STRATEGIC MANAGEMENT

MGT790

CASE ANALYSIS: XIAOMI CORPORATION

GROUP: AA7003CF

PREPARED BY:

NAME MATRIX NO

JIAYI WANG 2020249674

NUR ATHIRAH BINTI MOHD ROSLAN 2020450122
RABIATUL ADAWIYAH BINTI KHAIDZIR 2020231474
SITI MAHIRAH BINTI ABDUL RAHMAN 2020417328
SYARA IZREEN BINTI MOHD SHAHRIR 2020875736

PREPARED FOR:

DR AZZARINA ZAKARIA

SUBMISSION DATE:

30th JANUARY 2022

 TABLE OF CONTENT

1. INTRODUCTION ........................................................................................................................................................... 1
1.1 Company Background. .......................................................................................................... 1
1.2 Vision and Mission Statement............................................................................................... 1

2. BEST-COST PROVIDER STRATEGY .......................................................................................................... 2

2.1 Low-Cost Pricing .................................................................................................................. 2
2.2 High Quality Product ............................................................................................................ 5

3. BUSINESS MODEL ...................................................................................................................................................... 6

3.1 Customer Value Proposition ................................................................................................. 6
3.2 Profit Formula ....................................................................................................................... 8

4. THREE TESTS ON WINNING STRATEGY .......................................................................................... 10

4.1 Fit test. ................................................................................................................................. 10
4.2 Competitive Advantage Test. .............................................................................................. 11
4.3 Performance Test................................................................................................................. 12

5. RECOMMENDATIONS ......................................................................................................................................... 13
5.1 Market expansion (Strength and Opportunity).................................................................... 14
5.2 Raise brand awareness (Weakness and Opportunity) ......................................................... 15
5.3 Invest in intellectual property rights (Strength and Threat) ................................................ 16
5.4 Increase in offline distribution and service outlet (Weakness and Threat) ......................... 17

6. CONCLUSION ............................................................................................................................................................... 17

REFERENCES ......................................................................................................................................................................... 19

APPENDICES ........................................................................................................................................................................... 21
1. INTRODUCTION

1.1 Company Background.

Since the birth of smartphones in 2007, smartphones have been developing rapidly and
becoming popular worldwide. Apple is no longer the only brand producing smartphones; however,
various brands such as LG, Samsung, HTC, Huawei, and Xiaomi have emerged. Xiaomi is an
Internet company that sells mobile phones, smart hardware, and IoT platforms as its core. Xiaomi
was founded in 2010 as a software company by Lei Jun, who produced the MIUI ROM, which is
based on Google's Android. However, MIUI was created to provide more functionality and a better
user interface than Android. Thus, following that year, the company introduced its operating
system and delivered its first smartphone known as 'Xiaomi Mi 1'. The founder stated that the
meaning of Xiaomi's is millet and rice in the Chinese language, which is based on the Buddhist
concept of starting from the bottom before aiming for the top. On the other hand, for Xiaomi's
logo, "MI" is an acronym for "Mobile Internet," which shows that this company focuses on the
mobile internet industry. Nonetheless, it may also be interpreted as "Mission Impossible,"
signifying all the company's achievements conclusively.

1.2 Vision and Mission Statement.

Vision Statement: “Make friends with users and be the coolest company in users' hearts.”

Mission Statement: “Always believe that something wonderful is about to happen.”

The statements above are translated from their official website, as Xiaomi's vision
statement is "Make friends with users and be the coolest company in the users' hearts," the
company uses this statement to develop high-quality goods at reasonable prices and help people
worldwide lead better lives through technology innovation. Through active communication with
customers and systematic services to increase customers' favorability for using Xiaomi products.
By establishing the connection between smartphones and other hardware devices or smart
furniture, Xiaomi facilitates users' lives and improves their quality of life. Modern and intelligent
Xiaomi products can make users feel cool. Xiaomi wanted to encourage employees and consumers
to innovate and live in the fast Internet culture. At the same time, Xiaomi tried to use humanized
service and high product quality to make users think that the price is honest and kind. Not only

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that, but Xiaomi also is a company that is committed to creating an equal, relaxed, and growing
working atmosphere. To improve the beauty of Xiaomi's world from the perspective of employees
and customers, to achieve Xiaomi's mission statement. Thus, allowing all kinds of talents to exert
their talents has always been one of the company goals.

2. BEST-COST PROVIDER STRATEGY

A global smartphone sales report in June 2021 signaled an unprecedented tipping point.
According to Counterpoint Research, Xiaomi has eclipsed both Apple and Samsung to become the
world's leading smartphone brand for the first time, with a 17.1 percent share of global sales. More
intriguingly, Xiaomi accomplished it without joining one of the world's largest smartphone
markets, the United States, due to probable political and legal dangers. Xiaomi's incredible growth
is attributed to the Best-Cost Provider Strategy approach. According to (M A Mannan, 2018), Best-
cost strategy is a strategy that aims to increase the quality of products while simultaneously
reducing their costs. This method is implemented to provide customers with "greater value for
their money." It is accomplished by exceeding customers' expectations of essential product
characteristics. At the same time, prices are significantly lower than those offered by competitors.

