................................................. 31

11.2.2 Xiaomi Human Resource Management ...................................................................... 31

11.2.3 Xiaomi Technology Development .............................................................................. 32

11.2.4 Xiaomi Procurement ................................................................................................... 32

12. McKinsey 7S Model ................................................................................................................ 33

12.1 Hard Elements .................................................................................................................... 33

12.2 Soft Elements ..................................................................................................................... 34

13. Corporate Ecosystem ............................................................................................................... 35

14. Corporate Social Responsibility .............................................................................................. 37

14.1 CSR Programs and Initiatives ............................................................................................ 37

14.2 CSR Criticism .................................................................................................................... 38

15. Recommendations ................................................................................................................... 40

Figure 1 Xiaomi business model map ............................................................................................. 3

Table 1 Xiaomi SWOT analysis ...................................................................................................... 8

3. Constant optimization of products through eco-chain. The mobile internet company is

4. Xiaomi Triathlon: Hardware+New Retail+Internet. As it is illustrated in Figure 1 below,

Xiaomi organizational structure can be classified as matrix. Specifically, Xiaomi organizational

Figure 2 below illustrates Xiaomi organizational structure:

Chairman & CEO

Co-founders 2 Senior Vice Presidents

Vice President & Managing

Figure 2 Xiaomi organizational structure

According to Harrison’s model of culture, Xiaomi organizational culture can be classified as

Xiaomi organizational culture integrates the following three key elements: