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Challenges to the smartphone industry
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Is Xiaomi capable of shaking the global smartphone industry with a "Services based business model"?
This case has been compiled from secondary published sources to illustrate the emergence of a new services-based business model in the smart phones segment by Xiaomi.
Authors:
Sonam Gupta is currently working as a freelance consultant in the areas of strategy and business management. Prior to this, she has worked as a Research Analyst with CRISIL Global Research & Analytics, a subsidiary of Standard & Poor. She holds an MBA degree from Nirma University.
E-Mail: sonamgpt88@gmail.com
Ishneet Dhillon is currently working as a Senior Research Analyst with CRISIL Global Research & Analytics, a subsidiary of Standard & Poor. She holds a PGDM from Kirloskar Institute of Advanced Management Studies.
E-Mail: dhillon.ishneet@gmail.com
"In a mobile-phone landscape, Xiaomi’s rise to prominence is not an everyday occurrence" - Melissa Chau, Senior Research Manager for client devices, IDC Asia/Pacific
Xiaomi is the brain child of a serial tech investor and entrepreneur Lei Jun, who is creating the next wave in the Smartphone industry with the launch of smartly designed Android phones at very moderate costs. The player has already shaken the Chinese market and is expected to be the next buzz word in the international market. Leveraging innovation and hunger marketing as its core competency, will this Chinese player be a threat to the established brands such as Samsung and Apple?
Background Note
Xiaomi Inc., headquartered in Beijing, China, is a privately owned electronics company that designs, develops, and sells smart phones, mobile apps, and other technology products. It was co-founded by eight partners (Lei Jun (CEO), Lin Bin...
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... line at the middle to lower end of the market, represent Xiaomi's competitive strengths. Other lower-end makers can offer similar quality but lack the buzz that Xiaomi is able to generate. Top-tier names like Apple and Samsung can generate buzz, but can't come close on price.
"Whether it can rise to the next big milestone of becoming a global player is its next big challenge" - Bloomberg
Questions
1. Will Xiaomi succeed in the international market, with each having its own peculiar need?
2. Can the existing model which offers more bangs for the buck sustain in other geographies?
3. Will Xiaomi be able to do away with the stigma associated with carrying a Chinese brand?
4. Is Xiaomi's services-based model capable of disrupting the smartphone industry?
5. Can Xiaomi survive in the long run without leveraging the traditional marketing and advertising platforms?
What 's more, the new competitors always can drive innovation in the mobile phone industry. Because if the new competitors want to success in the industry, it has to have something different with other brands to attract the consumers, and this different thing symbolizes innovation in the mobile phone industry. Xiaomi, as a successful new entrant in mobile phone market in 2011, is a good example. According to IDC, in October 2014, Xiaomi was the third largest smartphone maker in the world, following Samsung and Apple Inc. and followed by Lenovo and LG. The smartphone that Xiaomi release is much cheaper than other smartphones, which contain high configuration as Xiaomi did. What Xiaomi has done, is to substantially eliminate the significant 20 percent to 25 percent cut retailers or distributors typically get, and pair that with the vision of earning profits from accessories and web applications within its eco-system (MIUI) instead. Because of the new consciousness of forging greater margins from the phones itself, they carve out a substantial market in a short time and become an effective competitor for the existing
Compared with the rate of many decades before, the rate of mobile usage is zooming these days. The developments of general economy and technology revolute peoples’ life styles and bring mobile business into a new page. Nowadays, business trends could still make a huge difference in those mobile companies.
Then there’s Apple. Their products are generally always innovative and meet some consumer unmet need so well that people literally fall in love with their brand and products they pump out each and every year. Yes, there have been some duds (the Cube is one that comes to mind), but it doesn’t happen often.
Sigurdson, J. (2004), ‘The Sony-Ericsson Endeavour: Part 1’, Institute of Innovation Research of Hitotsubashi Unniversity, Working Paper, (Tokyo: Japan).
Motorola was first founded in 1928, making battery eliminators for household radios. In 1929 the company designed and manufactured and car radios, then a new concept, and subsequent sales kept the company afloat during the Great Depression of the 30s.
Over the past five years, RIM has changed its corporate name to BlackBerry, been purchased by private equity firm Fairfax Financial, written down over $1 billion in assets and unsold inventory, and laid off more than 40% of its workforce (Connors). BlackBerry’s fall from market leadership and financial success is the result of a corporate structure that failed to foster individual employee creativity and company-wide innovation. Financial distress, upper-management turnover, and loss of strategic direction are symptoms of BlackBerry’s problem: a failure to innovate and remain competitive in the smartphone market. Recent attempts to regain foothold in the smartphone market include the unsuccessful launches of the PlayBook tablet in 2011 and Z10 and Q10 phones in 2013. These attempts to dismantle the iPhone and Android market power have resulted in BlackBerry trying to mimic its competitors rather than producing cutting-edge products that create value for its customers.
