Advances in Economics, Business and Management Research, volume 182

Proceedings of the 2021 International Conference on Economic Development and

Business Culture (ICEDBC 2021)

Five Forces Analysis Based on Xiaomi, a Chinese

Smartphone Company
Wang, Jiaying1
1
Xi'an Teiyi High School, Xi’an, 710054, China
[email protected]

ABSTRACT
As the development of technology and the spread of information, people’s desire and needs of smartphone increases
dramatically. Admittedly, smartphone plays a crucial role in human being’s daily life as people use it as communication
tools, game device, and portable office device. This paper analyzes one of the most famous smartphone brand in China
-- Xiaomi to fully understand how it stands out in the industry. This analysis is mainly based upon Five Forces
methodology to fully explain how Xiaomi operates and behaves in the smartphone industry.

Keywords: smartphone, five forces analysis, business strategy, IoT, AIoT.

1. INTRODUCTION 2. FIVE FORCES ANALYSIS

This report mainly focuses on Xiaomi, a Chinese
smartphone brand and the world’s third-largest 2.1. Competitive Rivalry
smartphone marker. The below report will be analyzed
using the Five Forces methodology, which is a famous With the popularity of the Internet, the size of the
business strategy tool to analyze a company’s smartphone industry market has been enlarged with
competence in its industry. Five Forces analysis includes more brands joining the fierce competition. Customers
competitive rivalry, the threat of entry, the threat of have more options when it comes to picking the right
substitutes, supplier power, and buyer power. phones for themselves. Even in China, Xiaomi has to
face many other competitive rivals like Huawei, OPPO,
Xiaomi’s mission is to produce high-quality products and Vivo, etc, let alone the brands outside the country
at affordable prices [1]. Xiaomi’s core products are like Apple and Samsung. However, Xiaomi has its
smartphone series. Other businesses like its ecological charm which is offering high-quality products at an
chain including other products like rice cookers, honest price, helping it attract and retain a lot of loyal
electronic toothbrushes, and suitcases, etc, and its IoT, customers all around the world. However, Xiaomi also
the Internet of things, connecting to Xiaomi products and needs to face the challenges from its current competitive
collecting relevant data to make people have an rivals since cost-effective strategy is easy to copy by
affordable smart life. At the spring launch of Xiaomi in other companies. Huawei is known by its strong R & D
2021, CEO Lei Jun announced that Xiaomi would enter capability. While OPPO, and Vivo put more energy on
the electric vehicle field. He had been interested in this designing their products, which helps them earn many
field and invested in many projects in the past. Now it’s female customers. Outside of China, Huawei got
time for Xiaomi to make its own electric vehicle products. sanction from U.S and its selling declined, giving
Obviously, Lei did profound research on this industry. He Xiaomi a chance to enlarge its market share overseas.
knew clearly how much money it cost and he was According to a report by Canalys, Xiaomi occupied third
confident with Xiaomi’s ability and capital to make the place in the global smartphone market during the first
idea work. Lei expressed that he would love to bet his quarter of 2021[3], which reflects that Xiaomi’s status
reputation on his last start-up project. He will lead the and ability even though there are many competitive
electric vehicle team by himself to fight for MI electric rivals in the industry.
cars [2].
Threat of Entry
Although there are many players in the smartphone
industry, it is not easy for a newcomer to enter the

Copyright © 2021 The Authors. Published by Atlantis Press International B.V.

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 Advances in Economics, Business and Management Research, volume 182