2.1 Low-Cost Pricing

According to the case study, it is simple to discover that Xiaomi has adopted a Best-cost
provider strategy, which means that the company intends to benefit from economies of scale and
experience curve effects by manufacturing large volumes of standardized products while
simultaneously increasing the quality of the products while decreasing the cost. Furthermore,
according to Xiaomi's CEO, Lei Jun, the company has priced the phone practically at bill-of-
material prices, without compromising component quality or performance compared to other
luxury smartphones on the market. Xiaomi series high configuration hardware can be described as
attractive and high-cost performance to compete with the same price on the smartphone market.

Xiaomi's mobile phone product price strategy uses extremely successful and appropriate
methods to promote the sales of Xiaomi mobile phones and increase the company's market share
in China, raise brand awareness, and improve the competitiveness of its enterprise customers and
suppliers. Using this strategy, Xiaomi could significantly expand its market share in China during

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its first few years of operation. There are four fundamental strategies that Xiaomi used to sell their
smartphone with some of the greatest configurations at a premium to the competition. Cost-cutting,
low production costs, partnerships, and a customer base in terms of the target market are some of
the reasons why Xiaomi phones are so affordable, even when they have excellent specifications.

2.1.1 Cost Cutting

Unlike the world's top three smartphone brands, Apple, Samsung, and Huawei, Xiaomi has
made minimal investments in traditional advertising. The Xiaomi mobile phone uses both official
online direct sales and online scheduled sales, and its eco-chain Corporation is directly responsible
for supply and sales, allowing it to realize direct sales from the manufacturer to the online sales to
the customer, eliminating the need for an intermediary agent and lowering the product's cost. Using
the cost of sales, it is feasible to maintain complete control over lowered expenses and cheaper
pricing. Xiaomi has decreased costs by depending on E-Commerce despite having almost no
physical storefronts and no retail employees to operate. Furthermore, Xiaomi has achieved its
current worldwide position only through word-of-mouth marketing and social networking. By
utilizing social media as a platform, Xiaomi has successfully reached out to a wide range of
customers interested in purchasing their devices.

2.1.2 Low Production Costs

Since Xiaomi devices are manufactured and built in China, there are no charges associated
with any of the components required, such as screens, chipsets, and other parts for their handsets.
As a result, their global market price is set relatively low. However, compared to other smartphone
brands, they tend to manufacture and assemble their smartphones elsewhere and must import the
parts from China, which raises the final product price to pay charges such as transportation, taxes,
and other logistic costs. Xiaomi's Chairman Lei Jun clarified a while back that the components
that determine their actual production cost of smartphones include taxes, processing charges,
production losses, R&D costs, patent fees, and operations costs, among others.

2.1.3 Partnerships

Xiaomi recently acquired its ecosystem partner Zimi International Corporation, in which
Xiaomi previously held a 49.91 percent share. Zimi focuses on designing and manufacturing

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smartphone accessories and smart hardware, such as battery packs, power adaptors, and IoT
devices. Xiaomi intends to use Zimi's battery and IoT capabilities to boost its competitiveness in
a highly competitive industry where most competitors are also aggressively establishing their
respective ecosystems. Historically, Xiaomi's investing approach was to get a small stake in new
tech businesses by funding and nurturing them. Xiaomi's "ecosystem partnership" concept gave
growth support in software platform services, sales channels, and development resources to these
innovative ecosystem partner enterprises. In turn, partners contributed to the development and
growth of Xiaomi's brand and appeal by developing interesting goods that typically function well
with Xiaomi's core devices. Having a good relationship with leading companies like Zimi helps
Xiaomi's products be made, packaged, and sold at a lesser cost than other companies that rely
primarily on imported parts.

2.1.4 Customer Base-Target Market

Xiaomi effectively targets different categories to sell their product in large volumes;
Xiaomi focuses on diverse techniques and product mixtures. The categorization was done
primarily based on four factors: purchase power, necessary functionality, technological familiarity,
and intended use. As a result, three main consumer segments have been defined:(1) Entry-level:
Xiaomi's consumer base consists of people from low socioeconomic groups who spend a very little
amount of their money on technology-based products but have a strong desire to buy them. Pricing
is always a key consideration for these people, and they are always looking for cheaper substitutes.
They respond strongly to advertising, and the better the advertisement, the more likely they are to
purchase the desired smartphone product. (2) Mid-range consumers: This category consists
primarily of middle-class people rising from the lower sectors of society to the higher sections.
They seek a moderately priced product with numerous value-added features. These people are
willing to spend their money on new technical devices as long as they obtain the characteristics
they want. (3) High-end consumers: These are people from business backgrounds with a lot of
money who are willing to invest in new and future technologies dominated by huge brands like
Apple, Samsung, and so on. Xiaomi realized that these clients were not a huge fish for them, so it
did not focus on them at first, but after establishing itself in the lower and medium segments, it has
begun to focus on this area.