Motorola continues to pursue mergers, acquisitions and alliances in an effort to grow and continue to be profitable and be a global leader in the industry. Some of the major mobile devices products for Motorola are mobile phones, accessories, Bluetooth devices, IDEN technology, portable energy systems and two-way radios. Major products for Motorolaaê¡?s government and enterprise mobility solutions are biometrics, integrated information management, computer-aided dispatch systems and records management systems. Other major products are Motorolaaê¡?s networks and home networking solutions. Motorola has three business units which are mobile devices, network and enterprise, and connected home solutions.
In today’s current economic state, the likelihood of a company entering into a global market is inevitable. Multinational corporations (MNCs) such as Vodafone are required to standardise their Research & Development activities throughout the world in order to penetrate the market. This is achieved by obtaining new technological opportunities, such as the most up-to-date phones, thus maintaining a competitive driver in the market.
While profits from semiconductor sales are keeping stakeholders happy, Samsung is pursuing a differentiation strategy in the smartphone market. The managers are committing more resources to researching something they think will revolutionize phones. author name writes, “All smartphone makers face the issue of stagnancy in hardware innovation. Samsung is currently working on developing a smartphone with foldable displays…” (Tanner). There has not been a ground-breaking development in smart phones in the last few years, so the managers believe
is yet to reach its maximum potential. Truly a unique entity in its accomplishments and organization, apple through the conviction and leadership of Steve Jobs its founder and then CEO; have pioneered the revolution of mobile technology. When it comes to strength, apple Inc, has a great marketing team with great marketing and advertisement capabilities, strong brand awareness, a strong and extensive distribution channel, and most of all a vertical integration and the most obvious which is customer loyalty. With the acquisition of valuable companies such as Beats, WhatsApp, mobile payment systems with the IPhone 6, wearable gadgets like the IWatch, apple uses these opportunities to satisfy its loyal
Manufacturers and service providers of cell phones are located throughout the world, although, as inCode, a wireless business and technology consulting firm, suggests, “Not many wireless carriers today have a truly global presence.” However, the company predicts that “the top 10 wireless carriers are going to make a push for globalization in the coming years” (“InCode releases…”). Most especially, inCode foresees service providers reaching to “unconquered markets like China, which is the fastest growing wireless market in the world” (“InCode releases…”). Some companies have already tapped into the global marketplace, spreading areas of coverage across continents. The cell phone manufacturer Nokia, for example, is rooted in Finland, but sells cellular phone products virtually everywhere on the globe. Service providers, although most often more less expansive in scope, are also trying to provide more global coverage.
[1] “A $400 Phone for the masses?-India’s Micromax, known for low price handsets, pushes into smartphones arena” ProQuest document ID: 929135140 [2012]
Under the circumstance that the mobile phone industry entered the 3rd generation, Nokia faced competition from both macro level and industry level. For the macro level, the government encouraged competition among the operators and handset manufacturers by giving digital licenses to new entrants. As a result, the mobile phones became more sophisticated, for example, the cameras and the games in the mobile phone. For the industry level, which can be analyzed by the Porter’s Five Forces, (lecture )Nokia was facing threat of new entrants, competitive rivalry and the bargaining power of buyers is increasing as well. As the government encourage completion between the handset manufacturers, there are several new entrants from different countries enter this industry, such as Apple from USA, Samsung from Korea. These new entrants compete with Nokia in both smartphone segment and basic phone segment. Some of them even constructed “ecosystems”, which they could integrate the services and applications quickly, in order to produce the phone in just two days. For the bargaining power of buyers’ aspect, they do not need to rely on the only operating system Symbian. They can choose Windows mobile launched by Microsoft, Android launched by Google and Ios launched by Apple, in addition, basically all of them are better than Symbian (Amiya, 2010). The buyers could choose any
"While practically everybody today is a potential mobile phone customer, everybody is simultaneously different in terms of usage, needs, lifestyles, and individual preferences," explains Nokia's Media Relations Manager, Keith Nowak. Understanding those differences requires that Nokia conduct ongoing research among different consumer groups throughout the world. The approach is reflected in the company's business strategy:
... smartphone. The company has improved increasingly because the combination with the Nokia company. Away to insure that the company can stay on top is to increase the innovations to their devices. Nokia was once a mobile telephone powerhouse, but has struggled since smartphones hit the market. As part of Microsoft, it will have better footing to compete there, however Ballmer noted that Nokia remains a leader in non-smart with phones sold in developing regions. The company’s ultimate goal is growth for the platform. After years trying to regain relevance in the mobile industry, Microsoft’s Windows Phone operating system narrowly nudged ahead of theird-place BlackBerry in global smartphone shipments, now sitting somewhere in the neighborhood of five percent globally. In the end Microsoft has accomplished their goal as a company and plans to stay there for a while.