Marketing Group Assignment: Xiaomi Enters Brazil

International MBA Program, Renmin University of China

Lecturer: Dr. Jing Jiang

Due Date: 25/12/2014

Group Six Marketing Consultants

Anna Liu - Organizational Structure, Budget, Execution Strategy, Evaluation

Alex Fu - Products Overview, Pricing Strategy, Promotional Strategy

Cian ODowd - Concept Website Build, Questionnaire, Project Final Edit

Julie Fu - Introduction, Company Overview, Company Strategy

Mikheili Songulashvili - Background Analysis, Promotional Strategy, Keynote

Introduction

In this project our group will aim to use our diverse knowledge and expertise to develop a marketing

plan for the launching of a new product in a new market for a local Chinese firm. We aim to

practically apply the lessons contained within our Marketing module to develop a custom plan for

how our firm can successfully launch this product into that market using innovative and cost-effective

marketing practices. We will confront the challenges which the firm may face in entering this market

and offer advice as to how they may overcome these.

Our focus text for this assignment was Kotler and Armstrongs Principles of Marketing1. Globally

recognized as the bible of marketing education this textbook offers a solid introduction in the field

of Marketing. As some of our group had not studied Marketing before this easy-to-read book was a

good point of reference. We found it in particular useful when developing our Pricing and

Promotional Strategies.

When selecting a firm for this project our group agreed on three criteria; the firm needed to be local

(Chinese), it needed to be known as a firm which developed innovative products and had a track

record of using unique marketing strategies. We also agreed that it should be a sector in which all

members in the group shared a common interest, after an hour of discussion we came to only one

answer, mobile phones.

Eventually our group decided to pick Xiaomi. We did so as Xiaomi is a very local firm with its

headquarters located a stones throw from Renmin in Zhongguancun. Xiaomi is an incredibly young

Chinese firm that met all our criteria for a firm and has used fun, creative marketing to capture cold

hard market share. Less than five years after its creation it is now already the worlds third largest

smartphone manufacturer2.

Company Overview

Founded in 2010 Beijing Xiaomi Technology Company Limited, trading as Xiaomi is a

manufacturer of Smartphones, Smart TVs, Tablet Computers and other electronic devices. Xiaomis

devices use an in-house developed variant of Googles Android operating system that Xiaomi calls

MIUI OS. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1!Kotler, P. and Armstrong, G. (2012) Principles of Marketing 14th edn. New Jersey: Pearson Prentice Hall.!2 Gibbs, S 2014, China Rising: Xiaomi becomes worlds third largest smartphone manufacturer, The Guardian, 30 October. Available at: http://www.theguardian.com/technology/2014/oct/30/china-xiaomi-third-biggest-smartphone. [28 November 2014].

In selecting Xiaomi the main disadvantage for our group was that Xiaomi is as of yet not a publicly

traded company and thus does not issue Annual Reports. The firm is privately owned by a investor

group including its CEO Lei Jun, the Singapore Governments investment body Temasek Holdings

and Chinese venture capital fund IDG Capital3.

Xiaomi has successfully delivered its growth by focusing on Asian markets such as China, India,

Singapore and Malaysia. However Xiaomi executives have spoken openly about entering Western

markets such as the United States, Europe and South America4.

Initially our group assessed several potential markets for Xiaomi to expand into next. When exploring

other developed markets such as Europe and America our group identified a key barrier to entry for

Xiaomi could be legal action by competitors such as Apple and Samsung. Both firms in the past have

taken patent and design infringement actions in US and European courts to have products removed

from the shelves and in recent months press have pointed to similarities in Xiaomi and Apple

products. In October 2014 Jonathan Ives, Head of Design at Apple when referring to claims that

Xiaomi copies Apple designs said5 It really is theft and its lazy. And I dont think its OK at all.

The Brazilian market is sufficiently distant to avoid Apples wrath and lacks the sufficient copyright

legislation to facilitate such action against Xiaomi.

Company Strategy

Since launching its first product in 2011 Xiaomi has followed a cost-differentiation strategy offering a

products with high specifications at highly competitive pricing. It has innovatively used E-Commerce

as its main sales medium as opposed to a traditional bricks and mortar retail network which would

have cost the young firm a considerably sum to develop6.