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 2.2 High Quality Product
Competing just on pricing is not what Xiaomi has chosen as their core strategy. Their
phones are cheaper than Apple's and Samsung's but not the cheapest ones in the market. There are
cheaper smartphones that flood China; however, they have a key flaw: poor quality. These devices
are often reverse-engineered replicas of Samsung models constructed from poor materials. Coming
up with a good quality phone at a lower price range was the major strategy that put Xiaomi leading
the charts. The phone features a robust case, an excellent screen, and a reasonable battery. It doesn't
break easily, unlike cheaper ones that start experiencing troubles after a few months of use.
As we all know, Xiaomi's product strategy is closely aligned with the ideals of value
innovation. Xiaomi's phones are meant to address a vacuum in the market that exists among iPhone
consumers. Instead of complying with the industry's strategy and pushing gradual technological
breakthroughs, Xiaomi has focused on thoughtful feature selection. For example, the first Mi
phone was built expressly for Apple users who were unsatisfied with the company's offerings in
China. Because of the rapid development of super programs like WeChat, Chinese consumers rely
more on their smartphones for everything from chatting to commuting to shopping and paying for
everything. To achieve this goal, long battery life is highly essential. In addition, camera hardware
and software are required for Instagram or Weibo influencers to take photographs, videos, and live
streams. The addition of other parts (such as the gyroscope) is regarded as a luxury when contrasted
to these basics. After getting a detailed understanding of local requirements, the Mi phone
development team made some unpleasant trade-offs to replace "decorative" features with vital
upgrades. Compared with the ultimate smartphone brand, the initial Mi smartphones have already
developed a big fan following in their nation because of their local value.
The last point to emphasize is that Xiaomi's Product strategy differs from Apple's, which
oversees digital ecosystems through the App Store and other platforms like iTunes and AppleTV.
Unlike Xiaomi, which prides itself on being a hardware provider, it provides smartphones
compatible with numerous Chinese ecosystems, including WeChat (Tencent), Weibo, Alibaba,
and others. Additionally, Xiaomi has built a vast range of complementing items that enable various
access points into these ecosystems, including electric scooters for mobility, Internet of Things
appliances, and other devices. Their vast coverage contributes to the construction of an integrative
and cohesive consumer experience, which puts their phone as the core node connecting the many
ecosystems. Xiaomi accessed personal networks to choose high-quality relationships, ensured

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reciprocal incentives and profitability throughout the ecosystem, and exploited the advantages to
support a low-margin policy that made Xiaomi products attractive to consumers

3. BUSINESS MODEL

Organizational business models are simplified representations of an organization's value

creation and delivery, value proposition, value capture elements, and the connections between
these parts (Geissdoerfer et al., 2018). Xiaomi's business model is well-organized, and revenue
driven. The company constantly strives to provide its customers with increased productivity at a
reasonable cost. While other companies spend their money on advertising, Xiaomi pays special
attention to its resources to acquire customers. After achieving near-perfection in customer
acquisition, Xiaomi decides to pursue a more aggressive advertising strategy. Their devices are
always cutting-edge and aesthetically pleasing to the eye. Besides that, Xiaomi has expanded its
operations into new geographic markets such as Malaysia, Singapore, Indonesia, the Philippines,
South Africa, and others (Tabassum & Ahmed, 2020).

3.1 Customer Value Proposition

A value proposition describes why a client should purchase that product or service.
Whenever possible, a potential customer will look for a product or service that offers greater value
or solves the problem more effectively than similar offers. Essentially, it is a company's
commitment to a specific customer or market segment. It explains why this is the best product for
Xiaomi's target market and how it is committed to providing its customers with high-quality
devices. This entails increasing the product's value while simultaneously lowering the costs to the
customer. Xiaomi's value proposition was encapsulated in the slogan "Wei Fa Shao Er Sheng,"
which means "Born for Super Fans" in Chinese (Yi et al., 2020). CEO Jun Lei of Xiaomi believes
that "The core of a device is the quality." It also aided Xiaomi in becoming more accessible to its
customers. It is common knowledge that if a company treats its customers well, its value will
exceed the customers' expectations.

