Chinese Smartphone Vendor to Enter the US Market
For years the American smartphone industry has been dominated by the giants in Apple and Samsung. Now popular Chinese vendor, Xiaomi Corporation, is set to begin selling their smartphones in American stores. Xiaomi is currently the fourth largest vendor of smartphones in China and they have market share in India and certain areas of Europe. The process of expanding into new markets, especiallya market dominated by powerhouse companies like Apple and Samsung creates a huge issue in terms of process decisions and supply chain management. Especially for a company based in China, ensuring that your supply chain is able to handle a new locus of demand overseas is hugely important before considering the expansion.
Xiaomi Corporation will have to use the capacity planning tools that we learned in class to ensure that their processes are able to handle expanded demand. They will have to grapple with how they want to implement different expansion timing strategies. We learned about four timing strategies for expansion. First there is leading demand with incremental expansion which involves small expansions that stay out ahead of demand to ensure sufficient supply at all times. Secondly, you can lead demand with one large expansion and attempt to meet forecasted long term demand. The risk with this second one is that the demand forecasts are off and you over estimated demand. Thirdly, you can react to demand by increasing capacity in small increments as demand outpaces your capacity model. This one has risk involved with not being able to maintain sufficient supply and losing out on sales as your capacity catches up to demand. Lastly, you can attempt to have an average capacity by using incremental expansions that will try to maintain capacity as close to the demand curve as possible (Below are attached graphs from the slides to illustrate the timing strategies that I mentioned above).
Additional issues that Xiaomi Corporation faces includes finding partnerships with telecom carriers, learning about how American markets differ from Chinese markets, and adhering to local regulations to avoid legal actions. One Chinese company has already successfully established itself in the United States. ZTE Corporation claimed 11% of the American smartphone market share last year making it the fourth largest cell phone provider in the United States. Xiaomi can use ZTE Corp as a guide to see how to successfully launch new products in the United States. Partnerships with telecom carriers is the largest barrier to entry in the United States as roughly 75% of cell phones are sold through carriers.
What other supply chain factors do you think that Xiaomi Corporation will face in it’s effort to expand into the United States?
What expansion timing strategy do you think Xiaomi should implement to keep up with it’s growing demand?
https://www.wsj.com/articles/xiaomi-set-to-enter-u-s-smartphone-market-as-early-as-this-year-1520235047
https://www.wsj.com/articles/zte-chips-away-at-u-s-smartphone-market-1502967603
http://www.scmp.com/tech/china-tech/article/2108200/chinas-zte-step-global-expansion-after-posting-solid-first-half
Hi Adam,
I found your article to be very interesting! Xiaomi’s expansion is something that I have not heard much of in the US. It is not a very popular brand in my home country, Argentina, but last year my boyfriend decided to get a Xiaomi phone. In his process to choose a new phone, he considered several brands, he unconsciously chose what were his order qualifiers and his order winners. He considered quality, memory space, price, looks and memory storage to be his order qualifiers. When he took the decision of what phone to buy he went for the Xiaomi MI A1, which offered him all he was looking for. Price and quality were definitely order winners for him and this phone offered him great quality at US$200. Not only that but I must say that the phone has very nice looks as well. It is very similar to an Iphone but at a third of the price.
Overall, I found Xiaomi to be a great technology company. Although we don’t hear much about these brands since Apple is the dominant tech brand on campus, I hope that Xiaomi’s strategy is successful.
Another Chinese company that I thought about while reading your article was Huawei. This company offers products that are very similar to Xiaomi’s: higher quality technology at a fraction of the cost of the leading companies such as Apple and Samsung. Although they have a very small share of the market in the US, they are huge globally. Slowly they are entering the US market using a different strategy than the other companies and one that you mentioned in your article. Xiaomi and Huawei are partnering with phone companies to guarantee customers. This is a very interesting way to get to consumers but very safe at the same time. It allows the company to show off their products and have easier access to a wide amount of customers.
http://www.businessinsider.com/huawei-xiaomi-seek-to-challenge-apple-us-smartphone-market-2017-12
In the case of Xiaomi, I think the best move for the company in terms of their timing strategies for expansion would be to lead demand with one large expansion and attempt to meet forecasted long term demand. The market is already saturated with other phone companies so it is crucial that they enter the market on a strong note. They need to study the market enough and price their products competitively to ensure that when they enter the market, they will be able to meet the demand.
The complexity related to a global supply chain requires carefully identifying potential risks to the supply base. Some things that the company should consider in regards to the supply chain when entering this new market could be supply chain infrastructure (maybe it’s different internationally), forecasting accuracy, measures of success, supplier performance, price volatility, and more. Although there are numerous risks involved in expanding to a international supply chain, these can be managed through continuous innovation, efficiency improvements and flexibility.
Hi Adam,
I was very interested in your post because this is not a company I have heard of yet. I decided to look into Xiaomi and their coming to the US a bit more. Something major that stood out to me in my research was the talk concerning their upcoming IPO. An IPO is an Initial Public Offering, or the first time they sell their stock in the public market. This is an incredible source of funding for any firm – and chatters says that this company is expected to be valued anywhere from $50-$100 billion. With possibly the largest IPO following behind Alibaba, this would leave a lot of equity at the company’s disposal.
In my opinion, Xiaomi probably follows a lagging demand capacity model currently. Since they do not yet find themselves in close competition with Samsung and Apple, I would assume that they tend to be followers of these leading companies. As you said, since trying to predict demand beforehand is risky, especially for non-leading companies, there is no reason why they shouldn’t wait and watch what the industry leaders do and follow from there. As you can see on the chart on my first link follow, Xiaomi shows a 5.9% profit margin, which impressive, but is nowhere near the profits that Samsung (10.8%) and Apple (21.1%) are seeing.
If their IPO is successful, Xiaomi will have a lot of funding at its fingertips to really re-invest in itself. Now that it has established itself in the US, the company will want to think about long-term capacity planning. How do they reach economies of scale? How do they achieve this massive, omnipotent presence that companies such as Apple have? First, this funding will give the company a nice cushion to push its capacity model out of lagging demand to proceeding demand. This would be extremely advantageous for the company because they would no longer lose business to their competitors that they cannot afford to be losing in this crucial stage of integration. To compete with the top dogs, you have to eat with the top dogs and that means not showing up 10 minutes late and expecting to still have a fair share of the food.
I will be excited to keep up with this company and see if they truly are able to be successful in such a competitive industry that does seem to be monopolized. If successful, I see good things in order for this company’s future.
Thanks for sharing!
https://www.bloomberg.com/news/articles/2018-01-15/xiaomi-is-said-to-choose-morgan-stanley-goldman-among-ipo-banks
https://www.bloomberg.com/gadfly/articles/2017-12-22/ho-ho-ho-xiaomi-worth-100-billion-seems-a-jolly-tale
https://www.bloomberg.com/gadfly/articles/2018-03-05/xiaomi-in-america-isn-t-just-about-selling-smartphones