industry or even achieve good results immediately. The 2.3. Supplier Power
smartphone industry requires the existing companies to
invest lots of money on product research and Since Xiaomi doesn’t have its own-designed system
development, letting alone a new company without any nor widely use its own-designed chips, Xiaomi has a
base to support. Newcomers need to spend much more relatively weak supplier power. Especially during the
energy and capital to catch up with the current technology pandemic, many smartphone companies faced a shortage
that is being used by existing industry players. Except for of chips [4]. Therefore, the chip market becomes a
the basic technology to enter the industry, the new seller's market. Chip manufactures who made limited
companies are supposed to differentiate their products chips are being watched closely by smartphone buyers.
from the existing products in the market. The right Other component suppliers not only offer components to
strategy of product differentiation is very important for a Xiaomi but also other companies. They are driven by
new player. Nowadays, Apple, Samsung take most of the money. Xiaomi advocates using the least of money to
market share, making it a fierce competition for other buy relatively high-quality products, indicating that its
smartphone brands. Apple is famous for its high-end component suppliers won’t earn much profit on a single
products and product ecological chain. While Samsung is product. Xiaomi’s advantage is the large shipment, so
the traditional brand in the smartphone industry with a component suppliers could still earn more money from
high reputation and high quality of products. Other Xiaomi by producing more products. Due to the
brands like Huawei, which is prestigious with its obstacles given by suppliers outside of China in early
information and communication background; and time, and the growth of domestic suppliers, Xiaomi
Xiaomi, which is easy to identify because it offers high- switched its strategy to work more with Chinese
quality products with the extremely affordable price; suppliers. Inside of China, many component suppliers
While OPPO and Vivo are designed for the young with wanted to cooperate with Xiaomi because it could
fancy smartphone looking and other entertainment increase their reputation and quickly rank the top if they
functions like music broadcast quality. All these take the big orders from Xiaomi. In addition, Xiaomi is
successful brand settings are the barriers to the new a tech giant company in China with a good reputation
entries. Therefore, it’s relatively difficult for a company and healthy cash flow. It is worthy for component
to enter the market and gain a great market share shortly. suppliers to work with Xiaomi and get the money back
quickly, which is important for manufactures. Therefore,
2.2. Threat of Substitutes in China, Xiaomi has relatively strong bargaining power
with its suppliers.
Xiaomi is facing a high threat of substitutes in the
industry. As we all know, Xiaomi’s strategy is offering 2.4. Buyer Power
relatively high-quality products at an extremely honest
price, helping Xiaomi take over a large market share at Xiaomi has accumulated a lot of loyal customers.
the beginning. However, with the brands like OPPO and The contributor to this is Xiaomi’s product strategy that
Vivo, and Huawei getting popular with similar pricing only sells good quality products at an affordable price,
positions, Xiaomi seems to have less advantage in front which helped Xiaomi got the very first customers in the
of price competition. Except for form the price, Xiaomi market even now. Young people are the main buyer
also faces technology challenges from its substitutes. power because they recognize the concept of Xiaomi
Apple is famous for its own-designed system IOS, and products. Now with the good economic environment,
the relevant products based on the systems like IPad, and more available money that can be used by people,
Apple Watch, etc, to fit its laptop system macOS. Xiaomi’s price advantage isn’t that obvious, especially
Moreover, its classic product design and high-end quality with the competition of Huawei, OPPO, and Vivo, which
also make it an easy-identified brand. Samsung is the promote the fancy-looking product with similar price.
pioneer brand in the smartphone industry for a long time The rivals’ competition put Xiaomi under pressure.
with loyal customers who are convinced by its high- However, Xiaomi has already explored another field to
quality products with rapid updating technology. As to gain more competition. That is Xiaomi’s IoT ecosystem,
Huawei, the company also invests tons of capital on its which connecting other products like floor sweeping
own-designed chips and has a strong background related robots, smart home door lock, and Internet washing and
to information and communication. Above substitutes drying machine, etc, to Xiaomi’s platform to create a
brands all have their core technology, making Xiaomi in smart life for customers at an affordable price[5].
a disadvantaged place when it comes to tech through Peripheral products that Xiaomi have are electric
comparison. However, Xiaomi has its charm with its IoT, toothbrush, millet bracelet, electric rice cooker and so on.
connecting products to the Xiaomi platform to attract Compared to Apple which has limited product lines,
more customers. Xiaomi’s product lines can be called abundant, attracting
many customers to want to enjoy smart life at an
affordable price. Entering the electric vehicle field also
increases the product variety. All these products are like

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platforms that collect customers’ data and information, connect other Xiaomi products without paying the
helping Xiaomi understand customer usage preferences platform fees, at which time, Xiaomi would realize the
more. Based on this, Xiaomi could design more desirable final AIoT with cars involved. So far, the voice to
products to keep customers’ loyalty and gain more support Xiaomi is very loud because young people are
customers. expecting MI cars to continue the cost-effective strategy.
Therefore, more people could afford to have their own
2.5. Corresponding Strategy electric cars.