For Xiaomis most popular products it chooses to sell them on selected days only in what Xiaomi

calls Flash Sales. This occurs due to two reasons: current global demand for Xiaomi devices means

stock shortages are constant and would make managing a constantly operating e-commerce operation

very difficult to manage. Also, by dispatching devices in bulk on particular days this enables Xiaomi

to negotiate discounts from its logistics partners and requires less staff in its warehouse.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!3 Wikipedia (2014), Wikipedia- Xiaomi. Available at http://en.wikipedia.org/wiki/Xiaomi [Accessed 28 November] 4 Ibid 3. 5 Kan, M 2014, Chinas Xiaomi defends itself from Apple copycat claims. Macworld, 29 October. Available at http://www.macworld.co.uk/news/apple/chinas-xiaomi-defends-itself-from-apple-copycat-claims-3583101/. [28 November 2014]. 6 Xiaomi Global Site (2014), Xiaomi About Us. Available at http://www.mi.com/en/about [Accessed 28 November]!

Background Analysis

SWOT Analysis - Strengths of Xiaomi When Entering Brazil

Emerging Market Favors Xiaomis Cost Model

Xiaomi usually favors entering rapidly developing emerging markets where income levels are rising

but are not yet at Western levels. Such markets find Xiaomis price competitive devices highly

attractive. To date Xiaomi operates in China, India and Russia, by entering Brazil it would be in all

the BRIC nations.

The Hugo Barra Factor

A major incentive for Xiaomi to enter the Brazilian market is that its highly charismatic Vice

President for Global Markets is Brazilian. Recruited from Google Hugo Barra enjoys a huge social

media following and has become the face of Xiaomi outside of China. Having a popular local face

would be a huge advance for Xiaomi when entering the Brazilian market.

Hugo Barra pictured at a recent Xiaomi event in Beijing (Source - Xiaomi.cn)

Brazilian E-Commerce Strength

Research from Forrester Research has claimed Brazils e-commerce market is the largest in South

America and is three times the size of Mexico and Argentinas e-commerce markets combined. In the

past five years it has grown 250% and this receptive e-commerce environment will support Xiaomis

e-commerce focused business model.

SWOT Analysis - Weaknesses of Xiaomi Entering Brazil

Brand Recognition Is Low

A major weakness of Xiaomi when entering the Brazilian market is that its brand is not very

recognizable in this market. While Techies may be aware of it and be eager to purchase its product

the brand is not well known amongst the general public and will require sustained marketing efforts to

build.

Made In China

Unfortunately for Xiaomi many customers in foreign markets still perceive Made in China to mean

poor quality and service. Dispelling this perception will be a major challenge for Xiaomi, especially

when selling its higher tier products.

Absence of an Establish Retail and Service Network

Xiaomis typical business strategy and our strategy for entering Brazil favors an E-Commerce focused

model. However the absence of bricks and mortar retail and service centers could create challenges

for Xiaomi.

SWOT Analysis - Opportunities for Xiaomi when entering Brazil

High Growth Market

Today, Brazil is home to one third of mobile phone users in Latin America and the Caribbean7. This

astounding performance is forecast to continue as the country expands its investment in high-speed

4G mobile phone signal. Euromonitor8 forecasts volume smartphone sales in Brazil to increase by

103% from 2013 to 2018.

Prepaid Customers Dominate The Brazilian Market

Local market research by Teleco has said that of those surveyed 82% of Brazilian mobile users

favored Prepay plans (without singing Contracts). In Q3 2014 76.8% of all Mobile connections in

Brazil were Pre-paid9. This requires customers to pay the full price of the device up-front and thus

favors Xiaomis direct to customer (B2C) e-commerce model while also giving its cheaper priced

devices a natural cost advantage.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7 Budde Communications [2014], Brazil Mobile Market Insights. Available at http://www.budde.com.au/Research/Brazil-Mobile-Market-Insights-Statistics-and-Forecasts.html [Accessed 28 November] 8 Euromonitor [2014], Mobile Phones in Brazil. Available at http://www.euromonitor.com/mobi