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 3.1.1 MIUI Operating System

Xiaomi has grown its market share across a diverse range of products and services. The
company began by developing MIUI, pronounced me-you-eye, an operating system (OS) interface
based on the Android operating system. To accommodate different operating systems, the user
interface could be customized. It was nearly identical to the iOS operating system on the iPhone.
However, it did include backup features, a powerful cloud messaging service, a highly intelligent
music player, and Xiaomi's app store (Giachetti, 2018). This user interface was designed to provide
a market with an open innovation approach. Aside from that, Xiaomi is extending the reach of its
applications and content by making its MIUI operating system available for download on other
Android devices. In addition to the MIUI operating system's unique characteristics, Xiaomi's other
distinguishing characteristics have all contributed to the company's comparatively high market
value in the smartphone industry.

3.1.2 Mi Fans Community

Xiaomi interacts with customers by having a user community enables a company to quickly
develop word-of-mouth marketing (Rowan 2016). Xiaomi is a technology company with a unique
"fan culture" that attracts customers. It has a large global community of "Mi Fans," as Xiaomi
refers to its customers, who are active on its platform, actively providing feedback and feature
suggestions to its product development. They always share their thoughts on developing new MIUI
operating systems and devices. In addition, Xiaomi hosts several offline events for its customers
to further strengthen their emotional attachment to the brand. For instance, some of Xiaomi's most
enthusiastic followers attend the company's annual fan festival, during which the business
discusses current performance standards and gives significant discounts on popular items. In
addition, fans may meet one another, exchange their experiences, and build their emotional links
to the company during these gatherings (Yi et al., 2020).

3.1.3 High Quality, Low Price

Xiaomi is unique in comparison to other smartphone manufacturers. Xiaomi is more

transparent regarding pricing strategy and takes little margin (Sun & Fah, 2020). When the market
was flooded with high-end smartphones priced above the average customers implies, Xiaomi
delivered high-end devices reasonably. It is a market that is highly competitive. Xiaomi's excellent

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product design and intellectual functioning, combined with its low-cost features, has continued to
win the hearts of its customers over the years. Their goal is to earn the trust and loyalty of their
customers by providing them with the highest-quality products and services. The customer
received greater value for their money due to the lower pricing. Consequently, it quickly attracted
the attention of a specific customer segment. However, it must also ensure that sufficient profits
are generated later to enable the company to grow and prosper. As a result, Xiaomi repositioned
smartphones to reinvent their value proposition.

3.2 Profit Formula

Xiaomi became the world's third-largest smartphone manufacturer in 2020 (Wang, 2021),
and the company became China's leading smartphone manufacturer. These Chinese companies can
compete with technology giants such as Apple and Samsung. However, Apple and Xiaomi operate
on entirely different business models. In contrast to Apple, which makes money from the sale of
hardware, Xiaomi earns profit from its services to customers (Gupta & Dhillion, 2014).
Consequently, Xiaomi's revenue and adjusted net profit climbed 19.4% and 12.8 percent year on
year in 2020, respectively, to RMB245.9 billion and RMB13.0 billion. Xiaomi products and
services fall into four segments. In the appendices, Figure 1 and Table 1 show the overall revenue
of Xiaomi subdivided by segments. Smartphones account for 62 percent of revenue, followed by
IoT and Lifestyle Products, which account for 27 percent; Internet Services, which account for 10
percent; and Others, which account for 1 percent (Xiaomi, 2020).

3.2.1 Xiaomi Smartphone Business

Xiaomi is rapidly increasing the amount of revenue it makes from its smartphone and
generates most of the smartphone segment's revenue, which generates approximately $2 per item
sold (Dong et al., 2021). Xiaomi's smartphone segment revenue increased by 24.6 percent year on
year, from RMB122.1 billion in the fiscal year ended December 31, 2019, to RMB152.2 billion in
the fiscal year ended December 31, 2020. Even though most of these phones are still sold in China,
the company's worldwide smartphone sales have increased as a result of this. With India as an
exception, the company managed to sell approximately 16.0 million smartphones through online
channels in international markets in 2020 (Xiaomi, 2020). It is the most incredible figure in the
history of any brand to achieve. Several studies have found that the company's smartphone sales

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surpass those of any other company in the industry. This case demonstrates that the company has
a strong financial position.

3.2.2 Xiaomi IoT and Lifestyle Products Business

The IoT and lifestyle products segment generates revenue primarily from the sale of (i) the
Group's other in-house products, such as smart routers, AI speakers, laptops, and smart TVs, as
well as (ii) certain lifestyle products, as well as certain IoT and other smart hardware products
which are under the Group's ecosystem products. Xiaomi now sells its products in over 80
countries and regions. Additionally, Xiaomi has launched several new products in overseas
countries in 2020, including the Mi Electric Scooter Pro 2 Mercedes-AMG Petronas F1 Team
Edition. This resulted in an 8.6% rise in sales for Xiaomi's IoT and lifestyle products segment in
the fiscal year 2020, from RMB62.1 billion on December 31, 2019, to RMB67.4 billion on
December 31, 2020 (Xiaomi, 2020). Revenue climbed largely due to increasing demand for certain
Internet of Things devices, including electric scooters, smart TVs, air purifiers, and robotic vacuum
cleaners.