The corresponding strategy for Xiaomi is to explore 3. BUSINESS MODEL AND STRATEGIES
new business to make best use of the advantages and OF XIAOMI
bypass the disadvantages. The main reason that Xiaomi
made its mind to enter the electric vehicle industry is that Xiaomi smartphones are only sold through the e-
the good time for smartphones is gone gradually. The commerce platform, eliminating the intermediate fees to
room for innovation is limited. In recent years, customers the greatest extent. Through the direct selling on internet,
could see more improvements on something like the operation cost can be greatly reduced, thus degrading the
screen quality, battery life, and camera quality of a sales price of the terminal. Meanwhile, Xiaomi has never
smartphone. However, no matter how creative the new advertised. Keeping the transparency of costs and good
products are, they all have similar functions and the final reputation of the products is the secret of Xiaomi's
form is between smartphones and tablets. As we look at success.
the trend of the global sales of all smartphones in recent Xiaomi also chooses to press the price to the lowest,
years, we could find that the trend is almost flat, and keep the configuration of the products to the highest.
indicating the bottleneck of the smartphone industry. As an Internet company, Xiaomi is more concerned
While almost the same time, the electric vehicle industry about the reputation of users. As long as there are enough
is getting popular and grabs customers’ attention. It is a users, profit is not a problem. For example, Xiaomi may
good chance for tech giants to tell a new story to keep only sell 1 million smartphones a year, but it attracts tens
investors’ confidence and embrace the new future. The of millions of mobile Internet users. Google's free
electric vehicle industry is such a story for investors to Android is to make money from searching and
have a broad imagination space. Xiaomi has its loyal advertising. Amazon's low-cost loss selling of its Kindle
customer foundation, technology base, and enough is the same idea. As long as there are enough users, they
capital to throw itself to explore the new industry. can make a lot of money by selling content and services
Xiaomi still needs to be aware of its disadvantages through terminals. Xiaomi builds its own smartphone
and try to overcome them. These disadvantages are brand, and has its own system level product services, so
mainly listed below. The current situation of the electric that users are not only their own smartphone users, but
vehicle industry is also very competitive. Xiaomi has to also their own system users. From this point of view,
face multiple challenges from traditional manufacturers Xiaomi and Apple are very similar. The difference is that
and new car manufacturing forces. Since Xiaomi entered Apple's profits mainly come from hardware, while
the electric vehicle industry late, it doesn’t have Xiaomi does not rely on hardware to make money.
technology accumulation. Moreover, the cycle of However, there are limitations in Xiaomi’s business
building a car is long, which is totally different from the strategies based upon Five Forces analysis mentioned
logic of building a mobile phone. It has many uncertain above. The most serious ones are supplier power and
factors and high risks. The huge investment required in buyer power.
car building will distract Xiaomi, affecting the cash flow
and dragging down the existing main business. If Xiaomi 4. CONCLUSION
fails, it definitely seriously affects Xiaomi's reputation.
This report mainly uses the Five Forces model to
However, Xiaomi also has advantages. First of all, the analyze Xiaomi’s competence in the smartphone
Chinese government actively promotes the development industry. Even though Xiaomi’s business strategy that
of new energy, and the electric vehicle industry has a offering high cost-effective products gained big success
broad market prospect. Second, Xiaomi has sufficient before, Xiaomi still needs to pay attention to differentiate
funds and contacts in the society from government to its products from its current rivals as to the smartphone
private companies. Xiaomi could learn from the industry. Customers could buy similar products of other
experience and lessons of pioneers in the industry to brands with similar budget because the switch cost of
avoid unnecessary failures. Lei Jun has invested in customers is low. Hence, the most urgent thing for
dozens of automobile companies in the industry, all of Xiaomi is to create its own-designed chips to have core
which are available resources. The mobile phone industry technology, rather than being subject to other suppliers.
chain and automobile industry chain have something in In addition, the IoT ecosystem is another highlight of
common. If Xiaomi can win the battle in the electric Xiaomi, thus Xiaomi needs to enhance this strategy to
vehicle industry, MI cars will be the next platform to explore more smart products for its customers. Entering

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the electric vehicles field is such a good chance to

continue this strategy. In the near future, maybe we could
see the MI cars replacing MI smartphones to be the new
platform which helps Xiaomi realize its ultimate AIoT.
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