3.2.3 Xiaomi Internet Services Business

Xiaomi, like many of its competitors, generates profits from the sale of hardware while
also becoming a provider of internet services to its customers. Xiaomi has established a medium-
high position in the smartphone market and has relied solely on an internet-based sales strategy to
serve its customer base. Internet advertising services and value-added services are sold. The
company's internet services sector increases profits from internet services such as online gaming
and fintech businesses. Xiaomi's revenue from the internet services sector climbed by 19.7% to
RMB23.8 billion for the year ending December 31, 2020, compared to RMB19.8 billion for the
year ending December 31, 2019 (Xiaomi, 2020). The increase is primarily due to advertising and
gaming businesses, but the fintech industry is declining. For the fintech business, Xiaomi acts as
an intermediary between borrowers and third-party funding parties. As a result, Xiaomi considers
a maximum profit margin when providing internet services.

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 3.2.4 Other Businesses

Another revenue is from the Group's sale of materials and hardware repair services for
products. From RMB1,814.2 million in the fiscal year ending December 31, 2019, to RMB2,508
million in the fiscal year ending December 31, 2020, revenue from other sources climbed by 38.3
percent (Xiaomi, 2020). It is mostly from selling materials and providing installation services for
specific Internet of Things goods. In addition, Xiaomi requires after-sales services, including in-
store repair services, delivery repair services, home repair services, and other things. However,
despite Xiaomi having long been known for its low-cost smartphones, it is not solely dependent
on its products to generate revenue (Liao, 2018). As a result, Xiaomi's other business segment
accounts for a significant portion of the company's revenue as well. Nonetheless, the uncertainty
presented by the ongoing Covid-19 epidemic makes it more difficult for Xiaomi to give its
customers the best possible treatment and installation.

4. THREE TESTS ON WINNING STRATEGY

Previous sections have determined Xiaomi strategies to maintain their market sustainability
and its precious business model. Therefore, to determine the company is a real winner, Xiaomi's
strategies must fit the organization's situation, build a sustainable competitive advantage, and
improve the organization's performance. A winning strategy must pass three tests to be considered
successful. The three tests for winning strategy include the fit test, competitive advantage test, and
performance test. Further explanations will be discussed below.

4.1 Fit test.

A good strategy is well-suited to the company's current condition, including both internal
and external elements and the company's skills and objectives. A winning strategy must be well-
matched to industry and competitive conditions, a firm's best market possibilities, and other
relevant characteristics of the business environment in which the company works to be considered
a winner. If a strategy does not display excellent external fit and is out of sync with current market
conditions, it will fail to perform well. The strategy must also be adjusted to its resources and
competitive capabilities, and a complementary set of functional activities must back it. For
example, suppose a strategy does not demonstrate a solid match with both the external and internal
parts of a company's entire condition.

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 Related to this case analysis, Xiaomi Corporation is aware of its internal and external
conditions. SWOT Analysis are determined, and more details will be discussed in the next section.
Therefore, the company must grab the opportunities with their existing strength, and by that, we
can ascertain that Xiaomi has a winning strategy through the fit test. The most notable strength of
Xiaomi is affordable pricing. Xiaomi's low cost lets them compete for the attention of more
consumers that consume budget smartphones in developed nations. Even though Xiaomi is known
for producing affordable pricing, they produce a modern high-tech mobile phone that enables them
to penetrate newly unexplored markets where smartphones were previously prohibitively
expensive due to their high cost. Especially in the Asian market, Xiaomi can sell millions of
devices, particularly in China and India. Thus, it would be difficult for a luxury brand like Apple
or Samsung as they are expensive, and many Asian markets cannot afford the devices.
Hence, the strength that Xiaomi currently holds would be able to grab the opportunities
(which is the external condition). The notable opportunity of Xiaomi is the potential new
geographic market. As the current pandemic is happening, the whole world is becoming digitized.
Many companies, organizations, and institutions use online platforms for daily interaction.
Because of that, customers would have to spend more and more money on electronic gadgets.
Therefore, the smartphone and electronics markets are experiencing organic growth.
Consequently, this is especially true in some geographical areas where devices were previously
prohibitively expensive, making them desperately looking for low-cost pricing mobile phones.
Again, because of their low prices, Xiaomi has a wonderful opportunity by grabbing these rising
markets, such as Africa and India. Xiaomi is only competing against other budget-conscious
manufacturers, such as Huawei, rather than a premium smartphone brand such as Apple.
Therefore, Xiaomi can be said to fit its internal and external conditions well and make them a
winning strategy.

4.2 Competitive Advantage Test.

A sound strategy leads to the creation of long-term competitive advantage. The greater the
competitive advantage a strategy contributes to achieving, the stronger and more effective the
strategy becomes. The effectiveness of strategies that fail to achieve a sustainable competitive
advantage over their competitors is unlikely to be sustained for more than a short period. Therefore,
winning strategies help a company acquire a sustainable competitive edge over its competitors by

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focusing on the long term. Hence, the more significant and long-lasting the competitive advantage,
the more potent it becomes.
Therefore, regarding this case analysis of Xiaomi Corporation, the strategy that Xiaomi
relies on is the innovation strategy. Generally, Xiaomi's competitors are Apple, Huawei, and
Samsung. Many consumers know Xiaomi's competitor, especially Apple, who is complaining
about its battery life. This is related to the pandemic Covid-19, where everyone or smartphone
consumers are using devices all day long in daily life. This is because people use smartphones for
everything, particularly the growth of social media, where people keep updating their routines and
shopping online and more online activities. Therefore, to achieve this goal, the strategy on long
battery life is essential to satisfy the consumers due to the growing gig economy where people are
highly dependent on digital platforms for their jobs. Related to that, camera hardware and software
are required for social media influencers to take photographs, videos, and live streams.
In addition, unlike Apple, which handles digital ecosystems through the App Store and
other platforms like iTunes and Apple TV, Xiaomi's innovation strategy aims to build a digital
environment by their brand and skills. In addition to selling smartphones compatible with
numerous Chinese ecosystems, such as WeChat (Tencent), Weibo, Alibaba, and others, Xiaomi is
also known for being a hardware manufacturer. Moreover, Xiaomi has produced a wide range of
complementary items that serve as various entry points into these ecosystems, such as electric
scooters for mobility, Internet of Things appliances, and other devices. By all that, Xiaomi is a
winning strategy with a sustainable competitive advantage.

4.3 Performance Test.

A successful strategy improves the performance of a company. Performance improvements

of two types stand out above the rest: increases in profitability and improvements in the company's
long-term business strength and competitive positioning. In other words, a company's competitive
strength and market position and its profitability and financial strength are the two types of
performance indicators that provide the most insight into the quality of its strategy. Also, a winning
strategy is characterized by above-average financial performance and increases in market share,
competitive position, or profitability.
Regarding the Xiaomi strategy on the performance that can be qualified as a winning
strategy, the company increases performance in market share, its competitive position, and

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profitability. Xiaomi's revenue and adjusted net profit increased 19.4 % and 12.8 % year over year
in 2020, respectively, to RMB245.9 billion and RMB13.0 billion, as indicated in the previous
section. Xiaomi also became China's largest smartphone manufacturer in just a few years after its
debut and became the first Chinese company to be listed on the Hong Kong Stock Exchange. Not
only that, but in 2020, the business sold around 16.0 million smartphones in international markets
from online channels. Another source of revenue is the sale of materials and hardware repair
services for products by the Group. Revenue from other sources increased by 38.3 percent from
RMB1,814.2 million in the fiscal year ending December 31, 2019, to RMB2,508 million in the
fiscal year ending December 31, 2020. (Xiaomi, 2020). It comes mostly from the sale of materials
and the provision of installation services for Internet of Things products. As a result, Xiaomi's
performance test strategy was well-prepared, and led them to be a winner in making strategy.
To conclude, in this case, we have identified that Xiaomi has qualified as a winning strategy
as they passed all three tests, which include fit test, competitive test, and performance test.
Generally, strategies that perform poorly on one or more of the above tests are unquestionably less
appealing than strategies that pass all three of the prior tests with flying colors. Therefore, the
company, Xiaomi shall sustain their strategies and always prepare for the next strategies that can
fit the future condition, thus, the company can obtain a winning strategy.

5. RECOMMENDATIONS

STRENGTH (S) WEAKNESSES (W)

OPPORTUNITIES (O)
1. New geographic market
2. Brand building
3. Product innovation and
differentiation
1. Low-cost structure
2. High quality products
3. Strong financial position
4. Largest smartphone
manufacturer
SO STRATEGIES
SO1 - Market expansion (S1,
S2, S3, S4 O1)
1. Lack of marketing
2. Offline distribution
3. Low in service outlet
WO STRATEGIES
WO1 - Raise brand awareness
(W1, O1, O2, O3)

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 THREATS (T) ST STRATEGIES WT STRATEGIES
1. High Competition ST1 - Invest in intellectual WT1 - Increase offline
2. Lack of globalization property rights (S3, T1) distribution and service outlet
(W2, W3, T1, T2)
Table 2: TOWS Matrix of Xiaomi Corporation

Xiaomi has its SWOT analysis that lists an organization's strengths, weaknesses,
opportunities, and threats. However, there are some lack activity of Xiaomi's company that need
to be improvised. Thus, the highly developed TOWS matrix can be used to overcome these
problems and aid in developing effective approaches. This category contains the Strengths-
Opportunities (SO) strategies, which involve using one's strengths to capitalize on opportunities.
Furthermore, it lists the Strengths-Threats (ST) strategies, which involve using one's strengths to
overcome threats. It also employs the Weaknesses-Opportunities strategies, which entail
converting weaknesses into strengths through opportunities. Finally, Weakness-Threats (WT)
strategies entail enduring weaknesses to minimize threats. Hence, with the implementations of
TOWS Matrix can recognize some of the recommendations that can be applied to entails the
problems that Xiaomi faced. Four recommendations can be implemented: market expansion,
raising brand awareness, investing in intellectual property rights, and increasing service outlets.

5.1 Market Expansion (Strength and Opportunity)

One of Xiaomi's major strengths is its affordable price of smartphones and becoming the
largest smartphone manufacturer in the industry. Moreover, the company can value its products
significantly lower than the competition. Thus, the company can use these advantages to grab the
opportunity to create an innovative and differentiation product to sell it to the other market. These
advantages and opportunities assist it in maintaining its market share in existing areas and in
entering new ones. Additionally, as the world economy expands, customers now have more cash
to spend on electronic goods. As a result, the smartphone and electronic goods markets are
expanding inevitably. This is especially true in some geographical areas where devices were
originally prohibitively expensive. Hence, because of their reasonable prices, Xiaomi seems to
have a great opportunity to grab these emerging markets to penetrate their product to Africa. This
is a particularly potent opportunity for Xiaomi because it implies only competing against other

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budget-conscious industry players, such as Huawei, rather than luxury brands such as Apple. In
general, one of the most significant benefits of business expansion is the ability to offer Xiaomi's
diverse range of products and services in the market and can increase the company's brand
recognition.

5.2 Raise Brand Awareness (Weakness and Opportunity)

Xiaomi's product has been exporting and expanding to the international market. However,
the recognition of their brand is still low in the industry. Nonetheless, Xiaomi is incredibly popular
and sells well in China, and it is obscure to outside customers compared to Apple, Samsung, and
even Huawei. Thus, when Xiaomi launched new technology, the company advertisements, on the
other hand, were at best in the industry. Nonetheless, even though the product is a sales success,
its positional awareness and unique sales concept are not properly delineated. Therefore, Xiaomi
needs to take the opportunity to create a better brand image, brand building approaches, including
sales promotions and marketing communications. Xiaomi can increase its brand awareness by
enhancing and spending more on its budget in advertising and marketing to overcome this problem.
Marketing is a method used by companies to market their products and services. Not only that, but
marketing also enables businesses to stay up with changing consumers' preferences, styles, and
tastes. There are few options of platforms that Xiaomi can improvise their marketing and
advertisement by creating attractive marketing on television or social media. Xiaomi can actively
create an attractive advertisement that can attract customer engagement through social media such
as Instagram. For example, by creating a giveaway of Xiaomi's products to the customers, they
can create the best captions and photos of Xiaomi's products. This way, it can attract customers
and increase customers' loyalty.
Moreover, being active on social media can help Xiaomi analyze the data on the
segmentation of their consumers' preferences based on their advertisements. This way, it can help
Xiaomi create much more effective and creative ways to tackle the consumers' preferences.
Accordingly, Xiaomi can also contribute celebrity endorsements based on the international market
they enter. Celebrity endorsement may capture an audience's attention, providing businesses with
a greater opportunity to communicate their message to customers. Furthermore, the use of
celebrities is thought to help consumers recognize the message of the advertisement and the brand
name the celebrity is endorsing, allowing for the creation of Xiaomi and its products because when

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a celebrity is applied in combination with a product line, this appearance helps shape the image of
that product in the minds of customers. Overall, Xiaomi must strengthen its marketing messages
to increase brand awareness and value.

5.3 Invest in Intellectual Property Rights (Strength and Threat)

Xiaomi has been innovating in its main revenue stream and creating smartphone-related
products. It mainly focuses on the smartphone, and the company can offer high-quality products
at low prices while still making a healthy profit. Besides that, among their services is a profitable
online service that provides small loans to Xiaomi phone users and is powered by a next-generation
artificial intelligence engine that evaluates creditworthiness. Additionally, Xiaomi has consistently
reported profits in the hundreds of millions of dollars and collected up to 13.6 billion dollars in the
early quarter years of 2021. As a result, Xiaomi has strong free cash flows that provide the
company with resources to invest in new productions. However, the smartphone industry has
grown significantly, owing primarily to current competitors, new players in the field, and
technological advancements in the hardware and software components. As a result, companies'
innovation activity has expanded, and the sector now has many multiple variations of smartphones.
This means they can afford large advertising campaigns, protracted legal battles, and significant
infrastructure technology investments. However, Xiaomi is a comparatively recent electronics
manufacturer, so they should exercise extreme caution to avoid being pushed out of the market.
Hence, Xiaomi needs to increase the company's intellectual property rights. Intellectual property
is a comprehensive area for acquiring intangible property acquired and constitutionally protected
by a company from unauthorized use or application. An intangible asset is a non-physical asset
owned by a company. The advantages that Xiaomi can use Intellectual Property are that it can
generate revenue for the company by licensing, selling, or commercializing by securing Xiaomi's
products or services. This, in essence, can increase Xiaomi's market share of profits. Besides, the
intellectual property also can boost Xiaomi's edge over its competitors in international markets.
Thus, the company will have more export opportunities. As a result, with the capabilities of Xiaomi
of having a strong financial position, the company can overcome the threat by patenting its design
concepts to market goods on a global scale.

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 5.4 Increase in Offline Distribution and Service Outlet (Weakness and Threat)

Xiaomi has grown frantic in recent years, selling millions of smartphones. Xiaomi
primarily sold through special offers, but customers increasingly found it difficult to obtain a
REDMI or MI concept phone. Their electronic distribution is out of date, and Xiaomi devices are
primarily sold through e-commerce. Xiaomi's offline distribution strategy sells its products at
higher prices than online. As the company is new in the industry, they are still lacking in
globalization. The competitors have spent a lot of money building strong offline channels,
expanding their reach to cities, and getting ahead of Xiaomi.
Notwithstanding, there have been indications that Xiaomi does not have the necessary
customer service facility to deliver all their newly gained customers. Suppose a design issue arises
with one of Xiaomi's product lines. In that case, they might well consider themselves including
more service requests than they can handle, as well as many dissatisfied customers. The last
recommendation that can be explained is that Xiaomi can increase its offline distribution and sales
service outlet. Subsequently, Xiaomi overlooked the services that need to be included in their
business process. It is because post-purchases are essential elements that are the key to creating
loyal customers. Services are labor activities that may directly fulfill the requirements and wishes
of customers. They are offered for sale, implying intangible services with no physical commodities
and intangible services with physical items. Consumers nowadays are more concerned about after-
sale services when purchasing any product. Thus, to enhance after-sales support of Xiaomi, the
company may establish enough direct sales service points and Xiaomi Home in the market that
they enter to assist and assure the timely maintenance of Xiaomi phones and other products. Not
only that, but Xiaomi can also try to collaborate with local retail stores in small towns to serve
local consumers. To conclude, Xiaomi will need to develop solid offline channels and service
outlets to rebuild and sustain growth, as this will access a substantial market for the business.

6. CONCLUSION

Overall information in this cases study, we are totally impressed that Xiaomi has risen to
become the world's third-largest smartphone manufacturer and the most popular in China in just a
few years since its foundation. The company has a distinct business strategy and initiatives that
have allowed it to rapidly enter the smartphone industry. Xiaomi's business model is one of the

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efficient, successful, and inspiring business models for the new age businesses that use the latest
technologies and power of the digital world that can optimize their presence, growth, and sales,
and has established a medium-high smartphone position and has completely depended on an online
selling strategy to fulfill its consumer base. Additionally, Xiaomi has also diversified into a wide
variety of products and services alongside smartphones, wearables, appliances, manufacturers'
devices.
This case analysis portrays on how Xiaomi can stay in this competitive industry as Xiaomi
has its value proposition which they created their Android-based operating system that included
backup features and powerful cloud messaging services. Nonetheless, Xiaomi is also a good
company because it also developed very close interactions with its users through good product
design and smart functionality with reasonably low features, which can acquire a large number of
the global user base called "Mi Fans." On top of that, the main revenue that Xiaomi can gain from
their profit formula is mainly from their smartphone devices and followed by their appliances. This
shows how successful their product can capture the consumer's preferences. Despite facing threats
from competitors, the company will grow and prosper in new markets since it applies a best-cost
strategy and provides high-standard technology products at cheaper pricing than other companies
that provide the same product.
In conclusion, regarding the analysis that identifies Xiaomi as a winning strategy, we
conclude that Xiaomi has qualified as a winning strategy. They passed all three tests, including the
fit, competitive, and performance tests. The existing strategies should be reviewed regularly to
ensure that they are still relevant, keep in providing a competitive advantage, and contribute to
above-average performance improvements. Furthermore, along with the SWOT Analysis, the
recommendations provided in this case study are predicted to help the company to be able
sustaining their competitive advantage to compete with their counterparts that led them to become
successful in the industry.

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APPENDICES

Figure 1: Xiaomi revenue earnings by business segments 2020

Source: Xiaomi 2020 Annual Report

Table 1: Revenue of Xiaomi per segment in 2020

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